Stock Analysis Pollie-style – NN Group– 2019.
Diversification is what saves my Vrijheid Fonds when the markets will hit a financial storm. I want to position myself appropriately to protect my Vrijheid Fonds and decrease my risk factor. In order to do this, I want to diversify geographically by investing more in European companies.
So I’ve been looking in Europe for possible additions for my Vrijheid Fonds. Of course the first stock market I looked at, is the oldest stock market in the world, The Euronext Amsterdam (maybe I’ll write a post about the origin of the stock market). I have selected a number of stocks on which I do some more research. Today is my second post on this research.
If I look at my portfolio and its diversification, I think I can do with some extra financials. So, I dove into the Dutch Financials.
This analysis is on NN Group (XAMS: NN).
From Wikipedia: NN Group NV is the parent company of Nationale-Nederlanden (NN) and NN Investment Partners. Nationale-Nederlanden is one of the largest insurance and asset management companies in the Netherlands. NN Group is headquartered in The Hague. NN mainly relies on independent intermediaries for selling insurance.
Can I explain this to a 10-year old? What Does This Company Do?
This company sells insurances for our house or car. And NN owns mutual funds and manages them. You can invest your money by buying a mutual fund from them.
Dividend Aristocrat: NN has been paying dividend since 2014. Okay this is not a very long time, but there is a story behind it. NN was founded in 1963 after a merger of two very old companies. And in 1991 NN merged with the NMB Postbank to form ING. However, during the credit crisis ING has been forced to split into two companies (banking and insurances), ING and NN Group. They have been listed on Euronext in Amsterdam since July 2014.
NN has been paying dividend for 5 consecutive years. They pay around 40-50% of the net operating results as dividend. NN is still far away from the 25 years which are required to become a dividend Aristocrat. Therefore,it is a Fail!
Dividend Yield > 2.5%: The dividend Yield of NN is 5.79%. This is above the industry average of 3.00%, and above its 5 years average (4.36%). The Yield is above the requirements of the Pollie-Code, and therefore it is a Pass.
Dividend payout <70%: The dividend payout is 54%. This is below the maximum ratio, and that is what a DGI wants. NN passes on this point.
DGR 1 year > 0%: The dividend growth rate for 1, 3, and 5 years are 14.4, 22.6 and 233.33. With a 3-years average around 22% this looks very good! And it is above the requirements of the Pollie-code, so it is a Pass.
P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. NN has a current P/E ratio of 10.3. The industry average is 15.6. The P/E ratio is below the industry average and slightly above its own 5-years average (9.5). The P/E-ratio is below the requirement of the Pollie-Code. So this is a Pass.
EPS > 0: The EPS is 3.15 (2018) Therefore NN passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested.The current ROE is 8.6%. This is a Fail.
Market Cap. > 100M: No problem at this point. The Market cap. is more than $ 11.917 Mil. You guested it already: Another Pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 28.4. So it is another Pass for NN.
Stock price 52wk high-25%: The 52 wk. high and low are: 39.57 and 33.87. This means that NN will be in my buying zone when the stock price is below 38.14 ((39.57-33.87)*0.75 + 33.87). At this moment NN is trading for €36.01. Therefore it is a Pass on the Pollie-Code.
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for NN is 0.88.
Debt/Equity ratio: The Debt/Equity ratio of NN is around 0.38. This is the kind of ratios I like to see for a company. 🙂
When I look at my analysis, NN passed 8 out of 10 metrics of the Pollie-code!! NN isn’t a Dividend Aristocrat yet and they failed on the Return On Equity. The ROE of NN is in line with the peer average, so no worries here.
For a European company, NN has a promising dividend record. They have a stable to progressive dividend policy. The dividend has been raised every single year. With the low payout ratio, NN will be able to keep paying these dividends. And if we look at the current balance sheet, you can see that they can easily carry the dividend.
All this information together I certainly will put NN on my watch list for my Vrijheid Fonds. At this moment NN is looking very attractive to me 😉 .
What are you – the readers, thoughts on NN Group? Is it a buy, do you own it?
Please comment on my analysis and thanks for stopping by!
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