Analysis of BASF 2017

Company: BASF

ISIN DE000BASF111 | WKN BASF11

Business: A German chemistry and polymer company. They are still active with five different business units and those are: Chemicals (with intermediates and polymers), Performance Products (pigments, care chemicals, health chemicals and paper chemicals), Functional Materials & Solutions (catalysts, construction chemicals and coatings), Agricultural Solutions (crop protection) and finally Oil & Gas (exploration and extraction).

Active: World wide and as they say themselves "in almost every country in the world". 

P/E: 20.3

For the previous analysis please see analysis of BASF 2016.

The P/E of BASF is far too high for me with 20.3 and the P/B is a little bit on the high side with 2.6 which gives a clear no go from Graham. Earnings to sales are reasonable at 7% but the ROE is a bit too low with only 12.8%. The book to debt ratio ends up at 0.7 which is ok.

In the last five years they have had an extremely poor revenue development with yearly -6% which is truly awful and this then gives us a motivated P/E of between 8 to 10 which means that BASF today is highly overvalued by the market.

They spend a nice chunk of money on R&D and I know for a fact that it is keeping them ahead of competitors so it is indeed worth those 45%.

They pay a decent dividend in the size of 3.4% which unfortunately correspond to almost 70% of their earnings which means that they better start bringing home some more money and soon!

Conclusion: Graham says no to BASF due to the high P/E, P/B and the poor ROE as well as the high percentage of paid out dividend. I own BASF today and I am more forgiving. They are indeed up at a high P/E and I would not buy them but they are not crazy high which would make it worth my while to sell them and they additionally have less than "common" earnings which leads to an inflated P/E value. I will remain as a shareholder in BASF.

BASF annual report 2016

I have a love/hate relationship to BASF. The "hate" started back in 2007 when I was refused a job with them due to that I completely crashed with the big boss of that department. As an old, old chemist he did not know about IUPAC rules for how to name compounds and as a wet behind the ears chemist I did not know the trade names of various compounds. It is just one of those moments in life when things went wrong. Already back then they had an extremely good hiring procedure and a lot of money was invested in trying to make sure that they hired the correct person but looking back they probably had one issue and that was that if the big boss says no then the person will not be hired. Today, in other professional companies, employees can get hired based on the HR department. Some bosses wants people that says yes and agree to everything they say but it is destructive for the company and hence HR should every now and then step in and make the decision when weak bosses are trying to have their way. One of my friends where hired like that via the HR but against the direct line manager and he have had the good fortune of having a splendid career which simply comes form him being excellent and people pushing careers often do not stay longer than 1 to 2 years in one place. Anyway...

After my incident with BASF I had a dislike towards them and their pompous employees / bosses. Afterwards in my career I ended up working with them and I must admit that I enjoy that. They are good and their slogan THE chemical company is correct. They do a lot of good stuff and they should be better known among people but it is hard when you are so focused on B2B sales.

For the report in full please go here and for the latest summary which was the BASF annual report 2015 then please click on that link and to find out more about The Chemical Company then please visit analysis of BASF 2015.

In the financial statement below we can see that they sales dropped like crazy! With a minus of almost 20% it is bad, bad news. The beautiful thing though is that A. they did not have a party and B. they managed to control their costs which leads to a fairly good earning at the bottom line. Sure compared to 2015 they are only up less than 2% in earnings but comparing that to the sales loss then it is pretty impressive! The earnings per share ended up at 4.3 € and they are paying out 3 € in dividends which means that they are confident in the future.

Conclusion: BASF had another bad year which comes to a very large extent from their oil and gas business. last year they sold for well over 10 billion € and this year they were down at a bit over 2 billion €. A massive change! I might be wrong but to me that looks as if when they are not making any money they simply close the tap to keep the oil and gas until prices reach a more acceptbale level. If that is true then I personally fully agree with that behaviour. I will continue to be a shareholder in BASF.

Analysis of Hugo Boss 2017

Company: Hugo Boss

Business: A German high-end fashion retailer and accessories for both men and women. They have several different brands: BOSS, BOSS Orange, BOSS Green, HUGO and finally HUGO BOSS. The brands consist of business wear, evening wear, shoes and leather accessories. They are also active with licensed fragrances, glasses, watches and other areas they consider to be able to make contributions to.

Active: Due to active marketing the Boss brand is well known in the world and they sell products in 127 countries world wide. Production is in Asia & Eastern Europe. They have more than 7,700 sale points.

P/E: 25.0

The P/E for Hugo Boss is very high with 25.0 and the P/B is also not very appealing with 5.5 which gives, as so often, a no go from Graham. The earnings to sales appear to be low with only 7%  but the ROE is great with over 20%. The book to debt ratio is good with 1.0.

In the last five years they have had a poor yearly growth rate of only 2.8% which then gives us a motivated P/E of 12 to 14 which means that Hugo Boss is today highly overvalued by the market.

They pay out a good dividend of 3.8% however that corresponds to 95% of their earnings so also Hugo Boss needs to start bringing home some more money.

Conclusion: Hugo Boss had a bad year and the market punished them for it. The P/E is therefore high, they had to decrease their dividend payment, P/B is high etc. Graham would not find this company of interest but I did however and I will remain as a shareholder for the time being.

Hugo Boss annual report 2016

For the report in full please click here and unfortunately there are no previous summary but to find out more concerning Hugo Boss from a very, very old analysis then please go to analysis of Hugo Boss.

Looking at the table below then we see that sales did indeed drop down during 2016 and most of that was from Americas but the big downside comes in a massive drop in earnings. One big chunk of costs came from Hugo Boss closing down around 20 stores that were not profitable (66 millions) so let is hope that that is truly a one off cost. I am amazed that they have managed to keep as well as generally have such a high gross profit margin of 66%. That probably explains my unhappiness when I bought my suit there many years ago.

Conclusion: Hugo Boss had a bad year and several investors were unhappy with the managements decision how to progress in the future. Based on my own experiences it was on a dip like this that I bought Adidas and I hope that in 2 to 3 years from now that I will be able to sell Hugo Boss with a profit of well over 100%. I will remain as a shareholder.

Analysis of Fast Retailing 2017

Company: Fast Retailing

ISIN JP3802300008 | WKN 891638

Business: A Japanese retail group. They stand on a couple of brand pillars: UNIQLO (their largest brand), GU (offer low price fashion), Theory (offering fashion for the contemporary woman, launched in New York), COMPTOIR DES COTONNIERS (French origin offering fashion for women), PRINCESSE tam·tam (also French origin offering "lingerie made by women for women") & finally J BRAND (Californian origin offering fashion denim). My interest was aroused due to an UNIQLO store that appeared in Berlin.

Active: Highly brand based but with their biggest one Uniqlo they are present in Japan, China, Hong Kong, Taiwan, South Korea, Singapore, Malaysia, Thailand, Philippines, Indonesia, Australia, USA, UK, France, Germany, Russia and in Belgium. 

P/E: 83.4

The P/E of Fast Retailing is crazy high with over 80 and the P/B is also not good with 6.7 which gives a very clear no go from Graham. Their earnings to sales I find very, very low with 3% and the ROE has taken a deep dive and is now down at 8%. The book to debt have significantly changed since last year and it is now down at a ratio of 1 which means that they have almost doubled their debt and one need to start to wonder what the shareholders got for that.

in the last five years they have grown their yearly revenue by 14% which is really good and due to this we receive a motivated P/E of around 33 to 36 which means that fast Retailing is highly overvalued on the market today. Last year was however not a good year for them.

They pay a silly dividend of 0.9% which badly enough correspond to 77% of their earnings so it is very clear that they need to push up their earnings.

Conclusion: Graham says a very clear no to Fast Retailing and I am also not very happy of the development. They have very clearly problems on their home market which is such a large part of their business that even if things are going well internationally they are not able to compensate for the ground losses at home in Japan.I hope that this is a temporary fashion issue that can be turned around within an acceptable timeline. I will remain as a grumpy shareholder.