Friday 28 June 2013

Analysis of NCC

A Swedish construction company

Company: NCC

Business: A Swedish construction company that is the second largest in the Nordic countries. The company is divided into four business unites: Construction, Housing, Roads and Property development. Just for interest it was NCC that built the Turning Torso located in Malmö.
Active: Mainly the Nordic countries so Sweden, Norway, Finland and Denmark. Some activity in Germany and very little in the Baltic countries as well as in St. Petersburg (very specifically and besides form that no other presence in Russia). The growth focus is St. Petersburg and the Baltic countries.

P/E: 8.7

Also this company came from a request as can be seen here. It has been a very long winter for the construction companies which has decreased their profits for the first half year. However the analysis is based on the year result from 2012 which was a great year for construction.

The P/E for NCC is looking very good with 8.7 however the P/B is slightly too high still Grahams formula means that NCC is a clear buy today. Interesting here is that the P/E for NCC is half in comparison to Skanska and the P/B is also much better! The earnings to sales is similar to Skanska with 3%. The book to debt ratio is also not so good but here they are fully in line with Skanska so the construction industry seems to have around 0.3 as ratio. Since the excellent year of 2008 they have for the last five years had 0% growth which is excellent if we compare to Skanska. The motivated P/E would be around 8-10 so the stock is today fairly valued on the stock market based on their growth for the last five years. They pay an excellent dividends of 6.6% which represents 57% of their earnings so if things stays the similar they will be able to pay that dividend also in the future which is very different compared to Skanska.

Conclusion: Deciding between Skanska and NCC I would directly go for NCC. They are paying a nice dividend which they can afford to pay and the stock is valued very low on the market. I would have no problem to make an investment in NCC today!


Anonymous said...

Ncc and Skanska should be seen as moneymachines. Not growing much but going up and down in stock price. By cheep and keep! Then buy again cheep and keep.

Fredrik von Oberhausen said...

I fully agree with you. Already now would be a good moment to buy NCC for keep and hold but I would be careful with buying Skanska because I find it to be a bit too expensive and I think there will come new good moments also for Skanska in the future.

Anonymous said...

How you reflex almost one year after the analyze to the current situation with NCC? What Graham would recommend to 231SEK price and current company situation?

Anonymous said...

Almost one year after the analyze how would look an update one from today company situation? Difficult to see Graham would recommend buy.

Fredrik von Oberhausen said...

Hi there!

I will make an update of NCC as soon as possible and then we shall see what the Graham formula tells us.

A quick look of the figures makes me say that you are probably correct in that it would no longer be considered as a buy but we shall see!