Friday 23 May 2014

Analysis of Continental 2014

Continental a German automotive supplier

Company: Continental

Business: A German automotive supplier that are divided into two groups: The Automotive group and the Rubber group. Under these two groups there are five divisions: Chassis and safety, Powertrain, Interior, Tires and ContiTech. These five divisions produce brake systems, systems and components for powertrains and chassis, instrumentation, vehicle electronics, tires and technical elastomers among other things.

Active: They are currently active in 49 countries world wide with their almost 178,000 employees.

P/E: 17.1

Here you can find the previous analysis of Continental.

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

The P/E of Continental is too high for me with 17.1 (up from 13.3 last analysis) and the P/B is far too high for me with 3.7 (also up!) which also gives a clear no go signal from Graham. The earnings to sales are at 6% which is ok and the ROE is still excellent with 21%. The book to debt is a bit too low for me with a ratio of 0.5. In the last six years they have had a yearly growth rate of 5.5% which is very good and it gives us a motivated P/E of 15 to 19 which means that Continental today is fairly valued by the market (last time they were undervalued). They spend a big chunk of money on R&D and I even think too much since it represents almost 100% of their earnings. They pay a silly dividend of 1.5% with the only benefit that it represents 26% of their earnings so they should be able to keep it up and keep increasing it with remained or increased earnings.

Conclusion: Just like the last analysis Graham still says no to this company the interesting thing here is that the share price has increased with 31% since that last analysis back in October 2013. Back then I found the P/E in combination with ROE to be of interest but I still decided not to go for it. Today I would definitely not go for it because it has reached the motivated P/E. If I would have been a shareholder I doubt if I would have sold it though. I kind of like to stick around as a shareholder.

If this analysis is outdated then you can request a new one.

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