Analysis of Veolia

Company: Veolia Environnement S.A.


Business: A French global company which provides a full range of environmental services in four business units: Water, Waste management, Energy and Transportation. The transportation part was to 60% divested in autumn 2012.

Active: They are active in 48 countries in the world. Main focus is western Europe, then eastern and central European countries, and finally a few carefully selected Asian nations, such as China. One problem they are facing is that some countries (for instance USA) does not allow private companies to be in charge of such an important infrastructure part as water and waste handling and treatment.

P/E: 13.1

The P/E for Veolia is pretty ok with 13.1 and the P/B of 0.7 is excellent which gives a very clear buy with the Graham formula. The earnings to sales is really bad with 1% but I guess it is just one of those branches. The ROE is also low with 5.5% but also here I assume it has to do with the line of business. The book to debt is surprisingly bad with a ratio of 0.16. The yearly growth in the last five years has been -3.8% and one should really have hoped for at least inflation the motivated P/E then becomes around 8 to 9 which means that Veolia today is fairly going towards overvalued on the market. They do however pay a very nice dividend which is probably the main reason for the P/E of 13 and that is as high as 7.1%. This did however represent almost 93% of their earnings so unless they manage to kick up the earnings I doubt that they will be able to keep paying out those dividends especially with the book to debt that they have already now.

Conclusion: I would not jump in as a shareholder in Veolia today. The stock is cheap but not cheap enough and by the look of it, it is kept high only due to the massive dividend payments. They have since at least the last six years been paying out practically all their earnings as dividends if they one day decide that they have to keep a bit more of that money I would suspect that the price of the stock will drop even further. Personally I do not like when the dividends are well above 50-60% of the yearly earnings.