While looking for value within Europe, one utility stock has caught my eye: GDF Suez SA (OTCMKTS:GDFZY) (EPA:GSZ). As a European utility, GDF is, in my opinion, a risk. The European authorities are becoming increasingly hard to work with as they continually introduce new regulations and a slow economic recovery on the continent.

GDF Suez

Bearing these risks in mind, GDF Suez SA (OTCMKTS:GDFZY) (EPA:GSZ) would only become appealing if it conformed to all Benjamin Graham’s value investing criteria. How does the company stack up?

1. Adequate size of enterprise

GDF easily passes criteria number one. The company is one of Europe’s largest utility providers with revenues of nearly 100 billion euros for 2012. Additionally, according to the company’s listing in Paris, the company’s current market capitalization is 45 billion euros.

2. Sufficiently strong financial position

Unfortunately, GDF Suez SA (OTCMKTS:GDFZY) (EPA:GSZ) does fall down at point number two. At the end of fiscal 2012, GDF had a current ratio of 1.1, although this is about average for a utility provider of its size.

3. Long-term debt should not exceed net current assets (working capital)

In the case of utility companies, Graham states that debt should not exceed twice the stock equity, a criteria that GDF easily meets. Specifically, at the end of fiscal 2012 GDF had 45 billion euros in long-term debt and stock equity was 71 billion euros. In addition, the company is committed to reducing long-term debt to under 30 billion euros by the end of 2014, which should further improve the company’s financial position.

4. Earnings stability

GDF Suez SA (OTCMKTS:GDFZY) (EPA:GSZ) has generated positive earnings in each of the past ten years despite the economic situation in Europe and the global financial crisis.

5. Dividend record

Unfortunately, GDF Suez SA (OTCMKTS:GDFZY) (EPA:GSZ)’s dividend record does not stretch back the required 20 years. However, the company’s Paris listing currently offers a dividend yield of 8 percent and management intend to keep this payout steady for the foreseeable future. This payout does look sustainable as the cumulative payout only cost the company around 4 billion euros during 2012, easily covered by the company’s operating cash flow of more than 10 billion euros for the period.

6. Earnings growth

Unfortunately, GDF was hit with a non-cash charge during 2012, which halved earnings, removing any possibility that it could conform to this criteria.

7. Moderate P/E ratio

Still, despite missing the two criteria above, GDF’s P/E ratio has averaged 10.8 a year for the last three years.

8. Moderate ratio of price to assets

GDF easily conforms to this criteria. Currently the stock is trading at a P/B ratio of 0.7, slightly higher than 2010s and 2011s figure of 0.5.


GDF Suez SA (OTCMKTS:GDFZY) (EPA:GSZ) only meets six out of the eight criteria above. However, the company’s low current ratio is about average compared to the rest of the utility sector and GDF’s current 8 percent dividend yield, which is well covered by cash flow, more than makes up for the lack of payout history. What’s more, the company’s slow earnings growth during the past ten years is mostly attributable to a non-cash charge taken during 2012, which does not cause alarm.

GDF Suez currently looks like a valuable investment

So, all in all, while GDF Suez SA (OTCMKTS:GDFZY) (EPA:GSZ) does not meet all the criteria listed above, the company is fundamentally strong and currently looks like a valuable investment.