WS Atkins PLC (ATK) – Stock Valuation Analysis by Bargain Value
The first company from our folio, which we are going to analyze will be WS Atkins, which is categorized as “Service support” sector. They provide design, engineering, and project management consultancy services.
Purchase price (11.12.2015): 1549.29 GBp
The company is connected with engineering, big industrial and infrastructure investment, because of that, we can expect strong correlation with the condition of the whole economy. This fact is very visible on the chart below:
Seth Klarman Tells His Investors: Central Banks Are Treating Investors Like “Foolish Children”
"Surreal doesn't even begin to describe this moment," Seth Klarman noted in his second-quarter letter to the Baupost Group investors. Commenting on the market developments over the past six months, the value investor stated that events, which would typically occur over an extended time frame, had been compressed into just a few months. He noted Read More
We can see, that when the economy is in bad condition (stagnation, recession) like in 2002 and 2008, the price goes down. It is very important fact, if you invest for a short period of time and the macroeconomic analysis is crucial in this situation. Moreover, in the long run, we are dealing with upward trend.
Setting aside economy, let’s look at the company’s fundamental features. As we have seen at the previous chart, the price has been rising for the 4 years (since 2011), because of that, it is crucial to know, if the stock is not too expensive. The market value comparison is presented in the table below:
In 3 out of 5 indicators the company is cheaper, than the market and industrial average. Only P/BV is very high, but we must remember, that this company best asset is knowledge and workforce skills. They do not own a lot of “hard” assets and adding to this high stock price, we can wrongly judge it, as overvalued. We are very pleased especially because of the P/E level, owning to the fact, that the previous test of this indicator has given very trendy and useful results and we know, that cheap stocks performance according to this ratio, have given an edge over the market performance. The conclusion is that, the company is not overvalued.
We are interested in the firm, which can provide stable and growing revenues and they are shown on the chart below:
The operating profit has behaved great from 2005 to 2013, then we had a collapse. The same characteristic can be seen on the net profit chart. Although, in the last period, the trend has come back on the right track and operating profits are growing again. On the other hand, we should remark, that bad economy condition don’t have devastating effect on company’s profits and revenues (2002, 2009-2012). The company’s revenues are rather stable, than growing, but we will accept this fact, because it is a mature enterprise. One more thing worth to know is that, revenues are a little bit periodical, with the emphasis on the second half of the year.
What about profitability?
It is clear, that in this feature the company beats both the market and industrial average. No other words are needed.
In this point, WS Atkins looks like stable, well-managed company, but what will tell us another characteristic – Cash Flows:
After the huge investments in 2011, we can see a period of negative financial cash flows beginning in 2012. The operating CF is healthy, but net flow is negative (-12 ml. £ in 2015), because the company increases investing spendings once again. On the other hand, is holds a fair amount of free cash (193.1 mln. £ in Q2 2015), which enables them to do that.
Now, it is a time for unpleasant surprise. Let’s look on the WS Atkins debt:
HUGE debt and capital gearing (4.05). However, there is hope. During last decade it was decreasing steadily and now it’s equal to 80.2% (from 111% in 2005). Moreover, current ratio is good at the level of 1.25. The debt is still very high, but the tendency is good and taking into consideration the behaviour of revenues, the company is going anywhere near the bankruptcy.
As a value seeking investor, we like high level of dividend.
The chart above proves, that this stocks provide a great dividend per share for the shareholders. They pay it on regular basis. In the last 6 years, the average growth has been 5.7% annually. In the last period the yield has fallen, but it is connected with rising stock price.
WS Atkins is a mature enterprise with high and very stable revenues and presents great performance, even during hard times. Trends are good for profits and dividend is growing. Debt is decreasing and the valuation shows that company is quite cheap. Is this company a real pearl? The time will show.
Current price (24.12.2015): 1616.00 GBp (+4.31%)
Disclosure: I don’t own any shares in ATK.
Price chart has been drawn from Reuters.com