Thursday 10 October 2013

Analysis of Fresenius Medical Care (FMC)



A German dialysis producing company


Company: Fresenius Medical Care (FMC)

Business: A German medicinal products and service company. FMC is owned to 30% by Fresenius that are also on DAX and will be analysed tomorrow. FMC are active in the field of dialysis. They are providing hospitals, clinics with highly professional equipment as well as private people so that they can perform the dialysis at home on their own. The maintenance of the equipment and the exchange of filters is a growing market year by year. They also have a total of 3200 dialysis clinics in the world of which 2100 is situated in North America.

Active: They are selling their dialysis equipment world wide and their dialysis clinics are available in 40 countries.

P/E: 12.2

contrarian values of P/E, P/B, ROE as well as dividend
First of all I have made a small change in the table and simple removed the quarter earnings since it is too much work to fill it out and since I was not using it then I might as well remove it. So from now on it will only be the earnings from last year.

The P/E of FMC is ok with 12.2 and the P/B is too high for my liking with 1.6 but together it gives according to Graham a fully acceptable company to buy. They have a fully decent earnings to sales of 9% and the ROE is ok with 13.3 but it could be better. The book to debt is at a ratio of 0.7 which is so, so. In the last five years they have had a yearly growth of 5.4% which is well over inflation and we then get a motivated P/E of 16 to 19 which means that today they market is undervaluing FMC. They are spending surprisingly little on R&D since it is only 9.5% of their earnings which indicates at least to me few competitors and the product development is already at a very high and apparently  fully acceptable level. They pay a small dividend of 2.1% per year which represents a bit more than 25% of the earnings so little risk of it decreasing and plenty of room to increase.

Conclusion: Even though Graham says buy I will not because I still find the P/B to be too high and I also do not like the very low dividend payment. If one likes dividend growth companies then FMC would fit you very well. In the last 11 years (as far as I went back) they have each year increased the dividend payments.


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