Thursday 3 October 2013

Analysis of Continental

A German automotive supplier

Company: Continental

Business: A German automotive supplier that are divided into two groups: The Automotive group and the Rubber group. Under these two groups there are five divisions: Chassis and safety, Powertrain, Interior, Tires and ContiTech. These five divisions produce brake systems, systems and components for powertrains and chassis, instrumentation, vehicle electronics, tires and technical elastomers among other things.

Active: They are currently active in 46 countries world wide with their almost 170,000 employees.

P/E: 13.3

contrarian values of P/E, P/B, ROE as well as dividend
The P/E for Continental is almost ok with its 13.3 but the P/B is far from being ok since it is running as high as 2.9. This gives according to Graham a no go. The earnings to sales are at 6% which is ok and the ROE is really good with 21.5%! Excellent! The book to debt is 0.5 which is ok. In the last five years they have had a growth of 6.2% which is good and we get a motivated P/E of 16 to 20 which means that Continental is today undervalued on the stock market. They try to stay ahead and are therefore spending 94% of their earnings on research and development which I consider to be a bit too high. They pay a very low dividend of 1.8% which represents 24% of their earnings so plenty of room to improve or make yearly increases. The comment is due to that they have more short debt then what they had in cash so they might have been or be forced to solve that in a costly fashion.

Conclusion: If I would only have looked at the P/E and ROE then I would have bought Continental directly but when I add in the P/B and dividends then to me it becomes much less of an interest and I personally just like Graham decides not to become a shareholder in Continental.

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