So far I looked at company only once in February (read more). It is a high time to revisit company and have a closer look, although share price is doing well, is around all-time highs and probably it will not be a hot investment idea for me.

If we look on results for 1Q17 we can see that margin is improving (higher growth on lower lines of P&L).

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That’s good, because margin was under pressure over the last years. Nevertheless potential for increasing margin is limited and sales was growing only by 1% YoY. Increase of EPS is also due to buy buybacks.

Company is highly concentrated on generating cash flow – that’s good from investor’s perspective.

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Trend is quite obvious, we will see whether it will be kept in the next years.

 

Estimated valuation ratios (on next year):

EV/EBITDA = 11

P/E = 20

Return yield: dividend yield 2.5% + buyback 6%

Buyback is funded with debt. In my opinion it is not a good indicator taking into account current high share price.

 

Summing up, I do not feel that buying shares currently is a right decision. Business is flat on revenues, valuation is not low, shares are at all-time highs. Growth on EPS is partially due to buyback program, but buybacks are financed from debt, so these are not sustainable over the long time. I simply see no reason to buy.

 

Disclaimer SYY – no position