Tuesday 19 August 2014

Analysis of Posco

Posco, a Korean steel company

Company: Posco

ISIN US6934831099 | WKN 893094 (analysis is however based on KRW)

Business: A Korean steel company. Posco is divided into a couple of family members (as they call it): Steel (high quality steel for all kind of applications), E&C (an engineering & construction company in various steel containing projects such as skyscrapers ), Trade (global trading and investing), ICT (IT and engineering services), Energy (energy production with large focus on renewable sources), Material-Chemistry (refractory production for steel and glass industry) and finally Support (somehow asset management but they only had homepage in Korean)

Active: Main focus is Korea and Asia but they are present on each continent and in several countries on each continent.

P/E: 21.2

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

The P/E turned out shockingly high with 21.1 and the P/B is however excellent with 0.7 which then still gives us a buy according to Graham due to the low P/B. The earnings to sales are not impressive with 2% but considering that most other steel companies in the world today and for the last couple of years are losing money it is still good! The ROE is also awful with 3.3%.  The book to debt ratio is great with 1.1.
In the last five years they have had a yearly revenue growth of 10.9% which is excellent and it gives us a motivated P/E of 22 to 30 which means that Posco is slightly undervalued on the market today. Important to note is that the revenue declined from 2012 to 2013.
The stock yield (only found the dividend data from 2012!) is 2.4% which is so, so and it then represents 51% (of the earnings in 2013!) which is ok but I prefer figures around 30-40%.

Conclusion: Graham and obviously Pabrai says yes to Posco, Mr. Buffett said no to it and I do not know. The company looks very expensive to me but one must also realise that almost all other steel companies show negative figures and once the steel industry picks up again then I would not doubt if the margins and the earnings also for Posco will take off. Is this a moment to get the top dog of the steel industry for a very fair price?

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Fredrik von Oberhausen said...

I really wonder if Buffett stepped in too early and Pabrai has managed to pick a better moment?

What do you guys think?

Anonymous said...

Pabrai also dabbled in it back in 2010 / 2011 trying to follow Buffett, but sold all in 2011

Classic Graham P/B play. Lowest cost producer.

Future depends on Korean exports

Fredrik von Oberhausen said...

Ah, I did not know that. I did not start to follow those guys until 2013 and I did not look too far back in the SEC reports so that must be why I missed it.

Thanks for the info!