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Does Roger Montgomery think online businesses are good, bad or just plain ugly?

Media Room, TV Appearances | Comments (102)

Does Roger Montgomery think online businesses are good, bad or just plain ugly?

The best online businesses are lists – seek.com.au, realestate.com.au, carsales.com.au and Wotif.com.au are just four listed on the ASX. What are the risks associated with investing in online businesses? Loss of competitive advantage. Is carsales.com.au at risk? In this appearance on Switzer TV Roger Montgomery also reveals his Value.able intrinsic valuations for Carsales, Seek and Wotif. Watch the interview.

INVEST WITH MONTGOMERY

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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102 Comments

  1. Rob
    :

    I just came across this Wall Street Journal online article.

    If B & M Retail shops want to know how to do it, there’s more than a hint or two here.

    http://online.wsj.com/article/SB10001424052702304563104576364071955678908.html

    One of the many things that got my attention was this sentence.

    More people now visit Apple’s 326 stores in a single quarter than the 60 million who visited Walt Disney Co.’s four biggest theme parks last year, according to data from Apple and the Themed Entertainment Association.

    It seems to me Apple’s competitive advantage is not only its brand.

    The article is a must read.

    Cheers
    Rob

  2. Brad
    :

    Re CCP, l read the 19/5 guidance, looked like they’re 5% ahead of Feb guidance in terms of 30/6 npat

    My Val is considerably higher than current share price

  3. CBJ
    :

    Thanks for the reply Ron. I have the same numbers as you. With earnings close to 10 cents that makes them a very cheap business at the moment even with a large required rate of return. Also, as subscriptions grow and revenue increases, their cost base should remain low, which will lead to a higher profit margin. The real risk though is the licence with Tattersals, which expires in 2013.

    In a recent presentation, the MD said that they have spoken to every state of America about online lotteries, so that once the legislation changes, they will be able to hopefully reap the benefits. If they managed to get a deal with even one of the states, it will de-risk this one somewhat.

    The under performing software distribution business has been sold off and should not drag this company down any longer. I have bought a small parcel as I believe that when the next profit report comes out, without the software business clouding the picture, people will begin to see the potential of this business and how undervalued it currently is.

    • Ron shamgar
      :

      JIN has announced today tatts will begin competing with them in the nsw market soon. If I were tatts, I wouldn’t renew their contract and then make a low ball takeover by stealth.

      • Roger Montgomery
        :

        JIN said that they’re competitive advantage is the relationship with their database. One does wonder whether the terms of Tatts’s contract with JIN allows access to the database of people buying the Tatts product through JIN. If it does, no takeover is necessary.

  4. Rob
    :

    Before Mal quotes it.
    “The reports of my death are greatly exaggerated” – Mark Twain

    I’ve been reading all the comments about the demise of bricks and mortar retailing and thought “value investors certainly aren’t immune from the herd mentality”.

    I had considered tracking bearish and bullish comments about retail and the economy and matching them to the Dow or ASX.

    Before Easter there was a host of comments regarding retail, especially what makes a good and bad retail store.

    Now it’s doom and gloom and even the good ones are going to hell in handbag (sorry for the pun ORL).

    Do people really think b & m retailing is dying?

    Just let’s look at one store that does it well. It’s always packed. It’s always full of young people, this new generation that’s ringing the death knell for B&M with their online habits.

    There are two stores nowhere near me, at least 40 mins in good traffic and I’m equidistant from both. On bad days when parking’s aplenty and the shops are deserted this store is packed.

    They have a massive online store and have had so for as long as I can remember. They now have probably the biggest volume of online sales in the world and guess what they’re in the hot IT sector. Yes, no surprise it’s Apple! I’ve been in the New York store at midnight and it’s the best example of having a licence to print money I’ve ever seen.

    Let’s look at JB HiFi and all the conjecture about it’s future. It’s been competing against iTunes since 2003 and yet here’s what JB has to say about software (music, movies and games) in their February 2011 Report to Investors.

    “We continue to gain market share in all software categories, with customers attracted to our great prices and broad range. We continue to invest in all software categories, with it being an important part of every new store that we roll out.”

    “The reports of my death are greatly exaggerated” – B&M Retail.

    Cheers
    Rob

    • Andrew
      :

      Nice post Rob, and i agree with you. It might not sound like it with my other posts but that is the problem with being a more visual than written person. I see what i mean but i may not be able to explain it that well.

      Your example about Apple is exactly what i was talking about in regards to the future of bricks and mortar retail. Going to an Apple store is more than just walking in and finding the product and going to the register. When you walk into an Apple store you walk into the Apple brand. The product knowledge is exceptional and it is an experience for the customer.

      This is what retail should always have been but very few people see this i think and no surprises Apple (who i think are one of the more progressive and innovative companys) got on board before a lot of others.

      Bricks and Mortar will not go extinct, they will always have a place and there will always eb demand for it, and if they have a clearly defined brand and take advantage of that i don’t think they will really suffer all that much as long as they can offer the customers a brand experience, something more than just price.

    • Steve I
      :

      Rob,

      Great comments. People will always over estimate and think that things have changed when in fact they haven’t changed but are a little different.

      The major problem that I foresee for retailing in the coming years is that retail growth is highly correlated to house prices. I think house prices will fall along with credit growth and therefore think that retailing will experience some tough years.

      It will never be dead, but I think it is cyclical. Retailing has been a great place to be for the past decade. So have houses. Therefore due to my underlying assumptions, I prefer to avoid retailers now as I expect that conditions could get much worse before they get better. Companies such as TGA and CCV which sort of sit in the retail space can still do well. JBH with it’s lean model should should be better placed than traditional retailers. Given the challenging conditions, I expect that there will be some great bargains to be had in the future.

  5. CBJ
    :

    Hi All,

    While we are on the topic of online businesses, has anybody had a look at Jumbo Interactive (ASX: JIN)?

    They run the ozlotteries.com.au website, which allows people to buy lottery tickets on the internet. Revenue and profit has increased steadily from this division over the past few years. In 2011 they forecast around 80m revenue and 4.5m profit, and currently have a market cap of 16m.

    I would be interested to read peoples thoughts as to their competitive advantages and whether they are sustainable? Barriers to entry do not appear high from a technical point of view, but the company has held the licence for online lotteries since 2000.

    • Ron shamgar
      :

      Hi CBJ, I have mentioned this company several months ago. They are cheap. The problem is they are very small and highly illiquid. In addition they had some underperforming business which they finally got rid off and can now focus on Oz lotteries business. Their competitive advantage lies in their contract with tattersals and the value of that agreement to tattersals. According to my calculations they will earn close to 10cents next year and pay a 4cents dividend. The blue sky in this business is if they can expand to the US and Europe. In the US they are waiting on change of legislation. One to watch but it may not be the most ethical investment as it is a form of gambling.

  6. Joseph Rich
    :

    Hi Roger,

    I was wondering about your valuation for RIO. Using the methodology outlined in your book, at a 10% RR, I’m getting an IV of $93.19. I’ve also made the assumption of a long term ROE of 20% (was 24% for 2010).

    Is this consistent with your valuation? Also, any comments on the quality of RIO as a business?

    Thanks,
    Joe

  7. fred
    :

    Hi Roger,

    i would like to start learning about commodities, do you know any good books that you can recommend to me, Thank’s

    • Roger Montgomery
      :

      Read the first four by Jim (Rogers). Adventure Capitalist, Investment Biker, Hot Commodities and A Bull in China. I haven’t read A Gift to my Children or Mid Life Metamorphosis.

  8. fred
    :

    hi Roger,

    I have been watching Jim Roger’s on you-tube ( your buddy ) and Mr Roger’s said that he was very bullish on silver but in Ben’s book he wrote ( he who loves silver will not be satisfied by silver ) Who is right ?????????

    Thank’s Roger alway’s

  9. ken fraser
    :

    PDL collections for Credit Corp are reducing in 2012 to $40-60 million. 2011 collections were $87-89 million. This is according to their company announcement last week.To me it looks like their profit will be down in 2012. I am far from an expert so I could be totally wrong. Has anyone got an opinion on this? Thanks a lot.

    • Grant Rogers
      :

      Note that at the start of 2010/11 they also said that PDL would be 40-60m. Companies like CCP have been underpromising and overdelivering for a while now. I wouldn’t be suprised if this figure is once again surpassed. It sure will be a test of their competitive advantage (skillfull pricing of ledgers), if they outlast the competition they will gain more market share…

      Will be interesting to keep an eye on.

    • Michael S
      :

      Hi Ken,

      The 2012 purchases are forecast to be less than 2011 yr. For the 2011 year they forecast less than they have actually bought. I think they buy more when returns are favourable and withhold buying when they are not.

      The collections will rise next year (by my guess) and so will the NPAT and IV.

      The following is from their recent presentation (19.5.11)
      (available on ASX website) :

      “…and we will maintain our purchasing discipline in FY12
      • Deterioration in the quality of charged-off debt over the last 18 months(1)
      • Credit Corp has leveraged improved operational execution to maintain attractive
      PDL prices
      • Recent evidence that competitor pricing has now exceeded the levels required
      to meet our minimum return criteria
      • Initial FY12 purchasing guidance of $40 – $60m (FY11 initial guidance also $40 – $60m)
      (1) Refer Credit Corp’s February presentation for a more detailed explanation”

      I like the fact that they are not chasing higher volume at a price that reduces return. I think of Warren Buffett describing a similar thing with some of his smaller insurers that have delivered sensational long-term results. Their sales increase and decrease with insurance cycles but the returns remain high because they are disciplined when pricing conditions deteriorate.

      My figures (guesses for 2012) show a discount to IV for the current year and the IV rising next year by about 13%. I haven’t factored in what seems like a great move to set up a collection facility in the Phillipines – they said it became profitable in 5 months!

      NB. I own some CCP shares and have done for quite some time.

      Regards,
      Michael S

  10.  Gail
    :

    Help, I tried to get my IV for BGL and using average equity, 12% RR and 22.5% ROE, I came up with 40 cents. Then I noticed others had 25 cents. I am surprised at the large difference. Am I off the track and if so, please point me in the right direction.

    Love this blog, have purchased our first two lots of shares. Almost had a heart attack when I pushed the ‘buy” button for the first time.
    cheers

    • Brad Voigt
      :

      Hi Gail, Would say you are being generous with a required 12%RR think 14 %RR would be more appropriate for a small company with limited track record. Always better to be on the conservative side. Remember Margin of Safety !

    • David Martin
      :

      Gail, good luck and welcome to the blog – the “sell” button (from my experience )is often the more difficult one to get right!.

      You will find quite an array of very astute investors on this blog and some inceredivble and insightful knowledge.

      I was looking at this one the other day (thanks Ron) and taking into account thier half year to Decemebr 2010 results i come up with a similar number.

      If you go back a few days Ron wrote a very good piece on this stock which was the catalyst for me to look at it.

      Best of luck

  11. Brad
    :

    I reckon > 70% of market commentary is about prices which leaves <30% of time actually talking about business itself.

    No wonder most retail investors I've met find the markets price volatility difficult to deal with.

    Professional investors again in my experience fare even worse on this measure, but that is a whole other story!

  12. Brad
    :

    Also, has anyone noticed eBay has got into selling new items, trainers, apparel, kitchen accessories etc?

    maybe it’s cactorama for traditional retail, let alone retail property values?

  13. Brad
    :

    Did anyone see the interview on Switzer tonight with the CEO of catch of the day? (Gary Lebowitz?)

    The have a deal each day at midday which goes until the item sells. They’re flogging all kinds of stuff, Manchester, heaters, one day he reckons they sold 2000 tv’s!

    They’re expanding into apparel, fashion and groceries.

    And tthese guys actually have a warehouse! Unlike Kogan and Milan direct

    Online is only 4% of retail sales but it’s gotta rise. In fact I read DVD sales are down 20% in the US this year

    How can bricks and motar high St retailers compete?

    • Andrew
      :

      I just posted on the ‘Keep Calm and Carry On’ post about my thoughts on your last sentence.

      Without repeating myself as once it is moderated you can read the garbled post, i think in the case of big retailers with a created brand, the sales will be done online but they will use bricks and mortar shopfronts to sell the brand. it will be about creating an experience for the customer and showcasing their products.

      Lower end boutiques with no developed brand will stay as is but will find it hard to compete as they won’t be able to match on price but will have to rely on impulse purchasing which will always be a factor.

    • Ben
      :

      I know a few people in the online retailing space, and from what I understand this company has huge turnover, but tiny profits. A friend of mine has built an online retailing store from the ground up (some bloggers here have probably used it) and although they are looking at turnover approaching 9 figures, the margins are around 1% (CotD is also in the barely profitable category according to those I know in the industry). If you ‘re working on paper thin margins without any real competition, it’s hard to see how they will be profitable once the larger players start agressively targeting online.

      At the moment, from what I have been told, in many ways it’s about building as big a market share as possible. Which seems very reminiscent of 1999, I was only 17 then but how many times did I hear the CEO of xyz.com say “You can’t judge us off our profitability, it’s all about revenue growth, there’s been a paradigm shift…” Hardly the hallmarks of an extraordinary business!

      Just my two cents.

      Cheers

      Ben

      • Ash Little
        :

        Hi Ben,

        Your comments about the tech boom reminds me of a conversation I had with a friend of mine at the time. Now this guy is no dill as he is now a Partner in one of the big 6 accounting frims now(actually he probably was back then)

        The conversation revolved around the ridiculous PE ratios( Yes I know I am swearing but i did not know that at the time) for listed businesses.

        I was saying that it was getting ridicuous. The earnings of these companies are nil or virually nil.

        My friend’s comment has always stuck in my head. “Ash you are just so old school. Haven’t you heard their is a new way to value things besides PE’s. This is the new era for the next centruary.

        The more things change the more things stay the same.

      • Andrew
        :

        Perhaps i am a bit too cynical but my thoughts are that some (not all) companys management will point to anything that makes them look better in order to pat themselves on the back and get the share price to rise.

        Revenue growth is great, but its not the end game. If that revenue growth is coming due to margins being sacrificed or costs growing at a larger rate than that revenue growth means very little.

        Profit and profitability i think will always be the best guide to judge performance for any particular period.

      • James
        :

        Hi Roger,

        I think the quote is: “Revenue is vanity, cashflow is sanity, profit is reality’

      • James
        :

        Apologies; you were right. The real quote is: R is Vanity, P is Sanity and CF is Reality

  14. fred
    :

    Hi Roger

    Panoramic Resources ( pan ) I mentioned ( pan ) to you some time ago. I believe that ( pan ) might now be worth while watching. ( For me i need a greater discount to intrinsic value )

    For 2012 I have a intrinsic value ( sell price )of $ 3.00 about

    Thanks always

  15. ZORAN
    :

    Hi Roger/ BOOK

    Will there be “updated” version of Value.able soon?

    Apart from your book I like something completely opposite: Trading for a Living by Dr Alexander Elder.

    With these two books you can get enough excitement to keep you going
    for years.

    Cheers
    Zoran

  16. fred
    :

    Hi Roger.

    Thank you and Ash for your comments about Hastie group.

    ISS Group was graded as a A1 some time ago but its share price does not seem to be getting any traction. I do not hold ( iss ) but I am watch it with some interest.

    Thanks always Mr roger

  17. Richard
    :

    JBH Buyback

    Hi Roger,

    How would you account for the recent JBH buyback. They are using debt to fund the buyback. So debt increases and equity reduces considerably. This is increase their ROE quite a bit in 2012 and thus the IV. I estimate that 2012 equity will be around $172m. Assuming NPAT of $150m, ROE will reach around 87%. At the stated 60% payout ratio and RR of 12%, the IV goes to around $32 if I follow your process correctly. But my gut feeling is that something’s not right and the extremely high ROE is giving too high an IV. Your thoughts?

    • Robert P
      :

      Very high ROE are a problem for the no dividend case. That is why Roger suggests that if the ROE is larger than the values in his table then use the largest. This should also probably apply to the no dividend case as well.

    • Robert P
      :

      I forgot to mention previously that without the margin of safety the value estimate requires ROE to be constant. Thus the long term sustainable ROE should really be used. Roger has already noted that for JBH the ROE is very likely to fall. It certainly will not be nearly as high as at the moment. In some cases the IP (Simmons book referred to in Valuable) can help. But it is not always meaningful, and sometimes cannot be calculated. As an exercise it is possible to look at ROC. In this case before and after the buyback. Another consideration is the ‘times covered’. Neither is appropriate to companies that have low debt. it is the low debt ones that one should be buying.

  18. Bret
    :

    I know everyone on this blog has read or is currently reading Roger’s book and regard it as one of their great investing books. Thought it could be cool for us to suggest other books that you might have read and found really helpful for your investing. I really enjoyed One Up on Wall Street but I’m sure others have read some books that are less known that may be little gems….

    I’m sure Roger has his fair amount of books that have helped guide him over his many years of being a professional investor.

    • ron shamgar
      :

      i have read quite a few and this is the best! i recommend it to anyone beginning their investing journey and ones who are half way through!

      • Wayne
        :

        Two book I liked very much were;

        Reminiscences of a Stock Operator : Life and Times of Jusse Livermore

        Come into my Trading Room: Dr Alexander Elder

        That said, I need both hands to court the friends and work mates that have RM’s book Value.Able and this is not the case re the above.

    • Scott T
      :

      I have read dozens, there are so many about an individuals personality, drenched in strategy or rambling on about so and so’s experiences thought out their career.

      I was so delighted when I discovered something so concise, so relevant and so applicable as Value.Able

      Value investing takes time, sometimes hard work and always patience.

      All the best

      Scott T

    • Ray H
      :

      Top five for me (in order):

      1 Value.Able
      2 Intelligent Investor
      3 Snowball
      4 Common Stocks and Uncommon Profits
      5 One Up on Wall Street

    • Michael
      :

      Here they are. The best books ever written on the stockmarket:

      1. How to make money in stocks – William O’Neil
      2. Come into my trading room – Alexander Elder
      3. The five rules for successful stock investing – Pat Dorsey
      4. Buffett Beyond value – Prem Jain

      Note these are not all value investing books – William O’Neil uses fundamentals and technical together. Alexander Elder’s book is technical analysis – one of the only ones worth reading. One thing I like about his systems is that when amateur technical analysts are buying – he is probably selling and vice versa. I use his systems to time my purchases selected using value investing methods – with improved results to using one method alone.

      Interested also is seeing others lists.

    • Paul Rehill
      :

      I liked that Peter Lynch book.

      Security Analysis: The Classic 1951 Edition, Benjamin Graham and David L. Dodd
      The Intelligent Investor. Benjamin Graham.
      Poor Charlie’s Almanack (Expanded Third Edition). Charles T. Munger
      Common Stocks and Uncommon Profits and Other Writings. Philip A. Fisher.

      for a start…

      • Bret
        :

        A couple of people have mentioned books by Alexander Elder. Have not read any of his before but will look into it.

        My list would have and not in any particular order

        – One up on Wall Street
        – Intelligent Investor
        – Value.able

        I thought Value.able biggest strength compared to others was I got a great understanding of how to value a business and it simplified everything….such as how money compounds and dividend payouts etc….

        I read a book called YES – The Power of Persuasion recently that has nothing to do with the markets but Munger recommended a similar book from Cialdini’s writings. I thought this was a great read but one thing stuck out in regards to the market. “When people hear or read something emotional they end up buying or selling at times that do not reflect any numbers”. – Thought this explains exactly how bad news will create great opportunities if you have all your research and prices prepared.

      • Bret
        :

        no worries….you should read the book. I found it at the local library and they even have a cd so you can listen to it when your travelling.

  19. costas
    :

    Hi Roger.Was surprised with LinkedIn IPO.It looks like everything is getting good in the technology and social media sector.Do you see value in that company or will it be a bubble similar to the .com we had years ago?

  20. fred
    :

    Hi Roger,

    Hastie group ( hst ) In regards there Income statement Roger.

    Operating earnings before interest and tax

    significant items- doubtful debt provisions ( 33,450,000 )

    – goodwill impairment ( 69,129,000 )

    – write-off of brand value ( 1,348,000 )

    Acquisition – related costs ( 174,000 )

    Total ( 104,101,000 )

    Are these a 1 time write-off and yes I think I know what your answer will be but its worth a shot.

    Thanks always roger

    • Roger Montgomery
      :

      If you are trying to get to an operating earnings number, then these are one offs. if you are trying to get a valuation that incorporates management’s ability, then you may not quarantine all of them.

      • Ash Little
        :

        Hi Ron & Roger,

        Adam Schwab wrote a book called pigs at the trough which I think is very good. One thing in it has stuck in my mind and I will paraphrase ot below.

        If a gain is a one off expect that wont be repeated. If a loss is due to management expect that it will be.

        This seems very apt in this case

    • Paul Rehill
      :

      Hi Fred

      Take a look at the 2010 Annual Report:
      – Pg 25: 2010 EBIT = $72.5m
      – Pg 25: 2010 Net finance costs = $20.6m
      So net interest cover = only 3.5 times (< 5 times) which is quite low so your safety of principal is at risk.
      – Pg 57 onwards: Note 26 Business Acquisitions.
      – 2010 cost of acquisitions = $20m
      – Estimated EBIT of the group if acquisitions occurred at 1 July 2009 is $72m.
      So HST spent $20m to add nothing to its EBIT (i.e. Zero return on investment). This looks like a very risky play with management borrowing excessively, making acquisitions that reduce ROE and need to find someway to reduce debt.

      • Roger Montgomery
        :

        Well done Paul. With regards to “So HST spent $20m to add nothing to its EBIT”; if its just the first year, remember, ‘One snow flake does not a winter make’.

  21. fred
    :

    Hi Roger,

    Carsales.com ( crz ) these type of businesses are always going to produce a high rate of return as long as revenue is ok due to a small out lay, is that right Mr Roger.

  22. dom connelly
    :

    Hi Guys,

    let me begin by applauding the new posting rules.. well done Roger ! as it would have been a shame to allow day trader types, to turn this site into a bubble shop page..

    my question to the forum is regarding VOC in two parts

    1. the 16 million escrow shares that come into effect @ 30/6/2011…. do they have a predetermined strike price or are they going to be close of day 30/6 ?

    excuse my lack of knowledge but i have tried to answer this myself using the VOC site .

    2. I remember the CEO James Spenceley on switzer, was a little vague on how the NBN will change the landscape for VOC * in his defence the likelihood of its roll out was still dubious at the time ..as i understand it . the NBN is just an updated technology based ( fibre not copper ) means of transport for VOC customers to receive their service ..

    cheers

    Dom.

    • Roger Montgomery
      :

      Hi Dom,

      I will be meeting with the company in the next two weeks so will get back to you on the first question. I think you may be referring to options rather than escrowed shares. Regarding the second, an NBN may increase demand for video downloading, TV watching etc this could really help VOC and their peers.

      • Chris B
        :

        Hi all VOCUS holders/prospective holders,

        I read a recent article (May 11) about ‘A NEW super-fast fibre-optic cable linking Australia to south-east Asia will open within two years and will be 10 times faster than existing undersea cables, according to the new Leighton subsidiary Australia-Singapore Cable.’

        http://www.smh.com.au/business/new-fibreoptic-asia-link-to-raise-internet-speed-20110510-1eh96.html#ixzz1NPamplt5

        Does any one have any views as to whether this is a threat to VOCUS’ business in the longer term?

        In the meantime I’m gonna contact VOCUS and find out if this is indeed a threat to their business, and i’ll post back with my findings.

        Chris B

      • Luke
        :

        I hold VOC and I just read that article.

        The article refers to the Australia-Asia link being upgraded. To route to Europe/Africa/Asia, this new link will be beneficial but to route to the USA this cable won’t make much difference.

        Vocus’ link is between Australia and the USA so I don’t think this cable will be a threat to their business. Also, a key point to be made is that most Australian traffic goes to/from the USA for two reasons:

        1. We speak (almost) the same language
        2. The Internet was invented in the USA and most major websites are hosted there (facebook, google, microsoft, etc.)

        Vocus basically has direct links to those popular websites in the USA for Australians to use.

        Therefore, I don’t think this cable will mean much to VOC’s business but I am very interested to hear what you learn from contacting them.

        Cheers,
        Luke

      • Pat
        :

        For those interested about cables connecting Australia.This is a link to an interactive map that shows cable length ,capacity and which company own’s it.There is probably ample capacity at the moment but use is growing at an enormous rate.The biggest cost is in laying the cable,cable itself costs about 10% so it is better to install plenty of redundancy

        http://www.cablemap.info/

        Pat

      • Pat Fitzgerald
        :

        Hi Roger

        Pipe networks built a cable to Guam and then Guam links to America. PPC-1 in the map.

  23. Andrew S.
    :

    Hi Roger,
    I am a bit IT-challenged, so if this is dumb or baby stuff, please forgive but I wrote out a careful response to whoever the lawyer was who wrote his view of SGH and I hit ‘reply’ below his post, thinking it would go thru to you/yr team for moderation but it didn’t seem to go anywhere…? Cldn’t seem to get it on? Later accidentally shut down – did it get thru?
    Thanks,
    Andrew S.
    PS can you let me know what the protocol is if I hve missed something?

      • Matthew R
        :

        Click ‘Reply’
        Enter your name
        Enter your email
        Enter your comment
        Click ‘Submit Comment’ below your comment

        The page should then show your comment on the page with “comment awaiting moderation” in italics above it. Once roger has approved your comment everyone will see it

        Best wishes

    • Rob
      :

      Hi Andrew,
      I don’t know if this will fix your problem, but here goes.

      Firstly, click on “Reply” immediately below the post to which you wish to reply.
      Type your post in the box below the one that says “Website”.
      When you are finished click on “Submit Comment”

      Your post will then appear indented under the post you replied to.

      If I’d wanted to add to what Roger had said, I’d have clicked on the “Reply” to his post and it would have been indented under his.

      I hope this helps.
      Cheers
      Rob

      • Andrew S.
        :

        Thanks very much guys,
        I have the basics figured out and successfully sent a few posts.
        However twice when I had written a longer commentary on a stock and then clicked “Submit Comment’ a message saying something about ‘error’ and ‘cookies’ appeared momentarily…and then the post was gone!
        If it happens again I’ll try to give a more detailed and exact description.
        Am really enjoying the blog.

  25. Michael
    :

    I really like Amazon as on online business. I am not sure it falls in the category as a list though.

    The competitive advantages built up including distribution networks and economies of scale would take some time and cost for new players to replicate.

    I think if you are a list only business and the market leader, the network effect really is often just “first mover” advantage. With the low cost of providing competition, these type of businesses can fall from grace quickly.

    If you think of Facebook, it is not so long ago that myspace was the most popular. In China, Baidu is the leading search engine taking share from Google.

    In summary, I would look for something beyond the network effect to conclude that an on-line business has a sustainable competitive advantage.

    • Andrew
      :

      Yourentirley correct with your last statement Michael. I said it in a post before that we never seem to list the network effect for bricks and mortar businesses as a competitive advantage so why shouuld we for internet businesses.

      The network effect is a symptom or a result from a real competitive advantage, there for you need to defend it by increasing that competitive advantage over the cvompetitors rather than rely or build a business around it.

  26. Mark Ab
    :

    Hi Roger,
    in discussing online businesses (unlisted stock research ones) I have previously used (third party product name removed) and a few others over the years and found them to be of help but with limitations. Around the same time, I created a manual input stock valuation calculator on a spreadsheet and have been tweaking it ever since (and updated secondary calcs. relying on your methodology after reading Valuable). The biggest weakness with it is that it is very time consuming. Are you able to give any guidance around what type of software your fund uses for the purpose of updating data and providing regular snapshots of stock IV’s? I know of a number of quantitative fund managers and they have developed their own systems inhouse so I would be interested in your views on this.
    Regards
    Mark Ab

      • Josh E
        :

        Hi Mark & Roger,

        I’m also very interested in this myself. I’ve developed an excel spreadsheet to calculate IV’s and complete a number of nifty graphs etc however the downside is how time consuming it can be to update business details/financials, updating the historical share prices, and completing it regularly for a number of different business.

        Interested to hear if their is a program/software/system that allows the equation based flexibility of excel with a more australian stock market data tracking side to it.

        Regards

        Josh

      • Scott W
        :

        Roger I guess you are going down the path to give us all even MORE HELP? You have a big heart Mr Montgomery they should burn incense for you in the temples of Asia.

        Speaking of Asia I am still fumbling my own way through trying to apply Value Able to the Hong Kong market, albeit with some large question marks over the information supply. However I will try to get questions answered when I am over there soon.
        Stand by for my attempt of exotic location Value Able graduate photos from the back blocks of China and Thailand while I research sites for my personal investments, taking advantage of high growth economies, and the strong dollar.

      • Chris B
        :

        Roger,

        I don’t know exactly what you have planned, but i have a preemptive question anyhow…

        Do you think there is a chance that if you were to provide all the followers that you now have (must be thousands?) with MQRs and estimated values for all the businesses listed on the ASX, it might become more difficult to find value in the ASX.

        I ask this because if MOST of your followers start relying solely on your information – and I am confident that many will – there might just be thousands of followers trying to buy the same stocks at similar prices, thus resulting in less naturally born bargains from natural price volatility. And as you have proven on many occassions, you do have the capacity to influence stock prices.

        Then perhaps the only way your list of A1s/A2s will ever become cheap is if there is a major market shake out?

        Sincerely,

        Chris B

      • Roger Montgomery
        :

        Chris,

        Its a great question and one I don’t have to think very hard about thankfully. Firstly, if we were talking about a trading ‘system’ that said; “BUY TODAY at $2.56 with a stop loss at $2.48”, then five thousand investors using it would make it redundant. That is not relevant for us. Secondly, the pricing will reflect its intrinsic value and there will be no free trials or samples, so you can be sure any volume-related issues will be miniscule over 2000 companies.

      • Ash Little
        :

        Hey Chris,

        I just wont be a problem

        Quote WB

        ‘I have seen no trend toward value investing in the 35 years I’ve practiced it. There seems to be some perverse human characteristic that likes to make easy things difficult.’

      • Rob
        :

        Hi Chris,
        although Roger’s popular I think you’re giving his followers too much weight.
        I still think the majority of investors out there use technical analysis. This includes fund managers, institutions etc. Chartists are still employed by institutions.
        To you and me, as value investors, this seems strange but technical analysis using strict disciplines gives short term results. Mr Market doesn’t have patience and although Roger is doing a great job, I believe there will always be someone who will sell him stock.
        Cheers
        Rob

  27. Robert P
    :

    I could not see your estimates of the Wolf IPO. It took me a while to get the numbers but hopefully correct.
    Depending on the desired rate and the retained profits I get between about 1.3 and 1.8. Much less than the ‘indicative price’.
    Caveat emptor.

      • Roger Montgomery
        :

        Sorry about commandeering this thread…Is there a Dan trying to post? What are you trying to post? Its doing something unusual at this end. What are you doing?

      • Scott T
        :

        Hi Robert,
        My estimate of IV for Wolf is even lower, I have $1.15

        Hi Ash,
        Your right, (as usual)

        I also like to look at the people who are going to lead and manage my business, have a look at some the other companies the board members sit on, and the length of service of the senior executives. No “from the ground up” business builders here.

        All the best

        Scott T

  29. Peter A
    :

    Thanks Roger. Interesting as always, and it was nice to be able to double check my IVs against what you have for those businesses. I was within a couple of cents on all of them bar REA, so I will crunch REA’s numbers again.

    I haven’t been looking at them closely of late since my list is sorted by discount to IV (largest discount to smallest), and they are well down the list.

    Peter A

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