Saturday 28 June 2014

Analysis of Volkswagen (VW) 2014

Volkswagen, a German automobile manufacturer

Company: Volkswagen (VW)

Business: A German automobile manufacturer. The are producing motorcycles, cars, trucks, large-bore diesel engines, turbochargers, turbo machinery, compressors and chemical reactors. They are however most famous for their cars and here are the Volkswagen brands.

Active: They have world wide presence and sell their products in 153 countries and have production sites in 27 of those.

P/E: 9.9

Here you can find the previous analysis of Volkswagen (VW).

Contrarian values of P/E, P/B, ROE as well as dividend for Volkswagen

The P/E for Volkswagen is excellent with 9.9 and also the P/B is excellent with 1.2 which gives us a very clear by signal from Graham just like we received with the last analysis (share price +8.6% since then). The earnings to sales are acceptable with 5% and the ROE is ok but also not more with 11.7%. the book to debt ratio is low with 0.3 which I do not like that much.
In the last six years they have had  a yearly growth rate of +9.6% which is spectacular but also scares/worries. We all know that it is not easy to keep adding 10% revenue growth when you are already up around 200 billion euros and they did not manage to last year which is why the growth rate has decreased compared to the previous analysis. Still this growth gives us a motivated P/E of 25 to 27 which means that Volkswagen is still undervalued by the market. They pay an ok dividend of 2.1% which on the other hand only represents 21% of their earnings so plenty of room to increase it. From the previous year they increased the dividend with 14% which is an excellent raise.

Comment: The operating profit has remained more or less flat in the last three years. If we adjust for preferred and common shares as well as look at only the operating profit then the P/E ends up at 7.8 which if almost flat compared to last year.

Conclusion: Graham says directly yes to Volkswagen and I am still scared. I want to won Volkswagen and I am certain that I one day will own them but I want to get them when things are going badly for them as it did back in 2009. Still the P/E and P/B is great, the ROE is ok and the dividend is also ok which means that I understand if people will step in as shareholders but I will wait for my contrarian moment that will appear at some point.

If this analysis is outdated then you can request a new one.


Anonymous said...

Dude this isn't an analysis, call it a presentation and short conclusion...

Not trying to be a bitch, but there is a big difference. However, I find that the short presentations give some quick perspective and aids in finding companies I otherwise might not have looked at.


Fredrik von Oberhausen said...

Hi Anna,

Thanks for your comment. What is then a contrarian analysis to you and more importantly what does contrarian investing mean to you?

To me it means to look at P/E, P/B, dividend or P/CF. Since cash flow does not interest me I leave that out from my contrarian analysis. To be a hard core contrarian investor one should even pick only one of the key figures and follow that investment strategy. I decided to look at several key figures as an attempt to find even better contrarian companies.
To not call it an analysis would be wrong because it is an analysis. Your definition of analysis may be different and you may want to read a larger compilation of data (with estimated potential earnings etc.) concerning each company but then I hope that you also realise that there are statistic data saying that the more information given outside of the core data the worse the decision becomes.
My core data in the analysis is based on P/E, P/B, ROE and dividends. I want all four to be good but that is not always possible. What the company produce today, what one can imagine them to produce in the future, what one could imagine them to earn in the future I simply do not weight in to any of my calculations or analysis because that would be guessing and speculation. In eight years from today around 40% of the revenue in a company is coming from products in the pipeline. I have no possibility to know what that is and if that will be well accepted on the market by their customers.
As a small shareholder we have to trust that the management is doing what they are being paid to do and if we do not do that then we should also not invest in the companies.
No one should go out and buy a company based on what any blogger or financial expert for that matter write on internet, in newspapers or other means of communication unless you have made your own analysis and that also tells you to buy the company.

In the end you mentioned exactly what I want to accomplish with this blog. I analyse companies and publish the analysis that I make. I spend hours looking at them and write my analysis from that and you as a reader can spend 10 seconds or even less deciding not to waste any more time on that company. On the other hand... if someone discovers a company here that they want to dig more into then that is good for them and I am happy that my analysis was in some way of assistance.