Lenovo Group Ltd. – Value Analysis (FRANKFURT:LHL) : December 26, 2017

Capitalcube gives Lenovo Group Ltd. a score of 66.

Our analysis is based on comparing Lenovo Group Ltd. with the following peers – HP Inc., Compal Electronics, Inc. Sponsored GDR RegS, Acer Incorporated Sponsored GDR RegS and Quanta Computer Inc. Sponsored GDR RegS (7HP-DE, COMEL-LU, ACID-GB and QUNCP-LU).

Investment Outlook

Lenovo Group Ltd. has a fundamental score of 66 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance over the last year is in contrast with the more recent outperformance.
  • It currently trades at a Price/Book ratio of (2.16).
  • LHL-DE outperforms its peers with a relatively high operating performance and the market also expects faster growth relative to its peers
  • LHL-DE‘s relative asset efficiency and net profit margins are both around the median level.
  • The company’s year-on-year change in revenues and earnings are better than the median among its peer group.
  • Over the last five years, LHL-DE‘s return on assets has declined from about median to less than the median among its peers suggesting that the company’s historical competitiveness in operations is slipping away.
  • Company appears to give away relatively high gross margins to relatively high operating costs suggesting a differentiated product portfolio with low pre-tax margins relative to peers.
  • Compared with the peers chosen, LHL-DE has had faster revenue growth in prior years and a current P/E ratio that suggests faster growth in the future suggesting superior growth expectations.
  • The company’s level of capital investment seems appropriate to support the company’s growth.
  • LHL-DE seems too levered to raise additional debt.

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Leverage & Liquidity

LHL-DE would seem to have a hard time raising additional debt.

  • With debt at a relatively high 43.05% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 57.84%), and relatively tight interest coverage level of 0.09x, LHL-DE would have a hard time raising much additional debt. The company has a Constrained profile in terms of its ability to take on further debt.
  • All 4 peers for the company have an outstanding debt balance.

LHL-DE has maintained its Limited Flexibility profile from the recent year-end.

  • LHL-DE‘s interest coverage is its lowest relative to the last five years and compares to a high of 57.24x in 2013.
  • Though its interest coverage decreased to 0.09x from 1.65x (in 2017), its peer median remained relatively stable during this period at 8.07x.
  • Interest coverage fell 1.23 points relative to peers. It is also below the 2.50x coverage benchmark unlike the peer median.
  • LHL-DE‘s debt-EV has declined 4.15 percentage points from last year’s high but remains above its five-year average debt-EV of 22.65.
  • The decrease in its debt-EV to 43.05% from 47.20% (in 2017) was also accompanied by a decrease in its peer median during this period to 57.84% from 66.01%.
  • Relative to peers, debt-EV rose 4.02 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
HP Inc. N/A 1 13.58 53.43
Compal Electronics, Inc. Sponsored GDR RegS 72.63 1.36 8.07 25.08
Acer Incorporated Sponsored GDR RegS 25.88 1.36 8.56 52.64
Quanta Computer Inc. Sponsored GDR RegS 85.73 1.18 5.52 9.74
Lenovo Group Limited 43.05 0.79 0.09 11.26
Peer Median 57.84 1.18 8.07 25.08
Best In Class 25.88 1.36 13.58 53.43

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Company Profile

Lenovo Group Ltd. is an investment holding company, which engages in the developing, manufacturing, and marketing technology products and services. Its products include personal computers, workstations, servers, storage, smart televisions, and mobile products such as smartphones, tablets, and applications. The company was founded in 1984 and is headquartered in Hong Kong.


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