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Value.able: Harvey Norman

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Value.able: Harvey Norman

Gerry’s share price and intrinsic value are about what they were in 2003 and the outlook is not encouraging. Read Roger’s article at www.eurekreport.com.au.

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

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

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12 Comments

  1. Andrew
    :

    Gerry Harvey probably wishes he could create a time machine and travel back to when JB Hi Fi didn’t exist.

    In his market you need to have the lowest cost base and offer the lowest prices, if you can’t than you will be left behind or need to sacrifice margin to keep the sales.

    I might be able to tell you soon as i embark on a series of house furnishing, but i would doubt they are even the price leaders in their furntiture and bedding stream as well.

    • Andrew
      :

      Just did a crude analysis on HVN through Comsec figures (which i know are not the most accurate but as i said it was a crude analysis and puts me in the ball park).

      According to my anaylisis NPAT is growing faster than EPS so that despite profits increasing, the profits per share figure not keeping up. Equity is also growing faster than NPAT which means that ROE would drop thus bringing down any value for the company.

      The outlook for them is not too good, they lack any real competitive edge in my opinion. I can’t think of any situation where i think that Harvey norman is the first place i would go to, others feel the same way.

      • David Sinclair
        :

        The problem with looking at it as an REIT is that it has an underperforming retail business strapped onto it, so it’s probably not a very good REIT either.

        David S.

  2. Mike
    :

    A website reports that these are Berkshire
    Hathaway’s historical ROE stats:

    June 30, 2011 7.72%
    March 31, 2011 6.94%
    Dec. 31, 2010 8.61%
    Sept. 30, 2010 8.08%
    June 30, 2010 8.69%
    March 31, 2010 10.26%
    Dec. 31, 2009 6.65%
    Sept. 30, 2009 4.33%
    June 30, 2009 2.54%
    March 31, 2009 2.18%
    Dec. 31, 2008 4.22%
    Sept. 30, 2008 6.54%
    June 30, 2008 9.54%
    March 31, 2008 9.88%
    Dec. 31, 2007 11.51%
    Sept. 30, 2007 12.46%
    June 30, 2007 11.31%
    March 31, 2007 11.00%
    Dec. 31, 2006 11.12%
    Sept. 30, 2006 13.19%
    June 30, 2006 11.23%
    March 31, 2006 10.51%
    Dec. 31, 2005 9.66%
    Sept. 30, 2005 7.82%
    June 30, 2005 8.64%
    March 31, 2005 8.62%
    Dec. 31, 2004 9.04%
    Sept. 30, 2004 8.14%
    June 30, 2004 9.23%
    March 31, 2004 10.91%
    Dec. 31, 2003 11.66%
    Sept. 30, 2003 10.38%
    June 30, 2003 9.67%
    March 31, 2003 8.10%
    Dec. 31, 2002 6.97%
    Sept. 30, 2002 5.32%
    June 30, 2002 2.32%
    March 31, 2002 1.89%
    Dec. 31, 2001 1.35%
    Sept. 30, 2001 3.02%

    If these figures are correct, they look like pretty miserable numbers. How does this reconcile Buffet’s emphasis on ROE?

    • Roger Montgomery
      :

      G’Day Mike,

      Look up “look through earnings”. Berkshire reports only the dividends received from its large equity stakes in other listed companies. For example, Berkshire might own X% of a company and therefore it ‘owns’ X% of that company’s earnings. In Berkshire’s reports, it only accounts for the dividends received not the total earnings. Remembering that for tax reasons international companies domiciled in the US are not incentivised to repatriate funds and pay dividends, the level of income Berkshire receives and which is reported in its P&L is a lot lower than the share of profit is actually entitled too. A look through earnings figure would produce a higher ROE. Hope that helps.

      • Mike
        :

        Thanks Roger. This “look through earnings” is an interesting way of looking at performance. Since I started investing (excluding the family home) I have assessed my investment performance by capital gains and dividends. Maybe I should build “look through earnings” into my own spreadsheet and calculate my own ROE that way!

      • Frank
        :

        Roger, I am glad Mike asked you this question. I was puzzled by BRK ROE figures my self. I am at ease now given your perfectly rational answer. Thanks for saving me the trouble of going through the numbers my self.

      • Sterling
        :

        Thanks for asking this question Mike. By chance I was recently reading the 1980 Berkshire Hathaway annual shareholder letter where Warren Buffett explains this. Those interested can do a search for the report – see paragragh 6.

  3. greg hills
    :

    has any one got ideas on investing on foreign exchanges, espicially the us.keeping in mind currency risk?

    • Steve Moriarty
      :

      Hi Greg,

      I have Canadian shares (one company) and US shares (3 companies – AIG, C, & BP). I purchase them through my platform which is essentially E-Trade. The costs vary but it is usually around $100 a trade.

      The downside is that there is little research material on these foreign markets. However, for the US market I subscribe to GuruFocus which is very reasonably priced and was kind enough to print my review of Roger’s book. It’s an excellent value investment site for the US market.

      Diversification with O/S markets is an important part of a portfolio in my opinion. An excellent little book callled “The Little Book of Value Investing” by Tweedy Browne has a section on purchasing O/S shares.

      From my research market diversification is also a positive.

      I do not worry too much about currency fluctuations as I think they balance out in the long run, but they do need to be monitored. I must say it is nice to receive a BP dividend which is greater in Aussie dollars than US dollars.

      I hope this helps.

      regards
      Steve

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