Thursday, June 1, 2017

Analysis of K+S 2017


Logo of K+S 2017


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.). Lately their best business has been salt.

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

P/E: 25.6

Contrarian analysis of K+S 2017

The P/E for K+S is far too high for me with 25.6 but the P/B is very good with 1.0 which still in the overall gives us a no go from Graham. The earnings to sales are low with only 5% and the ROE is horrible with not even 4%. The book to debt ratio is ok though with 0.9.
In the last five years they have had a yearly revenue loss of -2.6% which is not so good and this then means that they have a motivated P/E of around 8 which means that they are currently overvalued by the market.
They try to stay ahead and for this reason they spend almost 8% of their earnings on R&D which is not a lot but it is also not a high tech business so it sounds about right.
They pay out a tiny useless dividend in the size of 1.3% which still corresponded to 33% of their earnings which means that there is room but K+S always pay out a %-age compared to what they earn which I find fair enough even though they should really pay out 50% of their earnings.

Conclusion: Graham says no and I say nothing. The P/E is high due to a bad year, the P/B is ok but earnings to sales and ROE is awful and the dividend was bad. From my point of view K+S must really show that the Legacy project was worth the money and until they have started to do that I will not invest any more money. I will remain as  a grumpy shareholder.

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