Analysis of Devro

Company: Devro

Business: A British supplier of collagen for food casing (mainly sausages). They have four lines of products: Edible Casings (standard on the supermarket sausages today for boiling and frying), Non Edible Casing (very often on salami and other larger "sausages"), Films (holds together larger pieces of smoked and cured meat) and finally the appetizing name of Plastics (also used on sausages and other pressed products).

Active: Active world wide in 100 countries. Production in USA, UK, Czech Republic and Australia. Europe represents 46% of sales, US 26% and Asia/Pacific 28%. Interesting fact is that in Europe only 30% is collagen based, 40% in the US and a total of 60% in Asia.

P/E: 11.2

 

The P/E of Devro is great with 11.2 but the P/B is not to my liking with 2.4 and this also gives us a no based on Grahams formula. The earnings to sales are however nice with 14% and the ROE is excellent with over 21%. The book to debt is also at a good ratio of 1.1. In the last five years they have had a yearly growth rate of +2% which is more or less inflation and this then gives us a motivated P/E of 9 to 13 which means that Devro is today fairly valued on the market. They pay a very nice dividend of 3.9% which represents 44% of their earnings so it should be possible to at least keep it for the time being.

Conclusion: Graham says no and I do not agree with him this time. The P/E, ROE and dividend is great and only the P/B is not so nice but I do not consider P/B to be important when the other three values are good. I will therefore add Devro to my Stocks of Interest list with the next update. The only real negative aspect for me is that the company is small.

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