Analysis of NCC 2014

Company: NCC

Business: A Swedish construction and property developing company. It is divided into four business unites: Construction (mainly residential and office), Housing (develop and sell housing), Roads (aggregates and asphalt production) and finally Property Development (develop and sell commercial property).
  
Active: Nordic countries with Sweden, Norway, Finland and Denmark. Some activity in Germany and increasing in the Baltic countries as well as in St. Petersburg (very specifically and besides form that no other presence in Russia). The growth focus is St. Petersburg and the Baltic countries.

P/E: 12.6


This company was analysed due to a request that can be found on the previous analysis of NCC.

The P/E of NCC is a tiny bit too high for me with 12.6 but what is now far too high is the P/B is 2.9 (last analysis it was only 1.9) which then also gives us according to the formula from Graham a no go for making an investment. The earnings to sales are low with 3% but the ROE is excellent with 23%! The revenue growth in the last six years have not been very impressive and it is only at 0.1% per year which then gives us a motivated P/E of 8 to 10 which means that NCC is fair to slightly overvalued on the market today (however 2008 was an excellent year and they have had a nice yearly growth from 2009 and onwards even though 2013 was almost flat compared to in 2012). They pay a very nice dividend of 5.2% which represents 65% of their earnings so it is do-able but they really need to increase their earnings to be able to keep making dividend increases.

Conclusion: Graham says no to NCC and I am a little bit more optimistic and will still claim that the price is fair today. It is not as cheap as it has been and if one would have bought it last year the development would have been slightly over 50% + an almost 8% dividend which would have been great and I would definitely have kept the shares. The reason why I am still optimistic is due to that the P/E is still not crazy high, the ROE is excellent and the dividend is great but as I started by saying... Graham says no to NCC.

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