Saturday 16 November 2013

Analysis of Brenntag

A German chemical distribution company

Company: Brenntag AG

Business: A German chemical distribution company. They buy and store large quantities of chemicals from the producers and after some repackaging these products are later on sold directly to the chemical users and customers.

Active: They have a global presence with 450 locations in over 70 countries world wide with 170,00 customers in total.

P/E: 19.4

contrarian values of P/E, P/B, ROE as well as dividend
The P/E of Brenntag is far too high for me with 19.4 and the P/B is an even bigger problem with 3.3 which makes it a very clear no, no from Graham. The earnings to sales are in my opinion low with only 3% but the ROE is great with 17.1%. Book to debt is also a bit too low with a ratio of 0.5. In the last five years they have expanded nicely and they have had a yearly growth of 5.6% which is very good. This gives us a motivated P/E of 16 to 20 which means that Brenntag is today fairly valued by the market. They pay a tiny dividend of 1.9% which however only represents 37% of their earnings so they should be baler to keep that level and hopefully even increase it.

Conclusion: An interesting company and Germany must have been the perfect location to start up this company with all the heavy chemical industry that are present here. The question is a little what happens in the future. Will companies go more towards outsourcing? Because then Brenntag will have a booming business but if not then well... Brenntag will need to come up with a new attractive business idea. Either way... Graham says no go and so do I since I consider Brenntag to be fairly valued by the market today.

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