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A MICROSCOPE ON RETAILING. 22/8/12

A MICROSCOPE ON RETAILING. 22/8/12

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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9 Comments

  1. Just going through the results of FLT which i have always been a fan of. Did i read the balance sheet and cash flow statement right which basically says that they have over $1 billion in cash and equivalents? At least we know this company should be fairly liquid and safe from a cash problem.

    I went over all the travel related ASX companies when i tested my competitive advantage identifier a while ago and one thing that came up was the amount of free cash these companies generate and low gearing a lot of these companies have.

  2. ashley.little.581
    :

    ARB Founder is selling down. and not mickey mouse number

    Huge eyebrow raise for me

    Cheers

    • zoran arnautovic
      :

      ARB
      Yes,I saw that and I think I made history ” This is the first time I sold all my ARB before Roger”

      Cheers

  3. Steve Moriarty
    :

    I think I remember seeing that JBH was planning to enter the music instruments business.

    I see that Allens Billy Hyde went into administration and whether this would present any opportunities for JBH to enter the sector. Maybe pick up some cheap instruments or locations etc etc.

    regards
    Steve

  4. Roger, has your phone be rinigng a lot today from journalists seeking comment about “what went wrong with Qantas?”

    The simple answer is “It’s an airline”.

  5. Interesting thoughts Roger, i always follow JBH as i like its business model (however one still needs to ask whether that business model is still as strong today as it was previously). I was very interested to hear the results from the price comparison exercise, it conflicted with my observations but mine were no-where near the scale of yours i would imagine and took into account only a few items.

    I have long wondered what will happen when the aussie dollar drops and what this will mean for the listed retailers (Myer excluded, don’t need to worry about them). The dollar will drop at some point and with what appears a slow down on the resources front it could be happening soon.

    I also was interested to hear the belief that bricks and mortar retailers will rule the web when they eventually get around to focusing on it due to their advantages in scale and the ability to walk into a store and refund an item rather than send it back by post. It makes sense but i think before they start talking about their potential internet dominance they need to get started seriously on their net stores first as they are already about 5 years behind. Also, as people become perhaps time poor internet retailing will only grow even more popular so if they don’t get a wriggle on then current players will just entrench their position.

    I believe that margins for JBH will again have pressure put on it by competition and price deflation in certain lines so it will be a tough little period yet. Hopefully for JBH Apple and Samsung bring out some new products that generate the same buzz as previously as that will give them a bit of a kick for a year or so.

  6. garry hawthorne
    :

    Is there a method to use eps forecasts to help calculate future intrinsic value?
    i’ve worked through Valuable book and understand and can apply the intrinsic value tables. However, yet to find a valuation exceeding current price or close enough to suggest worth monitoring that stock. How can eps forecasts be used to calculate future intrinsic value. Or is there a better method?
    Also i manage a modest smsf. Is 9% desired return appropriate, given its tax rate of 15%.

    • Hi Garry,

      Value.able should explain it in there. There is a way to use analyst forecasts for the future to come up with future valuations.

      DPS/EPS=Pay Out Ratio
      EPS/average of beginning and ending EQPS=ROE
      Ending Equity=Beginning Equity+EPS-DPS (there are some other steps but this is the generic version and should be fine for most).

      Hope that helps, i do future value forecasts a different way but i was using this for a bit and some of them came pretty colse to the reported figures.

      Just beware that as in any valuation technique what you get out is dependent on the quality of the inputs you put in and sometimes out there in analyst land (especially at the start of the year) they can be way off.

      Just some food for thought and have fun playing around and see what works for you. Roger’s book is about the best blue print i have seen for it.

      I don’t know if anyone other than you could answer the desired return question. It depends on how you come up with your required return.

      Looking at an interest rate comparison website i can get a savings loan with a rate of 5.75% basically risk free, Australian 10 yr government bonds are yielding 3.35% so i don’t know what you want to use as a risk free rate. I have never went below 10% and then most of mine are 12% but that is me and not you.

      • garry hawthorne
        :

        Thanks very much Andrew. Your help has given me much to work with. Also thanks for the tip re early year forecasts.

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