Top Stocks for 2011
Your Money Magazine brings you a selection of top stocks set for take-off in 2011. Roger Montgomery reveals three of his A1 stock picks that should provide good capital gains in the medium to long term. Read article.
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.
William Gill
:
HI Mike
Ashley is spot on , IRE a great company but would have to drop by 30% to 40 % before it was interesting,
IVC you may have to die before you got value out of it.
Matt
:
“IVC you may have to die before you got value out of it” has to win quote of the month.
Ashley Little
:
Agree Matt
That is one of the best I have heard
Greg W
:
Hey Ashleigh
Firstly happy new year to you and hope everything is getting back to normal after the floods. I have been doing a lot of research of late on companies that generate ROE > 30% and have come up with some great companies, many of which are on Rogers list of A1 and A2 companies.
Atlas Iron (AGO) is a very interesting business that has exceptional growth prospects and while it has not made profits in prior years as it was not in production should report profits in excess of $160m this year and $270m the following year. Its forecast ROE is around 40% for 2011, 2012 and 2013.
My IV calculations are:
2011 – $4.22
2012 – $7.34
2013 – $11.21
The company has no debt.
While the company does not pay a dividend at present I suspect it will in the not to distant future as this company generates substantial positive cashflow and production is set to ramp up dramatically over the coming years.
These IVs are based on a 14% RR so I believe they are conservative.
Any thoughts?
Ashley Little
:
Hi mike,
IRE is a superb business but very expensive. I would very much like to own this one if the price ever gets rational.
IVC has lots of debt
cashflow equals pp&e purchases plus dividends over the last few years,so it is funding aquistuions via debt or issuing new shares.
The board like talking about EBITDA instead of NPAT.
These all say to me AVOID
Mike King
:
Howdy all,
Has anyone looked at IRE – IRESS Market Technology or IVC – Invocare? I can’t find any mention of either of them on the blog.
Also, Im wondering if anyone adjusts the expected ROE based on how much cash a company has? CSL is a company that comes to mind. ROE cannot be high if the company has significant cash balances.
Cheers
mike
Nick Mason
:
Thanks Mike for the IRE suggestion, the company’s numbers read brilliantly and I’m going to do more research on it later,
Good luck and best wishes,
Nick
ron shamgar
:
anyone has some thoughts about FSA? its looking very cheap and the future prospects are looking good. the only problem is its not very liquid. the other issue is they are dependant on westpac renewing their loan facilities every year.
Ashley Little
:
Yes Ron,
I does look cheap but so does it’s balance sheet.
Hope this helps
Craig
:
Folks,
The link below is to a speech given by Alice Schroeder at a Value Investing Conference in the US in 2008. She talks about the time she spent with Buffett researching her book, and gives some insight into his methods, using a couple of examples she came across in his files relating to the Partnerships he ran in the 50’s and 60’s – he apparently made notes on a lot of them that gave clues to his decision making at the time, and presumably she had the chance to quiz him on it.
I thought it might be of interest to blog members.
http://www.youtube.com/watch?v=PnTm2F6kiRQ
Roger Montgomery
:
Hi Craig,
Thanks Craig. The reference to ‘cat. risk’ is important. For me, that is what my MQR’s (A1s to C5s) are all about! – Probability of catastrophe (liquidity event). Also note Craig that the example Alice gives has Buffett buying the tabcard company on a price earnings ratio of less than 1. The company had 36% (pre tax?) margins on $1 million of revenue (profit = $360k) and Buffett paid $60,000 for 16% of the company or a total market value of $375,000. Based on the capitalisation of $375,000 the return on equity was nearly 100% and the purchase price represents a P/E of about 1! Alice said it was the most vivid example of Buffett getting a high quality company at a Graham-like price. Regarding 15% that might be pre tax. Investing in a corporate structure with a 30% tax rate gives 10% after tax. Note the following quote from Buffett at the 1994 Berkshire Annual meeting; “In a world of 7% long-term bond rates, we’d certainly want to think we were discounting the after-tax stream of cash at a rate of at least 10%.”
Joab Soh
:
Craig,
Many thanks for posting this. This is a great reminder of first principles. My favourite quote: “The function of margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future” the Intelligent Investor.
Ashley Little
:
Great Stuff Craig,
I thought I was the only Nerd in the world who trolled through youtube looking for value investing videos.
I am so happy to know I am not alone LOL
No offence meant by this BTW
ken fraser
:
Grant, I have had CSV previously and now their IV is a lot lower than the share price. I own CTD from the float and will be selling them on Monday as their IV is lower than the share price. Ken.
Ashley Little
:
Hi Steve,
I have IV about the same as yours.
Remember Roger has a range a valuations.
I am with you on not being a big enough discount to IV ATM.
Plus below is cut from the AGM sliide presentation
The Company has moved from being a net investor of cash to a net generator of cash.
The company has been assessing its capital structure to ascertain the right balance between
financial risk and efficient capital usage.
Further consideration of any material capital management initiatives has been deferred until after
the important 2010 Christmas trading period.
Material capital management initiatives generally have an effect on IV and risk so no matter how low it goes I will wait till after they report on 7 February before I make any new decesions
Steve
:
Does everyone else think that FGE and JBH might potentially be the only 2 top quality stocks trading at significant discounts at the moment? That is until half year reports come out at least.
In regards to JBH I was interested to note Roger valued it higher than previous valuations. I get around $21 for 2010 and around $23-$24 for 2011. Reasonable discounts although I am a little wary about its future prospects. Anyone else want to share their values and thoughts on JBH?
Mikael
:
I have MCE trading at a large discount to its IV ($9.60). I am not sure that everyone quite registered the very strong Q1 result with rising ROE for the rolling one year (equity is now about $1.00/share). Looking overseas I also have WMT trading at about 20% discount to its IV. Unloved but very strong company with a rapidly increasing percentage of its revenue coming from stores outside of the USA.
Graeme
:
My valuations for JB HI FI are –
2011 – $23.21
2012 – $28.23
this is using current earnings forcast and payout ratios (these can easily change)
I think JBH will still be a good company to hold in the short and medium term. As has been reported in the newspapers here in QLD, there will be a mini economic boom in the short term and JBH will be part of this. As people start getting there insurance chqs and replacing all their electronic goods JBH is one of the first places a lot of people will look to.
Mid term I think JBH still has a bit of growth in them, but this will slow down over the next few years. So even though I do like JBH prospects I will be watching closely to see if there fortunes change.
G
Christopher
:
Hi Roger,
Do you have any thoughts on NWH?
I have them trading at a slight discount to/right around IV, though I notice that this is lower than their 2010 IV. 2012’s IV should be around 30% higher.
ROE is reasonably stable, but you could also say it’s stagnant. Their payout ratio is stable, but quite high for the sector (maybe because they would struggle to maintain/increase ROE?) Also they have a little more debt than I’d like. Cash flows are very strong (‘company cash flow’ as you call it). No true competitive advantage, that I can discern anyway.
My conclusion is that while it’s a good company, it doesn’t make the grade as being truly great, so I can’t justify being interested, even with a 30% rise next year.
Ashley Little
:
Hi Chris,
Lots of nervous shareholders of this company during the GFC
They had trouble refinacing.
I am like you………..I need to sleep at night and owning NWH wont help me do that.
Ashley Little
:
Sorry Room I can’t agree with using 10% RR for all great businesses. Risk should be priced and more risk exsists in say MCE or FGE than COH even though they are all great businesses
PeterB
:
I find choosing an RR can be quite difficult.
Following is a list with RR against IV for MCE for the year 2010.
The list is based on the figures for MCE that appear on the ETrade website: Book value 86 cents; ROE 34.19%; and Retained ROE 86.39%. I also have the figures for 2011 and 2012
RR 2010
9.00% $8.65
9.20% $8.33
9.40% $8.02
9.60% $7.73
9.80% $7.45
10.00% $7.19
10.20% $6.95
10.40% $6.71
10.60% $6.49
10.80% $6.28
11.00% $6.08
11.20% $5.89
11.40% $5.71
11.60% $5.54
11.80% $5.38
12.00% $5.22
12.20% $5.08
12.40% $4.93
12.60% $4.80
12.80% $4.67
13.00% $4.54
13.20% $4.42
13.40% $4.31
13.60% $4.20
13.80% $4.09
14.00% $3.99
14.20% $3.89
14.40% $3.80
14.60% $3.71
14.80% $3.62
15.00% $3.54
PeterB
Ashley Little
:
Yes Peter it makes a big difference what RR you use……….Particularly with high ROE companies.
This is the very hard part …………Risk needs to be taken into account.
The longer you go down the ROE valuation path the better you will get at selecting the right RR.
If it is any comfort I have been doing ROE investing for awhile now (Before Roger’s Book) and this was the area that I initially had the biggest problem with.
I did exactly what you did and saw the huge differences in IV with different RR.
You will get it right in time just keep working at it.
RE MCE we should be looking forward to 2011 so ROE is way too low in my opinion but payout is too low also.
You have 86c per share on 1 july 2010 and the forecasts are that you will make 54% return on that and they will pay you 24% of this.
This makes a big difference to IV no matter what RR you use and I call this my 2010 valuation
PeterB
:
Hi Ashley,
I certainly agree with your statements. In particular, the last one regarding payout; alongside my list of RR versus IV, I also have another list of Retained ROE versus IV, and that is very interesting too.
Here it is for MCE again (RR=10%): (hard to read, I know => XLS cut and paste)
2010 2011
Retained Roe IV IV
0% $2.94 $4.45
10% $3.43 $5.16
20% $3.92 $5.86
30% $4.42 $6.57
40% $4.91 $7.27
50% $5.40 $7.98
60% $5.89 $8.68
70% $6.38 $9.39
80% $6.88 $10.09
90% $7.37 $10.80
100% $7.86 $11.50
Ashley Little
:
Yep,
Businesses with high ROE and low payout ratios are the ones we are after.
The problem is as the business matures the ROE may decline and the payout ratio will increase causing IV to fall. Think JBH.
Look at Berkshire Hathaway, ROE of 20% for 40 odd years and zero payout except when WB had a brain explosion in his early years.
Compound money at 20% for 40 years and you get very wealthy shareholders.
This is where we have to be a bit careful as most companies can’t do this for this period of time and particularly not in australia.
In fact without the GFC I doubt even WB would have been able to continue compounding at 20%. In fact he frequently admits this. Size eventually gets in the way. The GFC gave him some juice Elephants to keep him going though.
Hope this helps
john
:
Hi Guys,
Just starting out on Rogers book and my value for ORL is $10.50
seems abit high. Has anyone else got an intrinsic value close to this? thanks in advance.
PeterB
:
John,
Using Etrade data I have the following current values of ORL IV against RR:
RR IV
9.00% $10.51
9.20% $10.19
9.40% $9.89
9.60% $9.61
9.80% $9.34
10.00% $9.08
10.20% $8.84
10.40% $8.60
10.60% $8.38
10.80% $8.17
11.00% $7.97
11.20% $7.78
11.40% $7.59
11.60% $7.42
11.80% $7.25
12.00% $7.08
12.20% $6.93
12.40% $6.78
12.60% $6.63
12.80% $6.50
13.00% $6.36
13.20% $6.23
13.40% $6.11
13.60% $5.99
13.80% $5.88
14.00% $5.76
14.20% $5.66
14.40% $5.55
14.60% $5.45
14.80% $5.36
15.00% $5.26
Ashley Little
:
Hi Peter,
Your calc with RR between 10 and 11 is closer to the mark.
The company is trading at a slight discount to IV ATM in my view
Ashley Little
:
Sorry Mean slight premium,
Too many wines at my BBQ
Andrew
:
$8.89 for 2010 at 11% RR for me.
Johanna
:
Hi Ken, I believe Roger will be airing Thursday 27th on Sky Business at 6.30pm Sydney time.
Roger Montgomery
:
Hi Johanna and Ken,
Unfortunately my appearance tonight has been cancelled. I will return to Sky Business on 10 February with Peter Switzer.
I will continue to keep you updated here and the blog and also at Facebook.
Roger
Tony Connellan
:
Hello Roger & Value.Able Students
Re RR
If we give different RR to various equities , are we not using RR as a risk grading tool? In my opinion the risk grading should have been done before looking at RR.
If we feel that coy A requires a higher RR than coy B , why are looking to invest in coy A? Surely coy A would not tick all the boxes.(1st edition Value.Able page 059 1st para)
In my opinion using the the same RR for all coys that make the extrordinary grade makes it easy to cross compare value for money-if you are lucky enough to find extrordinary businesses available to buy below their IV
Nic Arena
:
Hi Tony,
I do like your thinking on this. RR has been a tricky subject for as long as I have been posting here. I think very similar to what you wrote although I do use different RRs. Similar to your post that if I require a higher RR due to what I deem to be greater risks to a comapny then I have to have a very good think about why I have used a higher RR on business 1 compared to business 2. Why would I invest in this company unless it has a huge ‘margin of safety’ but even then is it worth the risk. Well done on a very good post. I’m sure you will get quite a few replys regarding your entry. I will be interested in other’s views regarding your post.
Andrew
:
I agree Nic, as mentioned in my post about calculating RR on the help with homework phase. I won’t invest in a lot of companies that are A1’s as even though they are great companies and i can value them, i still consider it speculating as i have no idea about the industry they are in or the factors that affect the companies competitive position. Its why i don’ think you will ever hear me commenting on a mining company or the resources boom but if a topic about retail etc i will jump straight in and give my thoughts.
Steven Mullin
:
Tony,
I concur, we should only be considering MQR A1/A2 companies and using Warren Buffet’s RR of 10%. This will standardise the process and avoid confusion, which will benefit all Value.able graduates.
Steve M
Andrew
:
Hi Tony,
I can see the logic in that however it is also dependent on knowing how to measure an MQR, what if you find a company that Roger hasn’t given an MQR for?
Also, Westpac and REA are both A1’s however they both have a different risk profile and i would want to ensure i get a bigger return from REA than Westpac to compensate me for the risk of investing in that company. What about Platinum Asset Management and Matrix Compostie and Engineering?
I don’t think companies are created equal and a blanket 10% for any A1 company would not be suitable.
it’s completley up to you how you want to choose it, i just want to throw the above thoughts in.
Pat Fitzgerald
:
Hi
All Roger’s MQR A1 & A2’s do not have the same Sustainable Competitive advantages etc and therefore I give them different RR’s. For example I do not think that Forge [FGE] has the same Sustainable Competitive advantages as American businesses like Coke, Apple, Mastercard etc and therefore I give FGE a higher RR of 13.
Nick Mason
:
Great post Tony, I like your thinking.
I apply the same RR across the board and have never understood the logic in using different RR’s. Like you said, by having to concede using a higher RR you are basically admitting to an inferior company so why bother at all?
If a company has great quantitatives, qualitatives (competitive advantage, barriers to entry, superior management) and the possibility to be much larger ((double its size in three and a half years (assuming compounded earnings growth of 20%)) I will consider investing in it, otherwise not.
This being the case I am happy to use a uniform RR.
Matthew R
:
Hi Steve and Tony,
I think before you abandon the idea of using different RR’s you should further consider (1) the limitations of the MQR and (2) the purpose of the RR
High quality companies always lend themselves to having a lower RR – it is the nature of risk. However, I don’t believe all high quality companies have the same risk.
Also, one of Buffett’s greatest skills is in his accurate assessment of chance/risk, and at the 1994 Berkshire annual meeting Buffett stated that “In a world of 7% long-term bond rates, we’d certainly want to think we were discounting the after-tax stream of cash at a rate of at least 10%. But that will depend on the certainty that we feel about the business. The more certain we feel about the business, the closer we’re willing to play. We have to feel pretty certain about anything before we’re even interested at all. But there are still degrees of certainty. If we thought we were getting a stream of cash over the thirty years that we felt extremely certain about, we’d use a discount rate that would be somewhat less than if it were one where we expected surprises or where we thought there were a greater possibility of surprises.”
Investing is as much about measuring risk as it is about measuring returns. Estimation of one without the other may work for a while but it won’t work forever and you’ll be most disappointed if it is the risks that you have been ignoring while you’ll be most envious if is the returns.
Cheers,
Matt
Ashley Little
:
Hey Matt,
Great Post
Incorrectly pricing risk is what put the world in such a spin a few years ago.
Andrew
:
I agree with Matthew. Another way to put it, A and B both have the safest house ever invented. A put his safe house on flat land in the middle of a safe suburb but B decided to put his safe house on the walls of a active volcano.
Even though they both have the safest house in the world, B’s house is definitley riskier and would need a higher insurance premium.
Some companies might be a safe place to park your money but some need a higher insurance premium (rr) than others.
Andrew
:
I previously (under the help with homework post i think) explained my process for finding RR, you might find that interesting.
In my method, the RR does not come until the valuation phase. I do a series of things to measure the companies strength, risks and future potential and than make my decisions on whether to value it and what inputs to use.
After getting the complete picture of the company past, present and future i then decide in a very non-scientific way what RR to use and come up with my valuation then.
My view is that you can’t compare company A to Company B as they are different entities with different strategies, management and possibly even different industries.
As the RR is an input in the calculation of the IV, the two companies IV’s are the appropriate IV for that company and the value for money can be determined by looking at the Margin of safety for each and the bigger margin of safety has the better value for money.
My thoughts are that the RR does not make or prevent the company being an extraordinary company but certain companies require higher RR’s as their industry has more risks than the other industries.
If a company is extraordinary however I am uncomfortable with the risks than i simply don’t invest in it which is very similar to what you said above. I for example will never own Matrix Engineering shares.
Ashley Little
:
Hi Room,
Don’t you just love the chivalry on the blog.
A damsel in distress(Judi) has a problem and all our knight come to the rescue.
Great stuff everyone
henry
:
Hi Roger,
I need your help in finding the forecast EPS of a company. It seems that I looked in the wrong place for the forecast value.
Take FGE as an example,
With Selected ROE = 30% and RR = 14%, 2010 IV = $7.33
1) Using Comsec forecast EPS of 40.3c for 2011 and assume
same dividend payout as 2010. I have
2011 NPAT = 40.3c * 78.8Mils shares = $31.74 mils
2011 Dividend = 2010 Div. = $3.42 Mils
2011 EQ = 2010 EQ + 2010 NPAT – 2010 Divs
= $93.38 mil + $29.45 mil – $3.42 mil
= $119.41 mil
2011 ROE = 2011 NPAT / ((2011 EQ + 2010 EQ)/2)
= $31.74 / ($119.41 + $93.98) /2
= 29.83%
With Selected ROE = 30% and RR = 14%, 2011 IV = $5.68
2) Using the figures from profit updated guidance report, it wrote
the 6 months (net profit before tax) NPBT to Dec 2010 is between $25 mil to $27 mils. Assuming that FGE wil have the same NPBT between now till June 2011. Using the lower limit of $25 mils, the full year NPBT = $50 mils, assume 27% tax,
2011 NPAT = $50 * 0.73 = $36.5 mil
Using the same calculation as above and the same assumption about divident payout, I have
2011 ROE = 34.31%
With Selected ROE = 35% and RR = 14%, 2011 IV = $7.5
(1) shows a substantial decrease in IV while (2) show a very minimal increase in IV. This is totally contradicted with what you posted when the profit update guidance is announced, eg “too mouth water to ignore”. I must definitely do something wrong in looking at the above forecast value. So could you please guide me to the correct place for these figures, thank you very much in advance.
henry
:
Oops,
The following line is mis – typing
With Selected ROE = 30% and RR = 14%, 2010 IV = $7.33
It should be
With Selected ROE = 40% and RR = 14%, 2010 IV = $7.33
Luke
:
One thing you may want to look at is the required return? If you drop it to 13% instead of 14%, the valuations will increase.
This brings us to the required return argument again – what is right? Well, if your personal RR for FGE is 14% then perhaps you shouldn’t buy. If it is 13% then it looks like it is at a bit of a discount to the 2011 value.
In my opinion, I think a RR of 13% for FGE is reasonable.
henry
:
My post is not about the required return or the discount on the IV, but the decrease in the IV based on the 2011 forecast values that mentioned in my post. However, my impression on Roger ‘s pass post is the IV of FGE is going to be increased on 2011 substantial as compared to 2010. This make me think that the forecast values that I am using are incorrect.
Ashley Little
:
Hi Henry,
Can’t see much wrong with your forecasts. save for the fact that I think dividends must rise(but this is my view)
The reason you are getting these figures relates to the theft that occured on 10 April 2010 when to the Board sold Clough 13% of our business for $1.90 per share when it was worth much much more.
By your figures I am assuming you originally selected 40% ROE.
Due to the Clough placement it will be 30-35%
Matt
:
Those commsec estimates for FGE are quite new however I don’t have any confidence in them. I’m more inclined to favour the FGE guidance in this case.
Ashley Little
:
Hey Matt,
Just want to point out that the guidance is for half year only.
They are appearing on the comsec data feed now because they are now covered by a broker that feeds into the morningstar downloads(Which is southern cross equities(SQE))
As this is a new feed it means that an analysts has spent a fair bit of time on initial coverage of the company including company visits.
SQE are not totally hopeless in this area so might not be a bad idea to not totally ignore them.
They are not a lot different to my current guesses except for the dividends which I have rising.
Hope this helps
Matt
:
Hi Ashley,
I looking from an EPS growth point-of-view at the estimate which was about 7% and thought it would be quite a way above that. Thanks for your reminder on applying prudence ;)
cheers, Matt
Michael P
:
Judi, I also have this problem, easily fixed by clicking the refresh button (using IE 8, WindowsXP) when on the page. Alternatively, use Safety> Delete Browsing History – Temp internet files. In Tools > Internet options – Browsing history, I have Check for New versions of stored pages every time I visit the website, but it’s not working for the comments section. Michael.
Ron F
:
Hi Everyone.
I can understand how to reply to a blog posted, but could someone please advise me how to post a blog unrelated to the posts (subjects) posted by Roger, so that I don’t get out of sequence.
Many Thanks
Ron F
Grant Duggan
:
A big thakyou to roger and all blog users for all efforts put in 2010. I am very grateful to all those who contribute their time and effort to the blog and share their views.Roger i have recently been researching a couple of companies and when you return from your holidays would appreciate a MQR on them as i have been unable to find anything on the blog.They are CSV and CTD. If anyone else has any input about either of these companies, as always i apreciate any views and or opinions.
Grant Duggan
:
Hi Judith, try clicking the refresh icon at the top of your screen as i used to have the same problem and this should update your page.Cheers Grant
Mark
:
Does anyone have a valuation for FGE for 2011 because when i plugged in the figures on my spreadsheet I got 8.50 for 2011 which seems a bit high.
Graeme
:
My 2011 IV for forge is $6.71 using RR = 12% and ROE= 32.5%
just for interest my 2012 IV is $9.59
G
Mark
:
I am using a RR of 10 percent but if i change it to 12 percent I get 6.21.
Ashley Little
:
FGE is at IV im my opinion
using a high RR as risks exist in a china slowdown and the clough relationship
Judith
:
I would like to thank Roger for all his help with my investment education. Thank you also to all the bloggers -I love reading all the comments. Now help. When I open the blog site, the latest article frequently does not appear for several days. This post I only found by going to facebook, logging on to the ASX trading post blog, then closing facebook, the entry on Floods came up but this post was listed at the top of Recent Posts on the right hand side of the screen. What is wrong with my computer? I know peope wrote about similar problems about six months ago and tech clever people came up with solutions, but I can’t find these posts. Judi
David Sinclair
:
Hi Judith,
To see the latest posts and comments you have to force your browser to empty its cache and get a new copy of the web page. If you dig deep into the menus you will find a command called something like ‘clear history’, but a simpler way that works for most browsers is to hold down the shift key while you press the ‘refresh’ button.
David S.
David Sinclair
:
If you are more of a keyboard shortcut person, I believe shift + F5 does the same thing.
David S.
Pat Fitzgerald
:
Hi Judith
I always have a look at the list of ‘Recent Posts’ on the right hand side of the screen as the same situation occurs for me. Also refreshing (F5/’Shift F5′ etc) the Blog page to get the latest comments does not seem to work for me.
Ashley Little
:
Hi Judi,
I get around this problem by freshing the page every time I go to this website
Kent Bermingham
:
Ashley,
Have received the info on reporting dates, would like to thankyou very much and I enjoy your informative comments on this site.
Kind Regards
Kent
Ashley Little
:
No Thanks Necessary Kent,
We are here to help each other out
Craig
:
I always have to click on the Latest Post link to be sure I’m getting just that.
ken fraser
:
Ron, Yes a lot higher could mean $10+. The half year report is much anticipated. Ken.
ken fraser
:
Ashley, Yes I know. I always use 10% and require a bigger margin of safety for riskier stocks. Roger`s not looking is he? Maybe I`ll have to change and stick rigidly to the book. The more risky ones I still have are SOO,AIR,VOC,MAQ. Myself on MCE I think it would be best to wait till the half year report before contemplating selling under $11. Thanks a lot, Ken.
Ashley Little
:
Hi Ken,
Just my view but I would do things differently
I would try get ting the RR right so your IV guess is a bit more realistic then use the same big margins of safety.
If you use say say 14% for AIR the valuation drops heaps……..You still need a big MOS as this is a very illilliquid stock in a very competitive industry
Hope this helps
fred
:
Hi Ken,
Matrix is @ it intrinsic value in my view but if you believe it’s forecast then it might be a hold. I sell when a company gets to it’s intrinsic value but you also have to consider your tax position. Roger said that he did hold Fleetwood past it intrinsic value due to the tax and dividend reasons but Matrix pays low dividends.
Kent Bermingham
:
Does anyone know if ARP went under water with the floods in Brisbane?
zoran
:
They probably did but they used their “snorkel”
Cheers Zoran
Ashley Little
:
Hi Kent,
ARP don’t have a warehousing facility in Brisbane that I know of just shops,
I am Qldlander but not from Brissy anymore but looking at the addresses they all should be fine…Slight risk in Caboolture.
If any stores went under it will have a very small impact on them as the distribution network is in VIC.
I don’t know what their sales exposureis to Qld and I hate to say this but expect same store sales to be down lots in Qld for the next 6 months or so.(This applies to lots of businesses)
Hopefully it will lead to buying opportunities
ken fraser
:
I thought Roger said if MCE rose to a price a lot higher than $7 or $7.50 he would think seriously about selling. Does anyone know when Roger will be back on the business channel? Ken.
Ashley Little
:
Hey Ken,
My view only but don’t even think about selling this one….
It was the stock for 2011 and beyond and it has gone from 6 to 7 not a massive rise really.
If you want to sell and save brokerage I will take them off your hands
Pat Fitzgerald
:
Hi Ashley/Ken
Ashley, I agree with not selling MCE but don’t forget ‘buy extraordinary businesses at big discounts to intrinsic value’. My opinion is that MCE is no longer trading at a big discount but it is still an extraordinary business with bright prospects etc. The half year results should be out in about a month and that may result in our IV’s changing. Hopefully we will get an update on the commisioning at Henderson and their order book etc. Also we should all remember that Roger has a range of IV’s and that they can change in a blink.
Greg Mc
:
G’day Pat et al.
FWIW, and bearing in mind that we should be trying to work independently rather than knocking on Roger’s door for a valuation all the time, in his writings Roger has produced a range of valuations on MCE where $6 was the conservative valuation and closer to $9 at the upper end. Personally, my valuation is around the current share price, but even compared to Roger’s conservative valuation, the share price is not so hideously expensive that I would sell or remotely consider it. Now is perhaps not the time to buy if you haven’t already, as it is not currently cheap and the immediate future is a bit opaque with regard to Henderson and near term orders. Next month’s reporting will be illuminating.
Of course, take my opinion for what it’s worth, which isn’t much.
Ashley Little
:
Hi Greg Mc
as usual I very much like your views
ron shamgar
:
a lot higher can mean $10+……
this company will do very well for the next few years. otherwise why bother with the new facility.
i believe they are underplaying their capacity to produce. also based on current price, mr market will value this business on high multiples, which means when they will earn 60+ cents a share they may be trading around $12 (look at mineral resources). though they may also go back down to $4.
who knows???
Mikael
:
60+ cents a share for MCE? I think we are there already. They earned 18 cents (21 cents including a one-off item) a share for Q1 alone with a rise in ROE from an already very high level. As I indicated above, recalculate IV for MCE by replacing the Q1 09/10 result with the Q1 10/11 result.
Ashley Little
:
I Think they are before tax figures though Mikael.
Still a good effort by them in Q1
Mikael
:
Sorry about that. Could have sworn it said NPAT. This changes my valuation for MCE a bit so I have revised it down to $9.60-9.70.
Rolling one year profit 24.2m (18.2-3.0[Q1-10]+9.0[Q1-11])
Equity 70m (60[FY10] +11[Q1 NPAT incl. one-off item) – 1m for div.
Equity after Q1-10 = 23m (20m FY09 +3m [NPAT Q1-10])
Average equity 46.5m
ROE 52% (up from 45%)
RR 13%
Payout ratio est. at 25% (up from 14%)
Mikael
:
To maintain an IV around $9.60 MCE would need to report a H1-11 NPAT of 18m I think. They would then have a rolling full year NPAT of 28.8m, 76.5m equity and average equity of 76.5+43/2=60m. ROE of 48% and an IV of $9.60 at RR of 13%. Does that sound approximately right?
Ashley Little
:
Not rushing of to check my IV as it is certainly not hideously different to mine.
ron shamgar
:
u need to take off tax and u will end up with 50cents or there about.
Adam
:
Hi Ken,
My valuation for 2011 for MCE is around $11. I’ll be holding this one!
Christopher
:
Hi Adam,
What inputs are you using? Don’t forget to adjust your equity per share figures to account for their changes in share capital. My 2011 valuation is much closer to $7 than $11.
That being said, while the best time to buy large parcels of MCE may have passed, I’m sure most of us are happy to continue holding this one.
ken fraser
:
My calculation SWL 2011 is $2.67. 2012 is $3.01. RR used 10%. I`m another one looking to buy more. Ken.
Ashley Little
:
Just my view ken but RR of 10% is not high enough.
Try 14% and see what happens to your valuation.
10% should be reserved for bullet proof earnings………..SWL will take a hit from this
fred
:
Hi Nic,
SWL looks pretty good but a touch expensive for me!
see ya
Nic Arena
:
It’s funny how things have moved so quickly for MCE. Now trading at 7:10ish and I remember Roger saying on Switzer (I think) or YMYC that if it went over $7 it was too much. Interesting to see how high it will go or if it will cool slightly.
For me I think SWL is a really good pick for this year. In the past few days the SP has been beaten down from 2.80 to 2.20 due to the floods in QLD. This is a very good company and if the damage is not as bad as first thought the SP will shoot straight up again and past $2.80 (speculating slightly). In anycase as a value investor if they did take a hit on the Revenue front it is such a good company I would be willing to hold the shares for a number of years as I think they will do very well for a number of years. As Buffett says these opportunities are lookedat in such short term prospective by investors that they can create a wonderful opportunity for the patient investor.
Paul
:
Nic,
Agree, given the current flood damage in QLD I am also confident that there will be a significant pipeline of new infrastructure and repair work in the months ahead, urgency to restore the infrastructure would most likely push the government to fastrack the tender process and award contracts to trusted operators. SWL is a major player in QLD and has a very good relationship with the QLD government.
Regards,
PK
Mikael
:
Well replace Q1 09/10 with Q1 10/11 and recalculate IV. Still way below IV if you do that. I have it at $10-11 at the moment (up from $7ish before the Q1 results were revealed).
Graeme
:
I calculated SWL 2011 IV with ROE 40%, ROR 12% to be $2.75.
Waiting to see what announcement come out of the floods before considering buying atm.
Interested in hearing other peoples IV for SWL.
They have won some pretty infrastructure contracts over the past few months.
G
Ashley Little
:
Hi All,
SWL is a good company that is no longer cheap.
Short term they will take a hit.
Understandably things up here have ground to a hault
Long term. trust me……..the roads up hear are a mess…………They are just falling apart with so much rain………More rain this Week…………A very very large track of our infrastructure needs to be rebuilt………..SWL will do very well.
Lets hope they get really cheap again
Kent Bermingham
:
I have an IV in the same range
Kent Bermingham
:
Sorry I meant $10 to $10.50
Kent Bermingham
:
I have revised my IV to $2,34 for SWL, error with Equity ust 12% RR
Alan Bildos
:
Hi Mikael where did you find the Q1 10/11? I looked at asx but the last announcement was their ‘2010 – Full Year Statutory Accounts’ in late september which only accounts until the end of June 2010.
Pat Fitzgerald
:
Hi Alan
The ASX announcement was on the 01/12/2010 ‘Investor Update’ (page 3 has the highlights for Q1).
Luke
:
Yes, at first glance it looks good – High ROE, low debt. Where is the competitive advantage though? (I am actually asking).
If they keep that ROE high, I think it is under IV at the moment.
Ashley Little
:
Hey Luke,
The competive advantage is in their relationships with government.
Despite that if you are a road builders in QLD you wont need a competive advantage in the next few years to make lots of money