value and opportunity

Another “New Entry” in the Magix Sixes Screen (P/B < 0.6, P/E 6%) is Esso S.A.F.

The company is described by Bloomberg as follows:

Esso S.A.F. refines, distributes and sells petroleum products such as gasoline, heating and other fuels, distillates and asphalt. The Company’s subsidiaries include Esso REP and Esso Raffinage.

Esso is a 82% subsidiary of Exxon Mobile, market cap is around 800 mn EUR (12.9 mn shares at 63.4 EUR)

Current “traditional” valuation metrics are:

P/E: 5.8

P/E 10: 5.3

P/B 0.5

Div. Yield 7.9%

P/S 0.1

EV/EBITDA /Trailing 12M) ~6.0

Almost no financial debt

Tangible Book /NAV = 95%, almost no intangibles

So at a first glance, the stock looks extremely attractive.

However, a quick look at the Earnings history quickly shows that it is a low margin and highly volatile business:

	TRAIL_12M_EPS	Profit Margin	ROE
1999	-2.36	-0.50%	-4.7%
2000	13.76	2.08%	26.7%
2001	13.56	2.08%	22.9%
2002	-2.76	-0.44%	-4.7%
2003	5.28	0.84%	9.5%
2004	13.92	1.93%	19.0%
2005	28.82	3.23%	28.1%
2006	18.03	1.88%	15.2%
2007	28.68	3.16%	23.5%
2008	-3.10	-0.27%	-2.4%
2009	6.98	0.88%	5.7%
2010	11.48	1.17%	9.3%

The Chart looks interesting, the stock trades at all time lows:

Among the minority investors, only Sparinvest as known Value shop has a small position. The share is only coverd by three bank analysts with infrequent coverage (which is good).

Summary: Based on the very first screening, Esso S.A.F. could be an interesting contrarian and highly cyclical investment, as the comnpany has a very solid balance sheet. However, I need to dig a little bit deeper into the past in order to identify potential structural issues.