Company: K+S
ISIN DE000KSAG888 | WKN KSAG88
Business: A German commodities company that are mining and processing raw materials. The group is divided into the two segments Potash & Magnesium (that is being used as standard and speciality fertilizers for enhancing the agricultural harvests) and Salt (de-icing, purified salt that are used for instance as table salt etc.). Lately their best business has been salt.
Active: Main focus in Europe and the US. Growing activity in Canada due to the Legacy project that will enter the final phase during 2016. Minor presence in South America and Asia.
P/E: 7.9
Here you can find the previous analysis of K+S 2015.
The P/E of K+S is excellent with 7.9 as is the P/B of 0.9 which gives a very clear buy signal from Graham. The earnings to sales looks good with 12% and the ROE is so, so with 11.5%. The book to debt ratio is also very good with 1.1.
In the last five years they have had a yearly revenue growth rate of -4.1% which is awful and this then gives us a motivated P/E of 8 which means that K+S is today fairly valued by the market.
They spend a tiny 3% on R&D which at least is better than spending nothing but still... in the most boring business that is where the biggest achievements can be made!
They pay an excellent dividend of 5.6% which correspond to almost 45% of their earnings which I find to be acceptable. K+S pay out 40-50% of their earnings which means that as a shareholder one must be prepared for yearly dividend changes in both directions.
In the last five years they have had a yearly revenue growth rate of -4.1% which is awful and this then gives us a motivated P/E of 8 which means that K+S is today fairly valued by the market.
They spend a tiny 3% on R&D which at least is better than spending nothing but still... in the most boring business that is where the biggest achievements can be made!
They pay an excellent dividend of 5.6% which correspond to almost 45% of their earnings which I find to be acceptable. K+S pay out 40-50% of their earnings which means that as a shareholder one must be prepared for yearly dividend changes in both directions.
Conclusion: Graham says yes to K+S and so do I. The P/E, P/B and dividend are excellent and the ROE is ok. There are however question marks on the horizon. They seem to have broken the rules here in Germany considering the waste from the Potash which means there will be legal costs. Their outlook for 2016 was bad and they are kicked out of DAX. I will remain as a shareholder in K+S but since I am already so heavy invested in it I also do not see a reason to run out and buy more right now.
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