Wednesday 27 January 2016

Analysis of DBAG 2016

DBAG, a German investment company


Business: A German private equity company. Their focus lies with the management buy out of small and medium sized companies that have excellent products. To see their full company portfolio then please click here. Five new investments joined during 2015.

Active: Germany, and surroundings. Companies are sometimes more globally oriented. 

P/E: 13.3

Here you can find the previous analysis of DBAG 2015.

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

The P/E for DBAG is fully ok with 13.3 and the P/B is excellent with 1.2 which gives a very clear buy according to Graham. The earnings to sales are excellent with 50% but the ROE is awful with only 8.9% and the book to debt ratio is insane high with 12.6. They could definitely take on some more debt which would improve also their ROE but then again... if they do not find interesting investments that they need a credit to step into then why should one take it?
In the last five years they have had a yearly "revenue" growth rate of 31.5% which is based on 2011 being a seriously bad year so I would not say that the motivated P/E should be higher than 12 to 16 which would means that DBAG is today fairly valued by the market.
They pay a fully acceptable dividend in the size of 3.8% which corresponds to 51% of their earnings so it is ok and could be kept as such unless another really bad year comes along.

Conclusion: Graham says yes and so do I. The P/E, P/B and dividend are all excellent and the only downside is the ROE but it does not at all concern me when it comes to DBAG. I find DBAG today to be an excellent company that can be bought at a fair price. I will remain as a shareholder and if anything then I would consider to increase my position.

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hmmm said...

FVA honestly you do not learn do you... Private Equity funds, price their book at whatever they want because their assets aren't traded.

They can decide it is worth twice tomorrow and P/B would be 0.6x

Step 1) Stop investing in financials

Fredrik von Oberhausen said...

Hi Hmmmm!

It is true that any equity fund owning non publicly traded companies can do exactly like you say and price them as they kind of see fit.

However... Each time DBAG have made a sale of one of their holdings they have sold at a profit meaning that in the books the holding has each time been lower than the price it got sold for.

I am already invested in financials and since I refuse to sell them the only thing I can do is to not buy any more.

DBAG I have owned for 2,5 years now and as of yet I have no complaints on them. This year in Q1 they have already, due to yet another successful sale made a large profit (so also higher than what it was in the books) which means that they brought home as much in earnings as they did during the entire last year. I should mentioned that last year was not the best one but it was ok.

If I take a look at my own company then the equivalent would be finished goods in the inventory. Do I really want to have that much finished goods in my books considering that I have to pay taxes on it and that is taxes on something that has not even been sold yet. The answer is no I do not and I prefer to take the taxes when I do make that sale since then at least I have the money to do so.

So yeah... one can push up the "inventory/equity" for a while but the upside from that will not last for long and the bubble will burst like it did for Asian Bamboo as an example whose only revenue was from re-valuation of their fake bamboo plantations. If you then also have a couple of managers owning a couple of stocks then the chances of such foolish behaviour will be even less, but sure... it can of course happen.

Anonymous said...

Hi Fredrik,

Instead of looking at the P/B for holdings companies, you should look at the NAV (net asset value), and see if you have a discount, or premium on this NAV. But even then; as the other person said, it all depends on how this NAV is calculated...

Fredrik von Oberhausen said...

Well... like you say yourself... we are then back to the same problem also with NAV.

Maybe the easiest approach would be to look at four things:
1. How much dividend are they paying
2. how long have they been paying dividend
3. How much is this dividend of their "total earnings"
4. Are they selling their holdings with a profit?

But what do I know.