Skanska

Skanska was founded in 1887, when Aktiebolaget Skånska Cementgjuteriet (Skånska cement foundry Inc) was established. It diversified into a constructions company and with the listing on Nasdaq Stockholm in 1965 “Skanska” became the official name.

Skanska is one of the world’s leading project development and construction groups, concentrated on selected home markets in the Nordic countries, other European countries and in North America. With a focus on green construction, ethics, occupational health and safety, Skanska offers competitive solutions – not least for the most complex assignments.
http://group.skanska.com/about-us/skanska-in-brief/

What do they do? Skanska is a company active in Construction(62%) Residential property development (9%) Commercial property development (23%) and Infrastructure development (6%). (percent of operating profit)

Where do they do it? Skanska is active on the following markets: The Nordics (43%), North America (33%) and Europe (24%). (percent of revenue)
Why do they do it? People need homes to live in, offices to work in, and infrastructure to transport oneself between those two. People also need public properties, such as schools and hospitals.

Analysis
Sufficient size, Market cap > 1 Bn EURPass Skanska is listed on OMX S Large Cap. and has a market cap of 74 Bn SEK
Strong Financial Position? Current Ratio > 2 Fail Current Assets / Current Liabilities = 1.28
Current assets > Total Liabilities? Pass Current Assets / Total Liabilities = 1.04
EV/NOPAT > 17? Fail EV/NOPAT = 36.2The current assets are not double the current liabilities. They bind lots of capital and have large real estate assets. This is however similar to other building constructions companies. The assets are larger than the total liabilities, but the EV to NOPAT is too high. This is partly due to the nature of Skanskas business being highly capital-intensive.
How are the earnings?Positive Net Earnings the last 10 years? Pass
What is the 5 year average EPS growth? Fail 5 yr avg EPS growth is only 11.25%
EPS 5 year CAGR (3 year average)Fail 5 year CAGR(3yr avg) = -12.8%

The company has more than 10 years of profits, but the EPS growth is too low, only about 2% annual growth. The EPS 5 year compounded annual growth rate calculated using 3 year averages is negative. The growth in other words is very low.

Lets look at Skanskas Dividends
Do they pay stable dividends? Pass Skanska has paid dividends for more than 10 years
Payout Ratio Fail 73% 2014 5yr average 64%
EPS Growth compared to Dividend Growth Pass5 year average dividend growth is smaller than the 5 year average EPS growthSkanska has a nice dividend history, the payout ratio is very high, and it has been high for many years. The dividends are high compared to the earnings, the payout ratio should decrease since the dividend growth is lower than the EPS growth. However the earnings need to go up quite a bit for the payout ratio to reach a comfortable 50%.
How’s the market?
Is the company reliant on external factors? Fail It is reliant on the rates and the economic drive as a whole. But the need for housing and construction will probably remain high.
How is the market situation?Pass I think the need for building and construction is high, and I think its going to remain high in the future
Is the company reliant on innovation or high-tech? Pass It is not a tech-company or reliant on R&D.
Is the company ethical? Pass Yes, I think Skanskas values are sound and they fill my requirements of an ethical company
Is there a beneficial ownership structure? Pass Industrivärden holds 24% of the votes and Lundergs holds 12%. I see this as very positive

Well, this is positive. Very strong owners and a good market situation.

Comparison to competitors 3 year average revenue (Mn SEK) Pass Skanska (136,421) NCC (57,305) JM (13,099) PEAB (44,532)
How are the margins? Fail Skanska (2.5%). NCC (3%) PEAB (4%) but very volatile. (JM 9%) (!)
What is the ROE compared to competitors? Fail Skanska (18%) NCC (22%) PEAB (12.5%) JM (28%) Yield Pass Skanska (3.8%) NCC (4.5%) PEAB (3.6%) JM (3.4%)
Dividend growth Pass DPS 5yr CAGR, Skanska (23.48%) NCC (24%) PEAB (neg) JM (35.6%)
Debt/Equity Fail Skanska (3.334) NCC (3.397) JM (1.5) PEAB (2.55)

Skanska is the largest as far as revenue goes. But has low margins and ROE. Skanska is Yielding 3.8% and has a nice dividend growth. Building and construction is a capital-intensive business, but Skanskas debt to equity is pretty high compared to its competitors.

How is the current valuation?
Price per share as of 2015-10-13 is 174.9 SEK
EV/E Fail 39.69
P/E Fail 17
P/E (ttm) Fail 19
Dividend yield Pass 3.8%
P/(Book-Goodwill) Fail 5.8

The EV to E is high because of the high debt. The company is expensive in my opinion.

What price could be interesting? Well, At a P/E of 15, the price per share would be 138 SEK At a dividend yield of 4%, Price per share it 168 Sek At P/(Book-Goodwill) of 3, the price per share is 95 SEK

Conclusion Wow, This became a dense post, but I enjoyed analysing Skanska very much, but what conclusions can we draw? I ended up with 13 Pass and 13 Fail

The biggest turnoff is the lack of earnings growth and the relatively high debt to equity. However, I think the building and constructions demand is and will remain positive for Skanska. Also Lundbergs and Industrivärden is a great owner.

I am not going to buy Skanska at the current price. If the price reaches a yield of 4% I might consider buying and if the price reaches P/E 15, I will buy.

That’s it for this post! I hope you enjoyed it, I really learned a lot and it was very interesting!

Best regards
-Samuraimannen

Disclosure: I do not own any shares of Skanska (2015-10-14)

Please remember that I am a happy amateur, don’t make any investing decisions based upon my analysis. Always do your own analysis!