Saturday, 12 September 2015

Analysis of Garmin

Company: Garmin

ISIN CH0114405324 | WKN A1C06B

Business: A Swiss navigation products company that are registered on Nasdaq. They have four pillars that they stand on of which the first one is their bread and butter: Navigation (for automotive, sports & recreation, marine and aviation), Wearable (activity trackers etc. for instance golf course tracker), Health & Wellness (bracelets, watches etc.) and finally Action Cameras.

Active: 100 countries world wide

P/E: 20.1

This company was analysed due to a request posted on the Analysis Requests page. 

contrarian values of P/E, P/B, ROE as well as dividend for Garmin

The P/E is far too high with 20.1 but the P/B is ok with 2.2 which still in the end gives a no go from Graham. The earnings to sales look acceptable with 13% but the ROE is not very good with only 10.7%. The book to debt ratio is however excellent with 2.6 and they are buying back shares that they keep in their books.
The yearly revenue growth rate has not been very good with only 1.3% and this then gives us a motivated P/E of 9 to 12 which means that Garmin is today overvalued by the market.
The spend a lot of money on research which correspond to 108% of their earnings which I find to be a lot.
They pay an excellent dividend in the size of 5.4% which correspond to 109% of their earnings so they better start pushing up those earnings!

Conclusion: Graham says no and I am uncertain. The reason why I am uncertain is because their earnings in 2014 was very low due to a large tax payments. My problem is that if that was a one time occurrence then the P/E is actually not bad at all with everything that follows but if that tax is the new standard then I really do not know. Before they have paid silly amounts in taxes... meaning they have not even paid 5% in taxes and in 2014 they then ended up paying around 37% so that is fairly high but the "normal" tax rate should according to me be between 20 to 30% for a company. So it is difficult. As it looks today I would not step in.

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Anonymous said...


Thanks for another interesting analysis. If you would disregard the FY14 large tax payment and treated it as one off item going forward, would it change your opinion?

The explanation for the 300M tax cost for restructuring US subsidiary's from ownership of the Group's Taiwan entity to under the US entity makes sense to me. Considering that repatriating cash(now there is no need to move money from US-Taiwan-US-Swiss) would be easier and more tax efficient, as structuring most likely prevents tax leakage when avoiding paying unnecessary withholding taxes(which might not be credited fully against profits) and possibly allows getting the effective tax rate lower. Based on their 10-K, the Group's Swiss parents local tax corporate tax rate is 7,48% which is very good.

It's a bit speculative but the share is starting to tickle my buying bone, considering that the management is a large shareholder, so I would assume that they would not want waste their own money in the tax exercise if they would not believe that it will payoff with tax savings in the future.



Fredrik von Oberhausen said...

Hi Wahlroos,

If it would be a one-off then yes Garmin would look more interesting. I do not understand how they have for so many years managed to pay so little taxes and truth to be told I do not consider that to be correct either. A company making profit should also pay acceptable taxes on those earnings.

The managers and board definitely considered it to be a one-off since they even decided to increase the dividend so you are probably correct with that.

Today I think a bit more in the terms of if you buy the products and like the product and the company is not outrageous expensive then why not buy the shares of it also?