Stocks
Created 2023-03-31
Chap 1 : Terry Smith Stockopedia screen
Roland's criteria:
- C1 : Economic sector includes consumer cyclical, consumer defensives, technology, telecoms, healthcare and industrials
- C2 : Long-term average ROCE greater than 14%
- C3 : Operating profit margin (TTM) greater than 15%
- C4 : Net debt less than five times TTM net profit
- C5 : Interest cover (TTM) greater than 10x
- C6 : Price to free cash flow (TTM) less than 30 (equivalent to 3.3% FCF yield)
- C7 : Free cash flow 5y growth rate greater than 0%
- C8 : Market capitalisation greater than £500m
As an example, DTY (Dignity), in 2021 Net profit was £12.1m, net debt was £+556m. So C4 = 556/12.1 = 46, which is way too high. In 2016, NP= 57.2, NDebt = 524, so even at that stage, it was too high.
Contrast with CCC in 2021, which had negative net debt. So it's good.
ULVR 2022: net debt = 22916, net profit = 7642 => C4 = 22916/7642 = 3.0. So it's OK.
BNZL 2022: net debt = 1627, net profit = 474 => C4 = 1627/474 = 3.4. Safe
DPLM 2022: net debt = 398, net profit = 94.7 => C4 = 398/94.7 = 4.2. Safe