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ValuePicksOnly (79.43)

European Stock Tip; An Undervalued, High Yield, Market Leading Company

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February 13, 2008 – Comments (3)

The US' economy is slowing down, but in Europe the future looks a bit brighter. So why invest in a slowing economy if you can invest in a more healthy one instead? Tough question eh...

I'm an European citizen living in The Netherlands and have found some great companies in my home market, trading at bargain prices. I would like to share with you one stock of which I myself have recently bought shares (yes, with real money! ). It might be a stepping stone for some into a brave new world of foreign investing.

A lot of people might be reluctant to invest in foreign stocks, but there are great oppurtunities everywhere! So not only in the US! It might be hard for people to find enough data and information of foreign companies, so I will share my full analysis with you guys on my most recent value stock pick. I have bought at a price where I can expect a 20% annual return...oh and did I mention the stock has dropped even further in price since then!

The company I am talking about has a historical high return on equity (ROE) and has been increasing it's profit margins over the last years. The company trades at a P/E ratio of a bit more than 7, while historically it has been trading at an average P/E of 17! At the current price levels it has a dividend yield of 5% (!) and has recently announced to try and keep a steady dividend troughout the full economic cycle. The company is market leader in The Netherlands, Germany, Belgium and the South-East of the United States. It a good company with solid management and produces a lot of free cash flow.

One sign of the company being a good one is, as you can read in Tip 7 of one of my other blogs, that it is using current market turmoil to increase it's market share: It is taking over the competition. The business also has a history of buying back shares and is expected to do so in the future. Oh: It has ZERO long term debt!

Interested?

Well ok, you've waited long enough now. The company I am talking about is:

Randstad Holding       (RAND.AS)

It trades at the Dutch AEX index.

Company profile:                (source: reuters)

"Randstad Holding nv is engaged in the supply of employment services to businesses and institutions. The Randstad Group is a temporary and contract staffing organization that offers a range of human resources (HR) services. The Company is separated into four divisions: Randstad Inhouse, which specializes in a workforce with client-specific skill sets aimed at improving labor flexibility, retention, productivity and efficiency; Randstad Interim Professionals, which is engaged in the recruitment of middle and senior management positions; Randstad HR solutions, which is engaged in HR project management, HR management and HR consultancy services, and Randstad Work Solutions, which provides clients with temporary and permanent employees. Randstad Holding nv, is headquartered in Diemen, the Netherlands, and is active in Europe, North America and Asia."

 

At the moment the stock is trading around €25,-, I bought shares in this company at €29,- and my intrinsic value estimates are ranging from €45 - €50! The company has grown it's EPS year over year with at least 16% for the past few years, analysts are expecting a long term growth rate of 7%, I used a 5% growth rate...Even if I use a negative growth rate of -5% the company is still undervalued!!!

I've ran a DCF analysis and a P/E analysis (CLICK THE LINKS FOR THE SPREADSHEETS!!!) and I can only come to the conclusion that THIS STOCK IS CHEAP!!!

The only negative I can find is that this company is a cyclical one. But the expectations are that the European economie will be able to grow for a few more years, and since Randstad get's about 80% of it's revenue from Europe; that's a good thing!

Ofcourse the slowdown of the US economy has a negative effect on Randstads income, but they just started operating in Asia where there is plenty of room left to grow, so that will compensate for lack of growth in the US and more!

The fun thing is: I'm writing this while tomorrow Randstad will release it's 2007 results! So for the ones interested in this company; check out their website at http://www.ir.randstad.com/downloads.cfm for their annual report tomorrow.

 

I hope the annual results are good and that this blog post is appreciated by people who are looking for foreign stocks to invest in.

If you liked this blog you could check out some of my other blogs too and leave a comment if you like!

Disclaimer: I am not responsible for any losses of money or the like because of the usage of the above mentioned methods and tips. You hold full responsibility over your own actions. I do own shares of Randstad Holding myself.

 

 

3 Comments – Post Your Own

#1) On February 13, 2008 at 7:45 PM, AnomaLee (28.73) wrote:

I couldn't even trade this stock through either of my brokers. I don't even know if E-Trade trades on this exchange...

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#2) On February 14, 2008 at 2:21 AM, ValuePicksOnly (79.43) wrote:

That could be a problem ofcourse...I didn't knew it was that hard to trade on foreign exchanges, because I can trade on the NYSE, the Nasdaq or whatever exchange I like, whenever I like with my Dutch online brokage account.

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#3) On February 14, 2008 at 7:34 AM, ValuePicksOnly (79.43) wrote:

By the way: The annual results were better than expected. The stock rose 8% on the good results and promising prospects.

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