Saturday 4 January 2014

Analysis of Rheinmetall

a German automotive and defence parts supplier

Company: Rheinmetall

Business: A German supplier for the automotive and the defence industries. The automotive is divided into three segments: Hardparts (pistons and pistons systems), Mechatronics(pumps and valves) and finally Motor Services (parts for the spare part market). The Defence is also divided into three segments: Combat Systems (turret and weapon stations, self protection, armoured vehicles), Electronics Solutions (air defence systems, sensors and various simulation systems) and finally Wheeled Vehicles (logistical and tactical vehicles).

Active: Mainly Europe and Germany (28% of sales) are expanding in North America and Asia were they are already present but less so then what they would like to be.

P/E: 9.3

contrarian values of P/E, P/B, ROE as well as dividend
The P/E of Rheinmetall is wonderful with 9.3 and the P/B could have been better but is still ok with 1.2 which gives according to Graham a very clear buy! The earnings per sales are not so good since it is only 4% but I guess suppliers to automotive are a bit squeezed. The ROE is also ok but not more with 13% and the book to debt could have been much better since it is at a ratio of 0.4. In the last five years they have had a yearly growth of 3.9% which is ok and this gives us a motivated P/E of 13 to 17 which means that the market is today undervaluing Rheinmetall. They pay a very nice dividend of 4% which represents only 38% of their earnings so no reason to decrease it.

Conclusion: Great P/E, acceptable P/B, ROE and growth, great dividend so Graham says ok and so do I to Rheinmetall. This company will therefore be added to the stocks of interest list with the next update.

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