Analysis of Lanxess 2014

Company: Lanxess

Business: A German specialty chemicals company. They are divided into three segments and several Lanxess business units (too many to list here) but the segments are: Performance Polymers (~0.05% of the revenue... why is it even a segment? they make synthetic rubber and plastic manufacturing) , Advanced Intermediates (~20% of the revenue, basic and fine chemicals) and finally Performance Chemicals (~26% of the revenue, for instance organic plastic colorants). Odd that the three company segments does not even cover 50% of the total revenue for Lanxess...

Active: They are currently active on every continent in the world and in total in 31 countries.

P/E: -28.9 (P/E5: 18.0)

Here you can find the previous analysis of Lanxess.

The P/E for Lanxess is due to a loss last year negative with -28.9 and if we calculate the P/E5 we end up with 18.0 which is also still too high for me. The P/B has become much worse since last year and is now at 2.4 which is also too high. This then gives us according to Graham a no go. Earnings to sales are bad and ROE is bad. The book to debt ratio is still too low with 0.4 and has even become worse since last analysis. In the last six years they have grown 4% per year which is fully ok and better than inflation. This then gives us a motivated P/E of 13 to 17 which means that according to P/E5 it is currently overvalued on the market. They spend some money on research which is good and it is around 2.2% of the revenue is pretty ok. They pay a tiny dividend of 1% which was cut by half compared to the previous year but on the other hand they could not really afford that either since they were making a loss.

Conclusion: Graham says no to this one this time which was last year a clear buy. I then also thought of Lanxess as a buy with a great perspective and did not expect a year of loss. Was I wrong back then? Is the analysis that I am making wrong? I only look at the past so can I then only keep looking at P/E or must I change it to look at P/E3 or P/E5 to get a more justifiable analysis? Many questions in my head. I still consider Lanxess to be a contrarian company. Yes, they had a bad year and even though they had a bad year and even though they cut the dividend in half the share price has still  increased which is uncommon. On top of that there are an extra 10% shares to account additionally for. Today I would however not jump in but would observe each quarter to see if they have managed to turn the ship around or not. If not then no investment if yes then I would take another look at it before making a decision.

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