Tuesday 19 April 2016

Analysis of Continental 2016

Continental, a German automotive supplier

ISIN DE0005439004 | WKN 543900 

Business: A German automotive supplier. They are still divided into two groups: The Automotive group and the Rubber group. Under these two groups there are five divisions: Chassis and safety, Powertrain, Interior, Tires and ContiTech. These five divisions produce brake systems, systems and components for powertrains and chassis, instrumentation, vehicle electronics, tires and technical elastomers. It looks as if they are on their way to create a new segmentation of the company but it does not yet seem to be fully in place.

Active: In 53 countries world wide. (I found no new figure)

P/E: 14.0

Here you can find the previous analysis of Continental 2015

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

The P/E for Continental is ok with 14.0 but the P/B is a bit too high with 3.0 which therefore gives in total a no go from Graham. The earnings to sales are at 7% which I find to be ok and the ROE is excellent with 21.3%. The book to debt ratio is still at 0.6 is low but they have improved it since the previous year.
In the last five years they have had an excellent yearly revenue growth rate of 5.2% which gives us a motivated P/E of 16 to 19 and Continental is today undervalued by the market.
They intend to stay ahead and are therefore spending 90% of their earnings on R&D which I find to be very high.
They pay a tiny dividend of 2.0% which happily only correspond to less than 30% of their earnings so they can hopefully keep it up in the future.

Conclusion: Graham says no to Continental and I say yes due to the good P/E, ROE and growth that they have managed to show. What each and everyone must think about is however this... why should one buy a automotive supplier for P/E 14 when you can get the car producers for P/E 8 and below? Does it even make sense that the supplier is valued almost twice? So, I do say yes to Continental but if I would have had money to invest then I would personally buy BMW instead.

If this analysis is outdated then you can request a new one.

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