The Benjamin Graham Investment Strategy Page
Graham used a conservative, risk-averse approach that focused as much on preserving capital as it did on producing big gains. Trendy, hot stocks didn't garner his attention; he was concerned with companies' balance sheets and their fundamentals. How much debt did they carry? How did their stock price compare to the amount of per-share earnings they were generating? Did the firm have strong sales figures? This value-centric, company-focused approach may be used by a lot of investors today, but it was Graham who first popularized it. A key concept behind his approach was the "margin of safety", i.e. the difference between a stock's price and the value of its underlying business. Graham focused on stocks with high margins of safety (meaning their stocks were selling on the cheap compared to what he believed to be the intrinsic value of their businesses), because their already low prices offered significant downside protection.
10 Share Model Portfolio
Myles Rennie's Graham Analysis on 28 June 2013
Ticker | Company | Interest | Graham Score | Price | Exp Avg Ret | Mark Cap | P/E | Mean P/E | Yield % | EPS %CAGR |
SOL | Sasol Limited | 1/3 | 84.21% | 43,154.00 | 8.38% | 278,256,992,000 | 10.09 | 10.50 | 9.92% | 2.65% |
ASR | Assore Ltd | 2/3 | 84.21% | 32,000.00 | 38.63% | 44,674,240,000 | 11.99 | 10.73 | 8.34% | 11.55% |
ARI | African Rainbow Min Ltd | 1/3 | 84.21% | 14,976.00 | 37.62% | 32,176,235,520 | 11.24 | 18.90 | 8.89% | -4.06% |
MAS | Masonite Africa Ltd | 1/3 | 84.21% | 3,000.00 | 33.51% | 213,726,750 | 6.71 | 10.80 | 14.90% | -20.97% |
JDG | JD Group Ltd | 1/3 | 84.21% | 3,100.00 | 33.34% | 6,814,730,000 | 6.45 | 12.15 | 15.49% | 8.03% |
HLM | Hulamin Ltd | 1/3 | 84.21% | 420.00 | 31.59% | 1,333,544,940 | 7.37 | 19.78 | 13.57% | -17.66% |
AOO | African & Over Ent Ltd | 1/3 | 84.21% | 1,600.00 | 22.48% | 182,192,000 | -271.19 | 9.84 | -0.37% | -12.52% |
CPL | Capital Property Fund | 2/3 | 84.21% | 1,064.00 | 20.27% | - | 9.76 | 9.30 | 10.25% | 25.04% |
LEW | Lewis Group Ltd | 2/3 | 84.21% | 6,300.00 | 20.27% | 6,177,651,417 | 6.28 | 8.99 | 15.92% | 6.35% |
DCT | Datacentrix Holdings Ltd | 2/3 | 84.21% | 390.00 | 20.10% | 763,612,200 | 9.85 | 10.14 | 10.15% | -2.55% |
Note that I analyse the JSE daily producing a Graham score for each share listed on the JSE. If there is a particular share you are interested in don't hesitate to contact me and request the information.
Detailed Model Portfolio Analysis
This section shows the top company from the list above in more detail at the specified date of analysis.
Myles Rennie's Graham Analysis on 28 June 2013
Graham Analysis | |||||||||||
Company Name | Sasol Limited | ||||||||||
Company Ticker | SOL | ||||||||||
Date of Analysis | 2013/06/28 | ||||||||||
Share Price (Close) | 43,154 | ||||||||||
P/E | 10.09 | ||||||||||
P/B | 2.07 | ||||||||||
Earnings per Share | 4,279.00 | ||||||||||
Summary for Graham Analysis | |||||||||||
Sector | PASS | ||||||||||
Sales | PASS | ||||||||||
Current Ratio | PASS | ||||||||||
Long-Term Debt to Net Current Assets | PASS | ||||||||||
Long-Term EPS Growth | FAIL | ||||||||||
P/E Ratio | PASS | ||||||||||
Price/Book Ratio | PASS | ||||||||||
Detailed Screening Score: 84.21% | |||||||||||
1. Sector - PASS | |||||||||||
SOL is neither a technology nor financial Company, and therefore this methodology is applicable. | |||||||||||
2. Sales - PASS | |||||||||||
The investor must select companies of 'adequate size'. This includes companies with annual sales greater than 300 million. SOL's sales of 169,446 million, based on the last financial years' sales, pass this test. | |||||||||||
3. Current Ratio - PASS | |||||||||||
The current ratio must be greater than or equal to 2.00. Companies that meet this criterion are typically financially secure and defensive. SOL's current ratio of 2.12 passes the test. | |||||||||||
4. Long-Term Debt to Net Current Assets - PASS | |||||||||||
For non-financial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that meet this criterion display one of the attributes of a financially secure organization. The long-term debt per share for SOL is 3566.07, while the net current assets per share are 5363.21. SOL passes this test. | |||||||||||
5. Long-Term EPS Growth - FAIL | |||||||||||
Companies must increase their EPS by at least 30.00% over a 5 year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. SOL's EPS growth over that period of 11.01% fails the EPS growth test. | |||||||||||
6. P/E Ratio - PASS | |||||||||||
The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be 'moderate', which this methodology states is not greater than 15.00. Stocks with moderate P/Es are more defensive by nature. SOL's P/E of 12.61 (using average earnings P/E) passes this test. | |||||||||||
7. Price/Book Ratio - PASS | |||||||||||
The Price/Book ratio must also be reasonable. That is, the Price/Book multiplied by P/E cannot be greater than 22.00. SOL's Price/Book ratio is 2.07, while the current P/E is 10.09 and therefore P/B x P/E = 20.90. SOL passes the Price/Book test. | |||||||||||
Detailed Financial and Ratio Analysis | |||||||||||
Year | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | |
Income Statement | |||||||||||
Revenue | 64,555 | 60,151 | 69,239 | 82,395 | 98,127 | 129,943 | 137,836 | 122,256 | 142,436 | 169,446 | |
Cost of Sales | 39,347 | 38,794 | 42,250 | 48,547 | 59,997 | 74,634 | 88,508 | 79,183 | 90,467 | 111,042 | |
Gross Profit | 25,208 | 21,357 | 26,989 | 33,848 | 38,130 | 55,309 | 49,328 | 43,073 | 51,969 | 58,404 | |
OPEX | 13,441 | 11,497 | 13,111 | 17,412 | 13,148 | 22,428 | 24,662 | 19,136 | 22,019 | 21,646 | |
Operating Income | 11,767 | 9,136 | 14,400 | 17,212 | 25,621 | 33,816 | 24,666 | 23,937 | 29,950 | 36,758 | |
EBIT | 16,235 | 13,873 | 18,144 | 21,177 | 29,357 | 33,816 | 24,666 | 23,937 | 29,950 | 36,758 | |
Inc Bef Tax | 11,769 | 9,036 | 14,132 | 17,892 | 26,110 | 34,592 | 24,195 | 23,372 | 29,416 | 36,003 | |
Tax | 11,769 | 9,036 | 14,132 | 17,892 | 26,110 | 34,592 | 24,195 | 23,372 | 29,416 | 36,003 | |
Inc Aft Tax | 7,762 | 5,861 | 9,559 | 11,358 | 17,957 | 24,463 | 13,715 | 16,387 | 20,220 | 24,257 | |
Att Inc | 7,674 | 5,795 | 9,449 | 10,406 | 17,030 | 22,417 | 13,648 | 15,941 | 19,794 | 23,583 | |
Earnings per Share | 1,259.48 | 950.00 | 1,539.43 | 1,678.39 | 2,735.30 | 3,729.95 | 2,289.55 | 2,667.50 | 3,297.00 | 3,910.00 | |
Distributions per Share | 450.00 | 450.00 | 540.00 | 710.00 | 900.00 | 1,300.00 | 850.00 | 1,050.00 | 1,300.00 | 1,750.00 | |
Balance Sheet | |||||||||||
Total Fixed Assets | 46,522 | 51,480 | 62,083 | 67,107 | 80,690 | 85,289 | 92,854 | 102,150 | 117,664 | 138,282 | |
Tot Curr Ass | 23,097 | 21,866 | 26,095 | 36,043 | 38,375 | 54,833 | 53,011 | 53,723 | 59,781 | 65,471 | |
Total Assets | 69,619 | 73,346 | 88,178 | 103,150 | 119,112 | 140,122 | 145,865 | 155,873 | 177,445 | 203,753 | |
Total SH Int | 33,818 | 35,400 | 44,006 | 52,984 | 63,269 | 78,995 | 86,217 | 96,425 | 109,860 | 128,314 | |
Equity Calc | 33,818 | 35,400 | 44,006 | 52,984 | 63,269 | 78,995 | 86,217 | 96,425 | 109,860 | 128,314 | |
LT Liabilities | 15,865 | 20,073 | 25,907 | 28,799 | 31,930 | 33,610 | 33,406 | 36,579 | 40,311 | 44,550 | |
Tot Curr Liab | 19,936 | 17,873 | 18,265 | 21,375 | 23,913 | 27,517 | 26,242 | 22,869 | 27,274 | 30,889 | |
Total Liabil | 35,801 | 37,946 | 44,172 | 50,174 | 55,843 | 61,127 | 59,648 | 59,448 | 67,585 | 75,439 | |
Total Eqt/Liab | 69,619 | 73,346 | 88,178 | 103,158 | 119,112 | 140,122 | 145,865 | 155,873 | 177,445 | 203,753 | |
Ratios | |||||||||||
Oper Profit Mgn | 18.20 | 15.19 | 20.80 | 20.90 | 26.11 | 26.02 | 17.90 | 19.58 | 21.03 | 21.69 | |
Net Profit Mgn | 11.89 | 9.63 | 13.65 | 37.10 | 22.00 | 20.50 | 9.90 | 13.04 | 13.90 | 13.92 | |
ROCE | 15.62 | 10.57 | 13.67 | 12.94 | 18.44 | 20.89 | 11.47 | 12.32 | 13.46 | 14.03 | |
ROE | 22.95 | 16.56 | 24.00 | 21.60 | 29.80 | - | - | 16.99 | 18.41 | 18.90 | |
ROA | 17.90 | 13.40 | 18.20 | 18.50 | 24.20 | - | - | 16.86 | 16.77 | 17.85 | |
Debt to Equity ratio | 0.76 | 0.78 | 9.70 | 10.10 | 14.80 | 14.50 | 0.44 | 0.40 | 0.38 | 0.37 | |
Total Tangible Assets to Total Assets | 0.98 | 0.98 | 0.98 | 0.99 | 0.99 | 0.99 | 0.99 | 0.99 | 0.99 | 0.99 | |
Total Assets to Book Value | 2.06 | 2.07 | 2.00 | 1.95 | 1.88 | 1.77 | 1.69 | 1.62 | 1.62 | 1.59 | |
Debt to FCF | 5.59 | 18.07 | -175.35 | 235.03 | 173.18 | 137.05 | 1.04 | 6.70 | 8.30 | -11.31 | |
Balance Sheet Accrual ratio | 11.85% | 9.72% | 18.69% | 10.93% | 13.33% | 20.73% | -10.09% | 13.26% | 12.81% | 17.32% | |
Cash Flow Accrual ratio | 9360.02% | 7212.61% | -40211.10% | -2827.51% | -6946.13% | -7880.79% | -19378.60% | 1240.06% | -1215.78% | -300.94% | |
EV/FCF | 23.01 | 77.21 | -226.15 | 318.30 | 203.56 | 174.43 | 8.35 | 60.76 | 91.63 | -113.66 | |
CROIC | 6.25% | 1.91% | -3.40% | 2.73% | 5.75% | 7.34% | 21.04% | 2.56% | 1.84% | -1.23% | |
FCF/Sales | 0.05 | 0.02 | -0.03 | 0.03 | 0.05 | 0.06 | 0.16 | 0.03 | 0.02 | -0.01 | |
Altman Z''-Score | 7.38 | 7.16 | 7.71 | 8.15 | 8.42 | 9.42 | 8.83 | 9.30 | 9.31 | 9.41 | |
BRE based on Z''-Score | AA | AA- | AA+ | AA+ | AAA | AAA | AAA | AAA | AAA | AAA | |
Share Data | |||||||||||
Number of Shares | 668,798,425 | 671,271,425 | 676,877,125 | 682,978,425 | 627,696,148 | 676,711,298 | 665,900,000 | 667,700,000 | 642,600,000 | 644,800,000 | |
Wght Number of Shares | 609,300,000 | 610,000,000 | 613,800,000 | 620,000,000 | 622,600,000 | 601,000,000 | 596,100,000 | 597,600,000 | 600,400,000 | 603,200,000 | |
Market Cap | 55,078,240 | 64,511,930 | 122,379,384 | 187,819,067 | 166,968,000 | 311,959,000 | 179,779,682 | 183,350,420 | 228,752,748 | 220,779,520 | |
Per Share | |||||||||||
Net Asset Value per Share | 5,503.00 | 5,731.00 | 7,094.00 | 8,445.00 | 10,055.00 | 12,844.00 | 14,114.00 | 14,065.45 | 16,677.72 | 20,827.00 | |
Cash Generated per Share | 975.93 | 1,085.85 | 1,616.10 | 2,075.76 | 2,518.89 | 2,653.13 | 4,631.03 | 2,325.75 | 4,017.43 | 4,346.15 | |
P/E | 6.53 | 10.56 | 10.46 | 11.97 | 10.48 | 12.10 | 10.62 | 10.34 | 10.52 | 8.10 | |
P/BV | 1.52 | 1.68 | 2.55 | 3.26 | 2.65 | 3.59 | 1.91 | 1.95 | 2.13 | 1.64 | |
FCFF | |||||||||||
EBITx(1-Tax) | 7,761 | 5,947 | 9,731 | 11,419 | 17,901 | 24,575 | 13,982 | 16,783 | 20,587 | 24,766 | |
Less: Capex | 8,378 | 10,188 | 13,636 | 9,264 | 15,953 | 2,744 | 6,900 | 8,675 | 15,456 | 20,460 | |
Plus: Depn & Amort | 4,468 | 4,737 | 3,744 | 3,965 | 3,736 | - | - | - | - | - | |
Less: Delta NC-WC | 825 | (560) | 2,199 | 3,902 | 384 | 13,604 | (14,868) | 4,992 | 2,562 | 6,338 | |
Free Cash Flow to Firm | 3,026 | 1,056 | (2,360) | 2,218 | 5,300 | 8,227 | 21,950 | 3,117 | 2,569 | (2,033) | |
WACC | |||||||||||
Weight of Debt | 43.18% | 43.82% | 90.65% | 90.99% | 93.67% | 93.55% | 30.56% | 28.57% | 27.54% | 27.01% | |
Weight of Equity | 56.82% | 56.18% | 9.35% | 9.01% | 6.33% | 6.45% | 69.44% | 71.43% | 72.46% | 72.99% | |
Cost of Debt (pre-tax) | 8.10% | 8.10% | 8.10% | 8.10% | 8.10% | 8.10% | 8.70% | 8.70% | 8.10% | 8.10% | |
Cost of Debt (post-tax) | 5.34% | 5.25% | 5.48% | 5.14% | 5.57% | 5.73% | 4.93% | 6.10% | 5.57% | 5.46% | |
Beta | 1.09 | 1.13 | 1.25 | 1.29 | 1.32 | 1.05 | 1.08 | 1.08 | 1.12 | 0.87 | |
Cost of Equity | 21.40% | 21.91% | 23.44% | 23.95% | 24.33% | 20.89% | 21.27% | 21.27% | 21.78% | 18.59% | |
WACC (from D/E ratio) | 14.46% | 14.61% | 7.16% | 6.84% | 6.76% | 6.71% | 16.28% | 16.94% | 17.32% | 15.05% | |
Value Creation/Destruction | Adding | Destroying | Adding | Adding | Adding | Adding | Destroying | Destroying | Destroying | Destroying | |
Enterprise Value | |||||||||||
Market Value of Equity | 55,878 | 64,509 | 122,379 | 187,819 | 166,967 | 311,964 | 179,780 | 183,350 | 228,753 | 220,780 | |
Market Value of Debt | 16,919 | 19,072 | 413,796 | 521,360 | 917,810 | 1,127,500 | 22,911 | 20,892 | 21,327 | 22,994 | |
Cash & Investments | 3,186 | 2,063 | 2,509 | 3,102 | 5,987 | 4,435 | 19,425 | 14,870 | 14,716 | 12,746 | |
Enterprise Value | 69,611 | 81,518 | 533,667 | 706,077 | 1,078,790 | 1,435,028 | 183,266 | 189,372 | 235,364 | 231,028 | |
Previous Model Portfolios
10 Share Model Portfolio at 30 May 2013
Myles Rennie's Graham Analysis on 30 May 2013
Ticker | Company | Interest | Graham Score | Price | Exp Avg Ret | Mark Cap | P/E | Mean P/E | Yield % | EPS %CAGR |
ARH | ARB Holdings Limited | 1/3 | 84.21% | 435.00 | 0.17% | 1,022,250,000 | 11.76 | 9.27 | 8.50% | -7.63% |
ASR | Assore Ltd | 2/3 | 84.21% | 35,600.00 | 37.28% | 49,700,092,000 | 13.33 | 10.74 | 7.50% | 11.55% |
JDG | JD Group Ltd | 1/3 | 84.21% | 2,999.00 | 33.76% | 6,592,701,700 | 6.24 | 12.18 | 16.02% | 8.03% |
HLM | Hulamin Ltd | 1/3 | 84.21% | 430.00 | 31.47% | 1,365,296,010 | 7.54 | 19.95 | 13.26% | -17.66% |
DCT | Datacentrix Holdings Ltd | 2/3 | 84.21% | 330.00 | 24.17% | 646,133,400 | 8.33 | 10.14 | 12.00% | -2.55% |
AOO | African & Over Ent Ltd | 1/3 | 84.21% | 1,600.00 | 22.48% | 182,192,000 | -271.19 | 9.84 | -0.37% | -12.52% |
CPL | Capital Property Fund | 2/3 | 84.21% | 1,059.00 | 20.38% | - | 9.71 | 9.30 | 10.30% | 25.04% |
LEW | Lewis Group Ltd | 2/3 | 84.21% | 6,300.00 | 20.33% | 6,177,651,417 | 6.28 | 9.01 | 15.92% | 6.35% |
CVN | Convergenet Holdings Ltd | 1/3 | 84.21% | 14.00 | 16.37% | 128,980,032 | -3.22 | 10.21 | -31.07% | 0.00% |
NWL | Nu-World Hldgs Ltd | 1/3 | 84.21% | 1,800.00 | 13.41% | 385,536,510 | 11.17 | 15.09 | 8.96% | -2.82% |
10 Share Model Portfolio at 30 April 2013
Myles Rennie's Graham Analysis on 30 April 2013
Ticker | Company | Interest | Graham Score | Price | Exp Avg Ret | Mark Cap | P/E | Mean P/E | Yield % | EPS %CAGR |
ASR | Assore Ltd | 2/3 | 84.21% | 29,200.00 | 39.79% | 40,765,244,000 | 10.94 | 10.74 | 9.14% | 11.55% |
ARI | African Rainbow Min Ltd | 1/3 | 84.21% | 17,688.00 | 35.59% | 38,003,021,760 | 13.28 | 18.93 | 7.53% | -4.06% |
JDG | JD Group Ltd | 1/3 | 84.21% | 3,306.00 | 32.62% | 7,267,579,800 | 6.88 | 12.18 | 14.53% | 8.03% |
HLM | Hulamin Ltd | 1/3 | 84.21% | 480.00 | 30.24% | 1,524,051,360 | 8.42 | 19.95 | 11.87% | -17.66% |
DCT | Datacentrix Holdings Ltd | 2/3 | 84.21% | 348.00 | 22.86% | 681,377,040 | 8.79 | 10.14 | 11.38% | -2.55% |
AOO | African & Over Ent Ltd | 1/3 | 84.21% | 1,600.00 | 22.48% | 182,192,000 | -271.19 | 9.84 | -0.37% | -12.52% |
LEW | Lewis Group Ltd | 2/3 | 84.21% | 5,900.00 | 21.92% | 5,785,419,581 | 6.39 | 9.01 | 15.64% | 6.35% |
CPL | Capital Property Fund | 2/3 | 84.21% | 1,180.00 | 17.80% | - | 10.82 | 9.30 | 9.24% | 25.04% |
NWL | Nu-World Hldgs Ltd | 1/3 | 84.21% | 1,900.00 | 12.19% | 406,955,205 | 10.60 | 15.09 | 9.43% | -2.82% |
BCF | Bowler Metcalf Ltd | 1/3 | 84.21% | 800.00 | 11.04% | 649,297,408 | 10.96 | 10.19 | 9.13% | 6.14% |
10 Share Model Portfolio at 29 March 2013
Myles Rennie's Graham Analysis on 29 March 2013
Ticker | Company | Interest | Graham Score | Price | Exp Avg Ret | Mark Cap | P/E | Mean P/E | Yield % | EPS %CAGR |
SOL | Sasol Limited | 1/3 | 84.21% | 40,734.00 | 9.64% | 262,652,832,000 | 9.52 | 10.50 | 10.50% | 2.65% |
CVN | Convergenet Holdings Ltd | 1/3 | 84.21% | 22.00 | 6.31% | 202,682,907 | -4.39 | 10.21 | -22.77% | 0.00% |
ASR | Assore Ltd | 2/3 | 84.21% | 31,055.00 | 39.00% | 43,354,953,850 | 11.63 | 10.74 | 8.60% | 11.55% |
MAS | Masonite Africa Ltd | 1/3 | 84.21% | 3,100.00 | 33.15% | 220,850,975 | 6.94 | 10.81 | 14.42% | -20.97% |
JDG | JD Group Ltd | 1/3 | 84.21% | 3,481.00 | 32.03% | 7,652,282,300 | 7.25 | 12.18 | 13.80% | 8.03% |
HLM | Hulamin Ltd | 1/3 | 84.21% | 529.00 | 29.18% | 1,679,631,603 | 9.28 | 19.95 | 10.78% | -17.66% |
DCT | Datacentrix Holdings Ltd | 2/3 | 84.21% | 350.00 | 22.72% | 685,293,000 | 8.91 | 10.14 | 11.23% | -2.55% |
AOO | African & Over Ent Ltd | 1/3 | 84.21% | 1,600.00 | 22.48% | 182,192,000 | -271.19 | 9.84 | -0.37% | -12.52% |
LEW | Lewis Group Ltd | 2/3 | 84.21% | 6,463.00 | 19.72% | 6,337,485,890 | 7.00 | 9.01 | 14.28% | 6.35% |
CPL | Capital Property Fund | 2/3 | 84.21% | 1,115.00 | 19.15% | - | 10.22 | 9.30 | 9.78% | 25.04% |