Wednesday 29 January 2014

Analysis of Wacker Chemie

A German chemical company dealing with silicon

Company: Wacker Chemie AG

Business: A German chemistry (polymer) company. They are divided into five divisions: Siltronic (producing hyperpure silicon for electronic devices), Wacker Silicones (producing silicon and silane), Wacker Polymers (making binders and polymer additives), Wacker Biosolutions (producing Cavasol and Cavamax as well as pharmaceutical proteins) and finally Wacker Polysilicon (making polycrystalline silicon that are used for solarcells). The big chunks of revenue sources are 22% from construction, 17% from solar and 22% from semiconductors.

Active: Production takes place in Europe, America and Asia. They are active with sales on five continents.

P/E: 38.6

contrarian values of P/E, P/B, ROE as well as dividend

The P/E for Wacker is awfully high with 38.6 and the P/B is a little bit too high with 1.7 which in the end gives a very clear no from Graham. Their earnings to sales are only at 2% which feels low and the ROE is bad with not even 5%. The book to debt is a little bit better with a ratio of 0.7. In the last five years they have had a yearly growth of 1.5% which then gives us a motivates P/E of around 9 to 12 which means that Wacker is today highly overvalued on the market. They spend plenty of money on research since it corresponds to 155% of their earnings and they pay a tiny, tiny, tiny dividend of 0.7% which corresponds to 28% of their earnings so at least it should be possible to keep it at that level.

Conclusion: Every homeowner are for sure familiar with the usage of silicon products and the importance of them which means Wacker is definitely in a good business! However as it is being valued today on the market neither Graham or I would find it much fun to step in as a shareholder and therefore we shall leave it be.

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