Shares wizard Roger Montgomery
In Peter’s daily email for Switzer.com.au he describes Roger Montgomery as Australia’s “Share wizard”. View the Email.
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.
Mike Hall
:
Mineral Resources (MIN) new broker report available for those interested.
http://www.mineralresources.com.au/upload/docs/Brokers%20Reports/Austock_May_2011.pdf
Jonesy
:
Thanks for that Mike, appreciate it
John S
:
Love your tenacity darrin… I’m learning with you but too scared to ask!! :-))
darrin
:
HI John
Good to hear you are on the value able learning path.
As I have mentioned in previous and others as well. The formula and calculation is not difficult. The key is finding the correct data to input into the formula. This is where I am having most of the challenges. As Rob has mentioned if you are on the right track then you will be getting your IV’s close to Rogers.
cheers
darrin
Andrew
:
Hi Darrin,
Finding the information is pretty easy. For reported results for example working out 2010 IV than go to the annual report and go straight to the financial report of it.
NPAT is on the income statement
Equity is on the balance sheet
Dividends is in the notes or the statement of changes in equity report
Shares on issue is in the notes usually under a title like contributed equity or shares on issue, issued capital etc. Looka round the note 23 mark off the top of my head.
For forecast information, go find some broker forecasts which can be used through your online broker or use a subscription service you trust.
darrin
:
Hi Andrew
Thanks for the info.
Can you tell me what numbers you used to calculate the IV for TRS 2010.
I find this useful as it shows if I am using /extracting the correct figures from the annual report to use in the calculation.
THis what I found:
starting eq = 40428000
ending eq = 51543000
shares on issue = 26033570
NPAT = 23351000
dividend = 16103000
EQPS = 1.98
POR = 69%
ROE = 50%
Based on these figures my IV for TRS did come close to Roger (16.54)
cheers
darrin
Andrew
:
I had the same figures, i think the difference is the others and roger had a higher pay out ratio, i would be interested to see what others say about this as i too get a 69% POR for 2010.I didn’t spend much time looking at it so i probably have missed something.
As i am not interested in buying TRS i am not too fissed and the other ones i tried were close enough to Rogers that i am not too fussed.
Adam W
:
Dear Darrin
You might find Roger’s Christmas 2010 homework useful:
http://rogermontgomery.com/have-you-done-your-homework/
It is helpful in that Roger provides links to pages of an annual report (TRS I think it was) and highlights the information you need to take from the report.
I hope this helps.
Regards
Adam W
darrin
:
HI Adam
Thanks this will help me a lot.
If you did the easter homework can you let me know the numbers you used to calculate the IV for TRS 2010.
This will demonstrate to me whether I am sourcing the correct data for the calculation and if so I can they go ahead and apply to other stocks.
cheers
darrin
Adam W
:
Hi Darrin
If you click on the link I attached to the previous post, you will see that a number of people provided worked examples for calcluating the 2010 IV for TRS.
Roger posted answers to the Christmas homework on 2 Feb:
http://rogermontgomery.com/how-do-your-holiday-homework-results-score/
He also posted a blog on 6 Jan which might also help:
http://rogermontgomery.com/after-some-extra-help-with-your-holiday-homework/
Cheers
Adam
darrin
:
Hi Adam
I went to the christmas homework link. Found the same TRS IV question: I used Rogers same format and numbers but with the RR of 10%. ( which was the easter homework question on TRS)
His answer for the easter homework TRS was $16.54
My answer for TRS came out at $17.95
Has anyone else calculated a similar number?
I cannot see where my error is coming from!!!
cheers
darrin
Roger Montgomery
:
You don’t need to be precisely right Darrin. Focus your efforts on identifying extraordinary businesses offering significant margins of safety.
darrin
:
Hi Roger
OK
So where/how should I begin to ID extraordinary businesses as there are so many on the ASX.
Isn’t the margin of safety based upon IV vs the market price.
Also what do you define as significant margins of safety?
cheers
darrin
Rob
:
Hey John S,
Yours is the best post in this blog.
Ask your questions. :-) Everyone here is very helpful, they won’t mock or ridicule you. You know the old maxim
“The only dumb question is the one never asked.”
Cheers
Rob
fred
:
Hi Ash,
About ( era ) I heard that they might be having some contaminated water problems, so do your research as I know you do. see ya
Ash Little
:
Hey Fred,
At the moment I would never invest in ERA unless on the short side. I almost pulled the short in February this year but chicken out.
‘All I have lost is opportunity so no biggie
Take care
fred
:
Hi Roger,
Yes you did cause hysteria @ my place over that un mentioned gold company.
Thanks
costas
:
Hi Roger.Does your formula of valuing companies work worldwide?
I remember Warren Buffet saying” that you buy shares when there is blood on the streets.”
Do you agree?And if yes, does that mean a country like Greece were there is plenty of blood around the streets is a good buying opportunity?
Roger Montgomery
:
In my mature phase of share investing I have discovered that the best time to buy shares is when that which is temporary is being treated as permanent. Thats a quote from one Roger J Montgomery! Sir John Templeton said it another way: “Bull markets are born on pessimism, grown on scepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell.” He also said; “People are always asking me where is the outlook good, but that’s the wrong question…. The right question is: Where is the outlook the most miserable?”
Ash Little
:
Oh, I really like this comment
People are always asking me where is the outlook good, but that’s the wrong question…. The right question is: Where is the outlook the most miserable?”
Bring on Miserable
Please
Scott W
:
You guys are just so negative…
Ash Little
:
Negative is good scott
Think opportunities
Greg Mc
:
Actually Ash,
I’d prefer a few months of euphoria followed by some misery afterwards. Might as well make a few dollars out of what I own first before I buy them again lower down.
John M
:
I love this quote. I am going to add this Roger J Montgomery pearl of wisdom to my noticeboard on the wall above my computer so I keep it fresh in my mind.
kostas
:
Hi Roger.Would like to see you valuing a company from the greek exchange market(ASE).A ship captain is always the best after handling the big waves!!!
ron shamgar
:
in regards to ERA someone mentioned in an earlier post.
ironically in the short term, this company will benefit from the falling uranium price as they require to purchase on the spot market to cover their contracts.
Ash Little
:
Hey Ron,
I am still not getting a great 2012 price for them.
But as you have said in the past this could change very quickly with a few variabhles
ron shamgar
:
if reports that Aussie dollar is heading towards $1.30 – $1.70 are correct, we should watch out for any company selling in us$. matrix has 80% of its sales in us$ and unless they can raise prices they will get hit.
the question we need to ask is whether matrix can raise prices to offset the high dollar?
in my opinion they can!
the reason is that matrix’s customers – the contractors – will pass on the costs to their customers – the oil companies – who earn US$ and enjoy the rising us$ oil price. The GFC has created a big backlog to get these rigs into production and capitalize on the high oil price and so the oil producers will absorb the price rises from their contractors.
watch this space.
other companies that will get hit substantially are:
TSM, CSL, QBE, AGO, BHP, CPU, COH, HSN, WTF, NOE, CTX. etc.
companies to benefit from this will be importers and retailers:
TRS, JBH, WOW, PBG, etc.
will be interested to hear other comments on who else will get hit or benefit?
cheers.
Roger Montgomery
:
JBH, as just one example, is not affected directly by currency movement. They are not an importer. Here’s the only reference in their half year report to the ‘Australian Dollar’: “The half-year financial statements have been prepared in Australian dollars on the historical cost basis…” The only reference to ‘Aud’ is in the word AUDitor.
Apologies Ron.
Ron shamgar
:
You could say their suppliers are the importers who will benefit and JBH may pressure them to reduce prices. Or maybe because of the high dollar, customers will tend to purchase small electronic gadgets from overseas online. So maybe JBH will be negatively effected?
Roger Montgomery
:
Possible. In the US where online buying is more entrenched and arguably several years ahead of Australia, it is electronics that command the largest share. Thirty per cent of electronics retail sales in via online.
Kevin K
:
Ron / Rodger,
I can’t see too much upside in the AUD appreciation for many companies.
If the companies are sourcing and selling in Australia, quality machinery and skills will be cheaper to buy making them more efficient. Think service providers. But this is the only lower risk scenario. All others have risk some significant.
Those sourcing ultimately from overseas selling locally (who should benefit from a rising AUD) also have a currency exposure. Only short term one and only to the extent they hold stock but an exposure none the less. These rapid increases in AUD are in my view right to make people nervous.
ZORAN
:
RON/ROGER
Since Roger is 80-90% in cash,should Rons AUD/USD come true ,we should all invest in Rogers FUND.
Rogers cash will pick up shares that drop under IV and with big MOS.
Zoran
Andrew
:
Electronics is the area i think most at risk by online retailing. You don’t need to try it on, you know what your getting in advance and it is usually tech savvy people who look for them so they are obviously going to be aware of the potential online. The only real variable to look for is price.
I would speculate (sorry everyone) that the 30% figure you are quoting is just the tip of the iceberg and will be even larger in the following years.
ron shamgar
:
i did forget to mention the steel manufacturers and distributors: OST, BSL & to some extent SMG. these guys are suffering already from cheap imports made by the strong Aussie dollar. and guess what Onesteel came out today with profit downgrade. more to come….
Chris B
:
Hi all,
In a recent blog somebody asked where they might be able to obtian more information about the future prospects on TSM.
Thanks to the generousity of bloggers, the following sites were recommended…
– Reuters
– Bloomberg
– Yahoo finance
I had a look at all 3 sites. I can see in yahoo finance there are a few analysts with EPS and revenues forecasts for 2011 and 2012. However, I am hoping to obtain a little more insight than this (eg – EPS, DPS, # shares on issue, Debt:equity etc etc)
I have never bought a research report before and so i was wanting some help with this area.
The link below is from the reuters site and it contains a list of reports specific to TSM. Which reports (if any) would bloggers suggest are worth buying (the desired information is future analyst forecasts – EPS, DPS, revenue etc – for TSM)
http://www.reuters.com/finance/stocks/analystResearch?symbol=TSM.AX
Or, would bloggers (or Roger) be able to point me in another direction where individuals can obtain analysts forecasts for less popular/covered ASX listed businesses?
N.B. – I am not necessarily looking for free reports.
Thanks guys,
Chris B
Roger Montgomery
:
Hi Chris,
Step 1, call the company and ask which brokers cover it.
(I know we have plenty of research on TSM (MQR:A2) so it is available. Our 2011 valuation is 82 cents. 2011 = $1.00 and 2013 valuation is $1.12). I am delighted to see you doing your own in depth research and do be sure seek and take personal professional advice.
TSM is not to be confused with TGA. TGA = Thorn Group. AN A1 company for which I have a 2011,12 and 2013 valuation (currently – remember they are updated daily) of $1.57, $2.07 and $2.11. One to go and research.
Rob Walker
:
Hi Roger,
Im asleep at the wheel, Last Calculated IV for TGA on 2nd Dec, my new IV is
about 12 % higher. Mos for 2011 14.5%, Mos for 2012 26% and Mos for 2013 34.99% using RR of 12%. I quess i need an automated service that could monitor stocks for MGR an IV and notify me when they have reached specific targets. This would allow me more time to concentrate on my business and family time. If you hear of a service like this, please let me know,
(Tongue firmly planted in cheek) :)
As usual keep up the good work
Regards
Rob Walker
Ron shamgar
:
I do have TGA at a higher IV than rogers but that’s including their recent acquisition. They have flagged that they will raise equity soon to pay for that so their IV will be moving around quite a bit this year.
Quality business, I’m happy I own it from a year ago, and like the fact that the CEO is doing his own ads on tv! :-)
Michael Horn
:
I notice that Roger has TGA valued at $1.57 for 2011, and I assume this is for YE 31/3/11, but it could be the IV for 31/3/12. Anyhow, using the latest reports, I have created the following set of figures. I suspect I have erred, because although I think $1.57 is too low, the $2.78 that emerges below seems too high. The RR chosen is 10%, which I think is apt for a firm of this quality – one that gets into Roger’s top-20, A-rated companies. Obviously, if I used a higher RR, I would get a much lower Intrinsic Value, which begs the question – what RR is reasonable for a top-20, A1 stock?
Bear in mind that we calculate Intrinsic Value (IV) to guesstimate fair value to which the market should trend over time. If we are bargain hunters with patience, then we can apply a MOS factor to reduce the IV figure to a my-buy-price value.
Also, I think that if I were to develop my own factors for non-dividend-paying stock, I probably would end up with lower factors than those in VALUABLE, and hence I am not surprised when I use those factors that I end up with an IV that instinctively seems high. Because TGA’s payout ratio is about 50%, the uplift to the factor is muted. Anyhow, let do some arithmetic:
Earnings normalised – ignore $1m NCML cost —-
$23,038,000
Equity – start of year ————————————$81,767,000
Equity – end of year ————————————-$95,003,000
Average equity per share ——————————$88,385,000
ROE – normalised earnings/av equity ———————-26.07%
Shares in TGA ———————————————130737000
Average equity per share ————————————-0.6761
EPS (normalised) ———————————————–0.1762
RR – required rate of return ———————————-10.00%
Assume Payout Ratio 50%
Montgomery Factor if DPS=EPS —————————–2.6066
Montgomery Factor if no dividend —————————5.6181
Average Factor————————————————–4.1123
Intrinsic Value = av factor x av equity per share———–$2.780
Buy-in price giving a margin of safety = 20.00% –$2.224
Buy-in price giving a margin of safety = 25.00% –$2.085
Buy-in price giving a margin of safety = 30.00% –$1.946
Values for different price earnings ratios ———— PER
– – This PER required to get valuation of $1.57 —- 8.9 — $1.568
—————————————————————10.0 — $1.762
—————————————————————11.0 — $1.938
—————————————————————12.0 — $2.115
—————————————————————13.0 — $2.291
—————————————————————14.0 — $2.467
—————————————————————15.0 — $2.643
– – This PER required to get valuation of $2.78 — 15.8 — $2.780
If one simply picked a PER that is appropriate for an AI stock, one could arrive at a guesstimated IV by multiplying it against the EPS – normalised EPS in this case. For instance:
Values for different price earnings ratios ———–PER
– – This PER required to get valuation of $1.57 — 8.9 — $1.568
————————————————————-10.0 — $1.762
————————————————————-11.0 — $1.938
————————————————————-12.0 — $2.115
————————————————————-13.0 — $2.291
————————————————————-14.0 — $2.467
————————————————————-15.0 — $2.643
– – This PER required to get valuation of $2.78 –15.8 — $2.780
I would be inclined to value TGA at $2.50 based on figures for YE 31/3/11.
, so it has been very good to meI have not attempted to calculate an IV for YE 31/3/12, because this requires more mental gymnastics to take in the NCML purchase funded by debt that is going to be reduced via a capital raising – not that I think it (capital raising) is necessary.
What I would pay for TGA as a share buyer is another matter – about $2 in my case, because I have many of them already, some bought recently with borrowed money, and no ready cash. I have 348,500 TGA, bought at prices between 55 cents and $2.03, averaging at $1.11. TGA has given me good dividends, and a paper profit of $341,500 at this morning’s price of $2.09, so it has been very good to me. I’ll consider selling a few if the SP gets to $2.30.
Roger Montgomery
:
Well done Michael.
Ash Little
:
Micheal, Really good work.
Your raise a question about what rr would the top 20 rm stocks get. To me the answer…
They will all have diferent rr..
FGEand MCE have a higher rr than COH et al
A1 and RR are not mutually inclusive in my view
Michael Horn
:
OK, I accept that an A1 rating and an RR > 1 are not mutually exclusive, but let us focus on TGA, and specifically – what RR should a knowledgeable person apply in the case of TGA, and to put it in context for inter-personal comparison, what RR do they apply for a few other A! Stocks?
I could write a weighty tome about TGA, but I’ll spare you the torture, and list facts that suggest to me that this is one of the safest, upward trending, reasonable ROE stocks on the ASX
A. Business cycle longevity
This is not a just-out-of-the-box, here-today-gone-tomorrow business that is likely soon to be driven to extinction, or low profit margins, by new technological anmd/or hordes of competitors. TGA, as Radio Rentals, opened its first store in Sydney in 1937, and the core business has changed little.
Astute shareholders will get early warning if TGA’s rental business is in retreat – the average residual rental streams of less than 12 months will grow in percentage terms to the value of the rentals with more than a year to run. In contrast, if people ceased supporting typical retailers, the revenue drops immediately.
The core business could, and probably will decline due to TGA having picked the eyes out of suitable locations, but new lines of business, small loans and debt collection, should compensate in themselves, and they could give the core rental business a fillip. Obviously, if one believes EPS growth and ROE will decline soon, then by all means, raise the RR.
B. Wide-moat company
I am a surprised that TGA’s moat has stood the test of time, but it has. It seems that it is not easy to start up a company like TGA, otherwise it would not be doing as well after 74 years of operation. One has to have the capital to buy items to put out to rent, and one must have the mindset and processes to ensure the rents are paid. TGA has honed the latter set to perfection, and this is the catalyst that has induced it to get into the small-loans business, and the debt-collection business.
There are tricks to this business that take time to nut out and then exploit – for example, much of what TGA rents out is classified as eligible commitments that can be paid via Centrelink’s Centrepay, and so TGA can gain rock-solid business from a demographic that most firms have to avoid. I think I have written the last clause in a politically correct way!
C. Limitation of Risk Factors
Many good businesses like COH, MCE, CSL and QBE have currency exposures, and many more are exposed to the impact that interest rates have on their business, and various business cycles (MCE and FGE have exposures to the international oil and gas markets). In addition, companies face political risks, like politicians wanting to tax them (sorry, RIO, BHP et al.), nanny-types wanting to save the hoi polloi from their foibles (sorry, Centrebet), and those who want to carbon monoxide emissions (sorry, Adelaide Brighton Cement, OneSteel, Bluescope, et al.), and the threat of trade unionists (sorry, Qantas and Patrick). The list goes on, but TGA is substantially impervious to these vicissitudes.
D. Good financial metrics
If you read the recent TGA presentation and financial report, and the metrics that Morningstar calculates, you will find a host of superb metrics, and how these have applied year-on-year since 2007 (TGA listed in December 2006). These include excellent compound average rates of growth of profitability, and bear in mind that there has been insignificant dilution of shares since the IPO, because TGA has not undertaken post-float capital raising. Because the NCML acquisition happened late in the TGA financial year, metrics like EPS and the growth thereof must be considered in a non-NCML-acquisition setting, when debt/equity was about 7.5%.
The current net debt/equity ratio of 28%, which is not off-putting, substantially springs from the NCML acquisition. If you think the acquisition was a bad move, then by all means raise your RR. It is too complex a matter for a financial unsophisticate like me to unravel, so I have assumed that on balance the NCML acquisition is shareholder neutral, so I have not used that as a reason to increase the RR.
E. What RR is apt?
I would appreciate comment on what RR is apt for TGA, and to put it in context, what the same individuals would use for a few other A1 stocks with which they are familiar. The RR has such a significant impact on the IV as calculated a la VALUABLE, that it is meaningless to aver what the IV is without mentioning the RR used, and why. As an aside, the liquidity of TGA used to be a problem when I first got in circa 2007, but currently its daily turnover suffices for me, as a long-term investor, not to lower the IV by increasing the RR.
As I wrote before, I use IV to guesstimate where the market might reasonably trend over time, and I use MOS to bargain hunt – I do not use the RR to do the job of the MOS. As I probably wrote earlier, I have many TGA shares, almost 350,000 spread between my SMSF and a personal portfolio. I consistently say I’ll not buy more, then I weaken, and buy.
Roger Montgomery
:
Nice work Michael,
if ever the right job is going….
Rob
:
Michael,
That has to be the neatest post I’ve seen on this blog.
How did you get the formatting just perfect? Was it done elsewhere and cut and paste. Everytime i try to format I mess it up?
Great job.
Cheers
Rob
Michael Horn
:
On the matter of formatting, when I first posted similar stuff into this blog, I wrote it using a word processor, but on pasting it in I noticed that:
a) tables got screwed up, with each cell becoming a new line; and
b) tabs and spaces became compressed to one space.
What I have had to do is to anticipate the way the medium (whatever the blog uses) will work, and I use dashes to keep the spacing reasonable.
Even after anticipating these things, I notice that the end product is often less than perfect, but tthis blog seems not to allow one to correct things later. Other blogs like Hotcopper and Topstock allow one to preview and edit the posts, which allows me to rectify glitches.
Why these blogs cannot handle pastings from wordprocessors is a mystery to me, and as an ex computer programmer of ancient vintage, an unnecessary limitation.
fred
:
Hi Roger,
A few weeks ago you said that you where buying into a gold company when do we find out which one. ( i would like to know if I right )
Thanks for all your help always
I use to be a holder of Tower ( tal ) and now I hold tower ( twr ) any thoughts on ( TWR ) see ya
Roger Montgomery
:
Hi Fred,
Such mass hysteria was generated that I wrote I would buy, hold and sell without mentioning it.
Steve I
:
Fred,
To be honest it doesn’t matter too much which one it was. If you like the space, there are a handful of quality investment options with many having decent MOS.
Ken G
:
Hi All
Would like your thoughts on using the method of adding retrained earnings to the current book value as a reasonable figure to value a company future value. In most cases if you add up the last 10 years of Earnings and subtract the dividends and add the result to the book value it would not be close to the stated Book Value. Good companys seem to have internal growth that is not stated or valued in our calculations but are reflected in book value at the end of each year.
No I have not found a better method than the current method, but I am wondering if we are not understating a companys true Intrinsic Value
Ash Little
:
Hi Ken,
As you explain it the only reason for the discepency would be issuing more shares.
There is no tooth fairy here. Pervious equity plus retained earning less dividend must equal current equity. If it doesn’t funds are been introduced.
Ken G
:
Hi Ash
Thankyou for the reply. After the posting I thought that would be the answer but was not certain that it would fully cover the increase in book value.
regards Ken G
Gavin
:
Hi Ken G
I wrote a rather lengthy response to your perceptive post but alas Roger confirmed it was deleted in error. So here’s a quick recap.
Extra equity would be from new funds being raised. This however does have the potential to create (or destroy) wealth that the value.able formula does not capture. An assumption underlying the value.able formula is that all growth is financed by retained earnings. This is not the case for many companies.
The key to whether new funds create or destroy wealth can be observed by looking at the growth in ‘equity per share’ and the resulting impact on returns. If actual growth in ‘equity per share’ is different from what ‘ROE x retained’ indicates than value.able is probably not the most suitable model to be using.
Models are just tools. A good craftsman knows each tools limitation. There are other models that can value external funding but they are more complicated than value.able. If you are interested in learning about them then Investment Valuation by Aswath Damodaran (Professor of Finance at the Stern School of Business at New York University) would be a good starting place. There is a wealth of valuation information available free on his web site.
Roger Montgomery
:
Thanks Gavin, and apologies for deleting your comment. Thanks for reposting it. I would be over the moon, if everyone here stops using the Value.able formula and starts using Aswath’s work. I have all of his volumes and his work with Beta, CAPM and WACC should, in particular, be encouraged and adopted. Borrowing from Buffett; “chairs should be endowed to the perpetual teaching” of this stuff.
Gavin
:
Roger
Your throwing mud at the wrong person. Aswath gives a fair review, pro’s and cons of all the different models, he’s not part of the academic push on Beta, CAPM and WACC etc. But I don’t suggest people take my word for it. Read broadly and think for yourself is my only advice.
Roger Montgomery
:
Point taken Gavin. Are you referring to Damodaran on Valuation or Investment Valuation? Page 42 of the former, suggests no position taken against it…
BTW you may enjoy his Dark Side of Valuation too.
Let’s leave it there though.
fred
:
Hi Darrin,
Regarding the reject shop ( trs ) I did also like the reject shop but to me its not what it once was, I am sitting back until there next report to see where the reject shop is going. Good luck with your home work and keep read Rogers book. see ya
Barrie
:
Hi Roger
Thankyou for your leadership and guidance.
I need some assistance.
Any suggestions for the forecast 2011 & 2012 EPS for VOC?
Regards
Barrie
Roger Montgomery
:
Hi Barrie,
Its not good form for me to redistribute the research I receive. Several brokers cover VOC. The average of the estimates I have are $6.7m, $8.7m and $10.3m out to 2013. Cannot be any more specific than that.
Brad J
:
Hi Roger,
Having spoken to the company and come up with forecasts based on past history and what they indicated the future holds, these forecasts are unbelievably conservative. I am going to keep an eye on these and see who is right. If my forecasts are more accurate, then this is proof that you need to do your own research and not always believe analysts. If I only used their numbers, I would not be nearly as bullish about this company and it could negatively affect my long term returns. Mind you their numbers still look pretty good almost doubling in three years.
Pat gavin
:
Here is some info that I think is relevant to MCE.
This a bit of report from a UK company thats a few years old when oil was about $60.The report costs about $2500 so I havent purchased it.
Its a huge market with Matrix being a small part of it at the moment.
$44,552M is forecast to be spent on
The Global Subsea Market over the
next five years.
The forecast spend is a 94% increase
on the previous five years to 2005.
Over the next five years, in terms of
regions Africa will see an increase to
$16.5bn from $5bn and Asia and
Australasia will see large increases in
spend from $1bn to almost $5bn. In
Europe the market will remain at
$6.9bn, whereas the Americas will see
a 58% increase to $15.8bn over the
next five years. A total of 2,060
subsea wells are forecast to be
installed 2006/10, compared to 1,204
in 2001/05.
darrin
:
HI Roger
In your book you mention that it is best to avoid companies with anything more than modest amounts of debt. What do you mean by this?
On the etrade site they have the capital structure section:
total debt, long term debt, shareholders equity. How do I attribute meanings to these numbers?
cheers
darrin
Roger Montgomery
:
Rules of thumb don’t work here. Long term debt is the thing that I really care about because if interest rates change, it can really effect the predictability of cash flow. When it comes to debt, less is more. Low debt to equity and high interest cover is what you are after. Companies with genuine competitive advantages have little or no need for debt. If they had it once, its gone now. On the other hand if I were borrowing money, I would probably do it on a very long term basis and fixed my interest rate. More importantly, I would borrow well before I needed it. You can’t get attractive rates when desperation is part of the deal.
darrin
:
HI Roger
Thankyou for your post.
Can you tell me the numbers you used for TRS from the holiday homework calculations.
My 2010 IV came out 14.09
My 2011 IV came out 16.02
It appears to be way off the mark.
I need to be able to master this skill before I enter the market.
My data source was etrade.
cheers
darrin
darrin
:
HI Roger
Can I apply the valu able approach to any stocks worldwide?
cheers
darrin
Roger Montgomery
:
What do you think might be different?
darrin
:
HI Roger
In theory I guess there should not be any difference.
I searched the blog and reread your book on calculations of IV. Even redid the calculation for ROE by utilising the beginning equity and average equity. Still not getting the answers close to yours.
Any help would be appreciated.
cheers
darrin
Andrew
:
Hi Darrin, I hope your enjoying your value investing journey.
There is no difference in the process however there is one more step that you might like to add which is to then break things down to Australian Dollars so that you know what it will be costing you if you find an overseas company who is trading at a reasonable MOS. You still want to use the forign currency IV to base your buying decsions on i think.
I have three overseas companys which i have worked out IV’s for. I ask for a larger MOS and a higher RR than the Australian ones due to the extra risks in investing overseas. Although i don’t have to worry about buying as they all three are extremley expensive at the moment.
One is probably not even value.able quality (at least based on the last result but have not done an in depth analysis yet) but it holds a special place in my heart and i think is a good company. I will let this be my guilty pleasure. Sorry for these blasphemous comments Roger, i will go and wash my mouth out with soap.
darrin
:
HI Andrew
Will keep that in mind when I invest overseas shares.
cheers
darrin
Chris
:
Let’s not forget the flood damage that will have a significant impact on earnings and also the coat to repair the property damaged
darrin
:
HI eVERYONE
I need some feedback on the following calculation of TRS for the easter homework.
data source etrade:
cents curr 2011 2012
eps 89.1 73.8 95
dps 67 48.4 71.4
Book value ( equity per share) = $1.98
ROE = 45%
POR = 75%
RR = 10%
1.98 times 4.5 = 8.91
1.98 times 14.989 = 29.67
8.91 times 75% = 6.68
29.67 times 25% = 7.41
IV for 2010 = 14.10
rogers was $16.54
Any suggestions on where I went wrong WOULD BE APPRECIATED.
Thanks
cheers
darrin
Andrew
:
Hi Darrin,
Not going to look at all your figures but give it a shot with a 50% ROE and see what it comes up as. Your EQPS figure is correct.
darrin
:
HI Andrew
Will give it a go at 50%
cheers
darrin
Andrew McLaren
:
Look at your ROE numbers. I think you’ll find ETrade uses ending ROE, both the average and starting will be higher, and give you a higher IV.
darrin
:
HI Andrew
Will make adjustments and see how my IV goes.
thanks
darrin
Rob
:
Hi Darrin,
These are the figures you need to do the homework
Starting equity, Ending Equity, Shares on Issue, NPAT, and Dividends Paid.
If you want to get close to Roger’s figures you need to use these figures from the company’s Annual Report which for TRS is at this link
http://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=01089026
If you need help finding the figures in the report refer to this helpful hint from Ken that Roger has given before.
http://rogermontgomery.com/how-do-your-value-able-valuations-compare
I hope this helps.
Cheers
Rob
darrin
:
Hi Rob
Thankyou for your help.
Can you let me know if these numbers are on track.
All of these came from the TRS annual report.
Start Equity = 40428000
Ending equity = 51543000
Shares on issue = 26033570
NPAT = 23351000
dividend paid = 67c
EPS 90c
I have noticed that the calculation formula is easy to use but the key is finding the correct data to imput.
Appreciate your help
cheers
darrin
Rob
:
Darrin,
You will know you are on track if you get close to Roger’s IV.
For some reason the end of my link to Ken’s post has been chopped off. Just scroll down until you get to Ken’s post. He sets it out very simply.
Your first four figures look pretty good. For dividend paid – refer to Ken’s post. Hint it’s probably not going to be a per share number.
Another hint my EQPS is $1.77.
Now, this is important. I am helping you to get close to Roger’s IV. I cannot get you to match his figure. There are heaps of reasons for this. For example, I don’t use the tables in the book I use formulae in an Excel Spreadsheet and I get within 10c of Roger.
Before you ask, No I will not send you my spreadsheet, you will learn more by doing it yourself and probably thank me for it later.
Cheers and good luck
Rob
darrin
:
HI Rob
Thanks for all of your help.
Good to know my first 4 figures are good.
Based on those: my EQPS = 1.98 and
ROE = 50% ( using the 2009 equity number)
dividend paid out was $16,103,000
pay out ratio = 69%
Your feedback on how the above numbers look would be appreciated. To make sure I am on track.
cheers
darrin
Rob
:
Darrin,
If you get RSI from posting and doubt it is all worthwhile print out John S post above and stick it on your monitor. It brings us all back to earth.
From your figures your EQPS should be $1.77
((40.428 + 51.543)/2)/26.033 = $1.77 which is what I get. Now, I don’t know how you continually get something different.
Please tell me you are not going to work down the list in the homework to WAN ‘cos it’s only the second of 14 stocks.
Hopefully this will point out the error in your calculations.
Cheers and good luck
Rob
Roger, has Darrin passed Ash for number of posts yet. He responds so quickly, he’s responded to my posts before I know they’ve been moderated. :-)
Andrew
:
Hi Rob,
I actually agree with Darrin’s EQPS figure.
By dividing the ending equity by shares on issue you should come up with $1.98.
I don’t average out EQPS, only to come up with the ROE.
darrin
:
HI Andrew
Thankyou.
You are correct I have been too focussed on the IV calculation process.
So you raise a good point, so how do go about finding good qualtiy businesses from all the listed companies on the ASX?
The valuable journey continues.
cheers
darrin
Rob
:
Ooops, thanks for that Andrew. You know I’d seen $1.98 so many times in the past (in other homework on TSR), it was so familiar I was surprised I got $1.77.
I’m continually redoing and updsating my spreadsheets and somehow, I’ve changed the formula.
Thanks for the heads up.
Cheers
Rob
darrin
:
HI Rob
I am RSI resistant.
Very focussed on acheiving valu.able. IV calculation skillset.
Rogers Blog of 1st October 2010 worked out the TRS EQPS utilising:
51.543/26.034 = $1.98
You are averaging the equities, I thought that only applied to the calculation for ROE?
Having said that I have used the 1.77, ROE = 50%, POR at 69%
IV = 16.04 getting closer to Rogers. (CHEERS)
1.98 , same ROE and POR
IV = 17.95
Thanks for the help.
cheers
darrin
Andrew
:
Hi Darrin, make sure that in your quest to achieve as you say IV calculation skillset (which i think you already have and shouldn’t worry to much about trying to match rogers results) make sure you don’t forget or neglect the most important aspect of the value.able process which is finding and analysing quality companys.
If you don’t find quality companys than your IV calculation skills will be of little use.
darrin
:
Hi Rob
IF TRS EQPS is 1.98 what IV did your calculations come to.
cheers
darrin
darrin
:
HI Rob
Did roger ever do a post on an exercise to practise identifying the right data in the annual reports.
cheers
darrin
darrin
:
HI Rob
I have been trying to get the TRS IV close to Rogers but so far am having no luck.
The data I have found with TRS Annual report:
NPAT 23351000
total equity 2010 51543000
total equity 2009 40428000
dividend paid 16103000
total shares on issue : 26033570
I was wondering would this data give me a TRS IV close to Rogers.
It seems my main problem is finding the correct data to put into the calculations from the annual report.
cheers
darrin
Chris B
:
If you use the average equity values (average from the end of 2009 and the end of 2010)…
(51+39)/2 = 45
Therefore, ROE = 23.4/45*100 = 52%
If you use the average equity you should get an IV closer to Rogers.
Good luck,
Chris B
darrin
:
Hi Chris
will try the average equity.
thanks
cheers
darrin
Dean
:
Try changing the only variable in the equation
darrin
:
HI Dean
OK
thanks
darrin
Ron shamgar
:
Ur ROE is too high. I have around 35%. u need to recalculate ur book value.
darrin
:
HI Ron
My ROE was 90/198 = 45%
My Book Value came from 51.543/26.034 = $1.98
What figures did you use and where did you source data.
Thanks.
cheers
darrin
Ron shamgar
:
Sorry I thought u were looking at fy11 forecasts.
ron shamgar
:
Hi everyone and Lloyd,
onthehouse.com prospectus is out.
it seems like this business will mainly compete with RP data and some other software providers rather than REA initially (realestate.com.au). in the future it hopes to leverage off its users and try and compete with REA.
In addition, this business also has the risk of losing full access to the data it provides to its customers by government restrictions or changes in the privacy act.
putting risks aside, based on their FY2012 optimistic forecasts and using their cash profits rather than net profits which are much lower, they will generate a return on equity of about 8%. if we use NPAT, ROE is 3%!
being overly optimistic and assuming the huge success of this business, lets assume their cash profits double in FY2013! this will only generate approximately 15% ROE.
last year REA enjoyed 35% ROE!
unless I’m missing out on something, all i wish to say is…….good luck to them :-)
cheers.
side note: (these figures are rough calculations but give a broad base picture of the business, i encourage you to read the prospectus for yourself)
Ron shamgar
:
I just realized the value in this business:
If we all download the prospectus – vocus will make more money$$!
$-)
Ash Little
:
LOL
Good one Ron
I am still laughing at that one
darrin
:
HI Ron
Where can I source the data to answer the holiday cashflow homework ?
cheers
darrin
darrin
:
HI Ron
Need some help with these IV calculations.
The formula is easy to apply but how do I find the figures to plug in so that my numbers are similar to Rogers?
Any advice would be appreciated.
cheers
darrin
Scott W
:
Ron the real risk for this business is the state of the market. There are already too many ‘data’ providers in the real estate ‘market’. I pick on ‘data’ and ‘market’ in that industry as I personally believe that neither are an accurate label. The figures quoted in real estate are so rubbery that it is ripe for the government to crack down, if not for the massive rivers of gold that stamp duties have and continue to deliver. In fact the current turning of the market and beginning of the sell down on over valued property is only going to help the government as they are like a broker and you have to pay a chunk of tax just for the transaction even when you lose.
The other point being that it is hardly a market when the government is so easily lobbied by the vested interests (at least 2/3 of voters own or are buying at least 1 house) Banks, treasury counting the stamp duty tax take, and the real estate industry itself.
Anyway I see trouble now that the party is over and money is trying to escape the fall from speculation into the massive drain on the economy that high house prices represent (indebtedness is a drain on consumption, and the misdirection of national wealth away from productive assets is allowing local businesses to be bought by foreign interests who are happy to collect rent from us for infrastructure etc).
In my observation that director of this company see the writing on the wall and they are dumping it before the going gets very very tough for people working in real estate.