Saturday, April 11, 2015

Analysis of K+S 2015


K+S, a German mining company

Company: K+S

ISIN DE000KSAG888 | WKN KSAG88

Business: A German commodities company that are mining and processing raw materials. The group is divided into the two segments Potash & Magnesium (that is being used as standard and speciality fertilizers for enhancing the agricultural harvests) and Salt (de-icing, purified salt that are used for instance as table salt etc.). 

Active: Main focus in Europe and the US. Growing activity in Canada due to the Legacy project. Minor presence in South America and Asia.

P/E: 16.8

Here you can find the previous analysis of K+S 2014

contrarian values of P/E, P/B, ROE as well as dividend for K+S

The P/E for K+S starts to be far too high with 16.8 but the P/B is still acceptable with 1.6. Either way K+S now falls outside of the Grahams formula so from him it is a no go. The earnings to sales are looking good with 10% but the ROE is not so exciting with 9.2%. The book to debt value has been significantly improved and is now at 1.0 which is good.
In the last five years they have had a poor yearly revenue growth since it is at -5.2%, so seriously bad, which then also gives us a motivated P/E of around 8 to 10 which means that K+S is today highly overvalued on the market.
They spend a silly amount on research since it is only 3.3% of their earnings and I would like to see more.
They pay a dividend in the size of 2.8 which is ok but not more and this represents 47% of their earnings so it is ok and they should hopefully be able to keep it up.

Conclusion: Graham says no to K+S and so do I. The P/E is high and the ROE is too low and the dividend is only acceptable so I see no interest in stepping into K+S today. Since I am already I shareholder... I still do not see a reason to sell my shares but I will definitely also not increase my holding any further.

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1 comment:

Fredrik von Oberhausen said...

Potash, the Canadian mining company arrived last Friday 26/6-2015 with an friendly offer to the management of K+S. The offer has not yet been disclosed but the market seems to expect it to be around 40+ euro.

I will try to make an analysis of Potash as soon as possible. Looking at the two companies very briefly then we see that Potash is around the double size of K+S and with a weak euro and the possibility to get money for free I understand that they want to take over a well run competitor.