Analysis of SMT Scharf

Company: SMT Scharf

ISIN DE0005751986 | WKN 575198

Business: A German mining industry supplier. The SMT Scharf Group designs, supplies, installs and maintains systems for the transport of personnel, equipment and material. The products are: Monorail transport systems, Floor-mounted rail systems, Chairlift systems for mining, personnel transport, Cable handling systems and Conveyors.

Active: In Germany, Ukraine, Russia, South Africa, Poland and China. They are of course selling their equipment world wide but the major hubs and sales point are the ones mentioned.

P/E: 19.4

The P/E of SMT Scharf is too high for my liking with 19.4 even though the P/B is fully acceptable with 1.6. Graham does however due to the high P/E say no. The earnings to sales are at 5% which I find acceptable but the ROE is not so good with only 8.2%. The book to debt ratio is excellent with 1.8.
In the last five years they have had a yearly revenue growth of 3.5% which is acceptable based on tough times in the mining industry and this then gives us a motivated P/E of 13 to 16 which means that SMT Scharf is slightly overvalued on the market today.
They pay a tiny dividend of 1.7% (they cut it from 0.98 € to 0.25 € last year) which I do not like however it represents only 33% of their earnings so with remained earnings they should at least be able to keep that tiny dividend payment.

Conclusion: Graham is saying no to SMT Scharf and personally I must admit that I want this company. I bumped into it the first time around two years ago, found it interesting but never made an analysis or for that matter an investment in it and since then it slipped out of my mind again. Now I rediscovered it and I simply like it. This is one of those boring companies living on and living up to the name of "Made in Germany" which means high quality, engineered products. I can not really justify why I want to invest in this company based on the key figures and since the company is so small with large revenue and earnings fluctuations I simply should not do it... hmm... happily I have no money right now so I am forced to keep sucking on my thumb on this one.

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