Machinery Stocks

Allegion Public Limited Co. Annual Stock Valuation – 2014 $ALLE

allegion-logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Allegion Public Limited Co. (ALLE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Public date: Allegion plc is a global provider of security products and solutions. The Company offers a portfolio of mechanical and electronic security products across a range of brands. The Company operates in three geographic regions: Americas; Europe, Middle East, India and Africa (EMEIA), and Asia Pacific. As of November 15, 2013, the Company was selling its security products and solutions under 23 brands in 120 countries, including Schlage, Von Duprin, LCN, CISA and Interflex. It sell a range of security products and solutions for end-users in commercial, institutional and residential facilities worldwide, including into the education, healthcare, government, commercial office and single- and multi-family residential markets. In April 2014, the Company acquired Fire & Security Hardware Pty Ltd. In September 2014, Allegion PLC completes sale of its United Kingdom (UK) door businesses to affiliate of Alcyon Financial Limited, financial investment firm.
ALLE Chart

ALLE data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 2/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $52.48
MG Value N/A as the company has not been a stand-alone company long enough
MG Opinion N/A
Value Based on 3% Growth $23.81
Value Based on 0% Growth $13.96
Market Implied Growth Rate 11.73%
Net Current Asset Value (NCAV) -$11.69
PEmg 31.96
Current Ratio 2.03
PB Ratio -119.42

Balance Sheet – 6/30/2014

Current Assets $887,600,000
Current Liabilities $437,400,000
Total Debt $1,256,900,000
Total Assets $1,968,100,000
Intangible Assets $662,700,000
Total Liabilities $2,010,300,000
Outstanding Shares 96,030,000

Earnings Per Share

2014 (estimate) $2.33
2013 $0.33
2012 $2.32
2011 $2.35

Earnings Per Share – ModernGraham

2014 (estimate) $1.64
2013 $1.20
2012 $1.40
2011 $0.78

Dividend History

ALLE Dividend Chart

ALLE Dividend data by YCharts

Conclusion:

Allegion Public Limited does not qualify for either the Defensive Investor or the Enterprising Investor, primarily because of its very short history as a stand-alone company.  The Defensive Investor is concerned with the short operating history as well as the high PEmg ratio and the poor PB ratio.  The Enterprising Investor is concerned with the high level of debt relative to the net current assets and the short operating history.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the ModernGraham model requires a longer operating history to return an estimate of a company’s intrinsic value; however, it should be noted the market is implying an estimate of 11.73% earnings growth.  Value investors choosing to speculate into the value of the company should determine whether this estimate of growth is reasonable.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Allegion Public Limited Co. (ALLE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Allegion Public Limited Co. (ALLE) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

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