Sunday 16 March 2014

Analysis of E.On. 2014

A German energy provider

Company: E.On SE

Business: A German energy provider and electricity producer. They are currently having nine different business areas: Power Generation (includes all so nuclear, coal, gas, wind, oil, solar they do it all), Distributed Energy (working with local production units such as SLG Units and combining energy and heat production), Exploration & Production (gas and oil with main activity in the UK and Norway at the moment), Gas Supply (making sure that E.On receive enough gas to supply their customers), Gas Storage & Transport (pipelines and underground storage), Trading (they buy and sell gas on 20 different exchanges in 40 countries. This I do not like and the sad thing is they are even proud of making one trade every minute all year round to reach a total of 850,000 trades. I definitely hope that they pay less per trade than what I do when I buy stocks!), Distribution (gas as well as electricity infrastructure including smart meters etc.), Sales (to small clients such as me as well as companies and heavy industry) and finally Technical Services (mainly software for making calculations concerning natural gas)

Active: Present in several European countries with main focus in Germany. Due to gas they are also in Norway as well in Russia. Lately they have stepped into the Brazilian energy market.

P/E: 12.6 

The previous analysis of E.On. can be found here

contrarian values of P/E, P/B, ROE as well as dividend 2014

The P/E of E.On. is a bit too high for me but still acceptable with 12.6 and the P/B is excellent with 0.8 which gives us a very clear buy from Graham. The earnings to sales are low with 2% but have improved slightly since last year and the same goes for ROE that are now at 6.4% which is too low for my liking. The book to debt is at a very low ratio of 0.4 which I do not like but they have large investments in buildings and power grids so it is normal for energy companies. In the last six years (even after the drop from 2012 to 2013) they have had a yearly growth of 5.7% which is excellent in the low inflation Europe and this then gives us a motivated P/E of 16 to 20 which means that E.On. today is slightly undervalued on the market. They pay a nice dividend, even though it has decreased significantly from 2012, of 4.5% which corresponds to 56% of their earnings so this level they should be able to maintain however they will in the future pay out 50-60% of earnings so dividend payments will jump up and down accordingly.

Conclusion: Both Graham and I say yes to E.On. and I am already sitting there as a shareholder waiting for this giant to make the turnaround which they still have not managed to accomplish. I personally will not increase my ownership in E.On. but I will also not sell what I have since many of the key values are looking pretty ok such as P/E, P/B and the dividend.

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