• When markets behave like a voting machine, they tend to ignore a business’ underlying fundamentals. Learn more.

Who is being watched this reporting season?

Who is being watched this reporting season?

Now on the cusp of reporting season, it is worth reviewing our expectations for Value.able intrinsic valuations and double-checking those that belong to higher quality (MQR: A1, A2, B1, B2) businesses.

There were more than 107 suggestions! Thank you.

Our new A1 service allows us to whip up all the data required for all your nominated stocks in less than a minute (soon you can too!). For now, let’s put stakes in the ground for those which achieved at least three nominations.

In order of mentions…

Matrix C&E, followed by JB Hi-Fi, Forge, Vocus, BigAir, Credit Corp, Woolworths, Thinksmart, BHP, M2 Telecommunications, Zicom, Oroton, ANZ, CSL, ARB Corporation, Thorn Group and Cash Convertors. The remaining companies received less than 5 mentions each. The companies with only a single mention (and therefore arguably least followed) were: ILU, RFG, SMX, KRS, AMA, LNC, RQL, COU, TBR, CPB, AVM, BDR, REA, AIR, CKL, AJJ, FXL, CTD, STU, MIN, TGR, CXS, CMI, CDA, CGX, DGX, RCO, MND, CIX, MOC, RHD, DLX, RMS, MYE, SEA, DPG, SFR, NCK, SRX, NCM, CLV, NFK, CLX, NOE, CMG, NST, IPP, CDD, WTF, OGC, KNH, DWS, FRI and KCN.

Well without further delay, here’s the list with our 2012 forecast Value.able intrinsic valuations.

<Temporarily removed for updating and additional stocks and data columns>

Over the next few weeks we will build on the list, include some additional useful information and data and generally prepare you for reporting season.

Stay tuned. This is a period when even developed markets can be inefficient.

Posted by Roger Montgomery and his A1 team, fund managers and creators of the next-generation A1 service for stock market investors, 1 July 2011.


Roger is the Founder and Chief Investment Officer of Montgomery Investment Management. Roger brings more than two decades of investment and financial market experience, knowledge and relationships to bear in his role as Chief Investment Officer. 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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  1. Hi Roger,

    Could advise when this list might be updated? It seems that it’s been delayed every week for 3 weeks now. I think a lot of people are waiting out for it in preparation for reporting season which is not too far off. You must be pretty busy right now.

    Much appreciated.


  2. Hi fellow Value.able grads….

    I am interested to know everyone’s estimate of MTU’s Intrinsic value for 2011 (utilising FY10 Annual report, Dec10 Half yearly report and latest earning update issued in March 2011).

    Equity/share or Book Value as at 30 June 2010 : $0.67

    #shares outstanding as at 31 December 2010 (Not listed anywhere in the half yearly accounts, therefore I derived this from Profit after tax of $11,447,000 divided by diluted profit $0.0921 = 124,288,816 shares.

    EPS (based on profit guidance issued on 7 March 2011) of 21.6-22.8 cents, take mid point 22.2 cents

    DPS obtained from Consensus estimates from Commsec = 15.4 cents

    Payout ratio = 69.4%

    Equity per share as at 30 June 2011 (estimate) = $0.67 (beginning equity) + 0.222 (est EPS) – 0.154 (estimate DPS) =0.738

    Equity as at 30 June 10 = 76,989,000
    Est Equity as at 30 Jun11 = 0.738 * 124,288,817 = 91,700,000
    Est profit FY11 = 0.222 * 124,288,817 = 27,592,117
    Est profit / average equity = 33%

    IV = (0.74 x 3.25 x 69.4%) + (0.74×8.344 x30.6%) = $3.50

    Am I doing this right? thanks in advance!

    • Hi William… your methodology looks fine to me. I personally use a 12% RoR for a company like MTU rather than 10%. Also, you can obtain the latest number of shares on issue from the most recent Appendix 3B announcement from the company. In the case of MTU, there are 123.6 million ordinary shares on issue and an additional 1.8 million options (potentially 125.4 million shares on issue if the options are exercised). Whether or not to include the options is up to you. I make a value judgement on whether the options are likely to be exercised – if they are in or close to the money and close to the expiry date I include them, if they are way out of the money or long dated expiry I don’t). Importantly, if you include the options in your calculations then adjust your EPS assumptions so that the total NPAT remains constant for the additional shares.

    • Roger

      You must be getting towards the final stages of your year end watch list blog post hm?

      If it’s not to late, can you please add ACL (Alchemia) to your valuation list?

      They got FDA approval yesterday, hence now have certain cash flows and should now be investment grade. I remember you mentioned this one some time ago in companies with big ROE’s, well now those ROE’s are a whole lot more probable.

      I have my own valuation on them, but am keen to see what you come up with, as your valuation on ACR (similar stage bio-tech) differs from mine greatly.

      Thanks in advance.

  3. Just had a look at my watch list. And fitting the theme of this post thought i would post the codes for companys i will be keeping an eye on. All up i have 49 companys on my watchlist which i am eager to this reporting season to reduce even further.

    My foundations (investment group 1):

    Next level (investment group 2):

    Getting to know you Group 1:

    Getting to know you group 2:

    The higher in the list they are, the more research has been done on them. The getting to know you groups have at this stage had minimal research done so i have no doubt that a far few of these will dissapear when i get to looking at them in depth or doing a quick analysis of their reports, they might have popped up on my list due to one abnormally good year which appears to be the case with some of them that i have looked at. Also, want to make sure the competitive advantage is big enough for them to graduate to the investment worthy group.

    I am thinking that I might get rid of Webjet as well as even though it may have good financials, the competitive advantage side just isn’t adding up to me. I am wiling to try and convince me as i do see potential with them.

  4. Hi Roger,

    Can you advise if you will be putting your list of intrinsic values up again on this post as the message says temporarily down for update.

  5. “Who is being watched this reporting season?
    Is the link to the list with 2012 forecast Value.able intrinsic valuations still ?

  6. With MCE, I readthe announcement again that they made when the raised $36M in April. It seems to me that a significant part of the money raised will be used in property development (i.e offices etc in Henderson Location). That too me is an ordinary use of the money raised via capital raising. It should be used solely in either core product development or expansion of plant/equipement to meet increased customer demand. You would expect them to upgrade their offices and do other non-core corporate activities through their cash flow or retained profits.

    What you say guys, anything to be worried about with MCE after their stella run over the last year or so?

      • Hi Manny,

        Well I remember Roger saying that he took part in the recent capital raising at $8.50 after talking to management. He said he felt that the additional funds would generate a 20% return. So that certainly gives some comfort. I know that in last night’s YMYC it was still mentioned as a top stock, but cash flow would need to be watched in the latest report. This was sighted only as a short term concern however

      • I agree Manny. As a company, Matrix is still fantastic. Hence why I continue to hold in the SMSF. However, I think the capital raising has markedly lowered both the current value, and the forecast rise in value. Matrix will raise their payout ratio substantially in coming years after the bulk of the current facility upgrade is complete. Given the high ROE, this is another headwind to value growth.

        I’m looking forward to see the annual report, will be interesting to see how cash-flow has gone in the past 6 months.


      • Brett,
        MCE changed their auditors recently; the reason provided was that they wanted to expand internationally and wanted an international firm to audit. If that is the case I would expect the PR to remain low.

      • Hi Roger,
        Yes that is what I was referring to, time does fly. The link that you provided below in this thread talks about that those international plans.

  7. Hi Roger and Graduates,

    Another great post and an excellent collection of companies, including a few I don’t have on my radar yet. I must do some more homework. I have been holding off sending my selections because I had trouble selection just a handful. The truth is at this time of year I want to keep an open mind and look at all those on my watch list, (and probably a few that aren’t) not just a select few.

    So here is my full watch list;
    EMB, EZL,
    GLE, GUD,
    HHL, HSN,
    KAM, KCN, KRS,
    LYC, LYL,
    OKN, ORL,

    Of the 104 companies above I am only invested in 5 of these at present. Staying on top of these and any new announcements is such a big task. I am looking forward to the new A1 service to help manage my time more effectively.

    • It will indeed save you a LOT of time…You could have all of these and another 1,900 updated constantly leaving you to do something more productive…

  8. Roger

    The list of 2012 forecast Value.able intrinsic valuations above in your article is missing (it still says temporary unavailable). Are you planning to put it on this blog again as I missed checking it out earlier.


  9. Peter M (Mully)

    For anyone who may be interested, FRI have announed that they expect to report a full year a full year profit of $23.5m after tax in line with last year’s record profit and previously announced guidance. The are also expecting to pay a final dividend of $.055 per share fully franked.

  10. I visited three retail outlets to day a Monday to look for a TV recorder one with a hard drive.
    The first store I went to Dick Smiths i was closed, shut down this was a new store opened only a few years ago. Then to Retrovision only about two people there. It is still impressive even though empty because of the range of other household goods it sells. Then to JB HI If, the first thing that struck me apart from been empty two or three people also was the floor space that was occupied by CD’s and DVD’s it seemed to occupy more than 50% of floor space. I didn’t purchase anything but will research it on line and then make my purchase at one of those stores.
    These were my observations, it was a Monday and a quiet time of year also. This may not be useful information but it is a quick way to check out whats happening in retail land. I may visit them again on the weekend when they are busy and also the Reject shop to see what’s happening.

    • Looking forward to hearing an update from your next update. What suburb/city were you visiting? What time of day was it? May be worth going back on a Friday and Thursday and at lunch times too. The best kind of assessment comes from sitting outside the store for a whole week.

      • I sincerely hope someone does not take this at face value and sit outside a random Dick Smith, Retravision, JB Hifi, Clive Peeters, Harvey Norman etc stores for a week each. That would be absolutely hilarious!

        Every JB Hifi I’ve been into in the last year has been jam packed and I saw virtually everyone walking out with a yellow bag or two. I suspect that the stores I visit are most likely to be the “A” stores that Roger often refers to as I think I’ve also been in a “B” store once or twice and noticed there was less traffic, but at the same time I would expect their rent would be lower in that location. New products like the iPad2 are examples of profit drivers in a difficult economy. On this evidence and the fact that they’ve been able to maintain fairly solid financial metrics so far, I think it should be business as usual for them, but there is no doubt that other retailers with a less favourable business model are suffering. It actually suggests that the share price of JBH has been dragged lower with the rest and it might actually be a good time to pick some of their shares up at a lower price – I bought some recently. There is still growth in the business but I really appreciate Roger’s previous insights regarding it reaching maturity in a few years time. I’m looking forward to a few more words of wisdom on Your Money Your Call on Wednesday and the new product Roger is developing.

      • The area is Preston in Melbourne one of the toughest retail areas in Australia I would say. There are 4 Aldi’s, 3 wollies, 3 coles, 2 JB HI FI, 2 to 3 Retrovision, 2 dicksmith, 2 officeworks, 1 Reject shop and last and most dynamic the Preston Market itself. There are hundreds of other small shops. All within a radius of 5 km.Starbucks wouldnt even be tempted.There is also a Bunnings and Mitre 10 so I’m waiting to see where Wollie’s are going to put their store.
        I will visit again Friday or saturday around mid day

      • Let us all know how it goes. Thanks for being at the coal face for us Pat. With all the chatter by economists and the RBA on how the economy is going it will be good to see whats really happening. I note the commentariat are suggesting Aussies cannot afford electricity, gas and petrol bills so a carbon tax will tip them over the edge. Full page ads for $20,000 per person captains choice private plane charters suggests otherwise.

      • Pat,

        The shopping centre at Greensborough has been receiving quite some renovation over the last year.

        The JBH has just opened, so I thought I’d check it out. Granted, it is their grand opening, but I’m tipping that the onsite HVN and Dick Smith will need to pick up their game somewhat.


  11. So pleasing to watch most of our stocks moving bach towards iv’s. However I did learn a lesson with mce..my iv back in March was even greater than yours Roger (but Ichose yours!!)..so when the SPP was announced & with that mos I purchased immediately..very foolish not waiting until towards the closing date. Also please there is another 75 year old blogger …any more?…thanks for everything…rob.

    • Delighted to hear you went with the more conservative option Rob. Always do your own homework and research and seek and take personal professional advice. I cannot predict short term share prices. The short and mid term outlook for Matrix will be dependent on them securing some contracts and their cash flow will be dependent on them getting a few deposits paid. We have pt a call into the company to see if we can get an answer but they may soon be in blackout so we’ll have to wait and see.

  12. Tyler Goldberg

    With regards to AMP,

    Over the past it has delivered solid ROE (reported)
    However why does its book value decline even when earnings are higher then dividends.
    Are these ‘accounting profits’?


      • Tyler Goldberg

        Book Value 2001: 11.49 per share
        BV 2002: 8.90
        BV 2003: 1.91
        BV 2007: 1.04
        BV 2011: 1.42

        I do recall buffett mentioning that if there are no cap raising or anything unordinary the change in book vlaue tracks the change in IV.

        AMP 10 yr performance -6.% pa

  13. Hi,

    On this cold dark Sydney evening I have decided to take some time to update my 2011 forecast valuation for MCE. I am trying to incorporate the recent capital raising’s into my valuation and I would like to run past our bloggers the approach I have taken to see if it is correct.

    Here are the basic variables of my valuation.

    RR – 13%
    2011 Forecast EPS – 49.7
    2011 Forecast DPS – 7

    2011 Forecast Shares Outstanding – 73 (Taken from H1 report) + 4 (Capital Raising 3.5 insto + 0.5 SPP)
    2011 Forecast Shareholder Equity – 59.9 (2010 equity) + (((EPS/100)-(DPS/100))*Shares Outstanding) + 34.4 (Capital Raising)

    2011 Forecast Net Profit = 38.2 (EPS * Shares Outstanding)

    POR – 25%, Fixed to 25% to manage realistic growth rate
    ROE – 40%, Reduced to 40% for increased safety

    IV – $10.85

    What I am looking for is how I have gone about incorporating the capital raising into the valuation. Would someone be so kind and run there eye over my approach.

    Many thanks in advance


    • Tyler Goldberg

      They wont be able to sustain a POR the low unless you expect massive growth in the industry in my opinion. What may happen is it may become similar to JBH. However on the contrary if youbelieve industry will be massive one day (im sure some of you do) it is possible.

    • Russell Robinson

      Hi Robert,

      I have similar figures to you. Regarding your specific question, my total Shares Outstanding is just over 77 million.

      I can’t remember how I came to it, but probably used the 73 + 3.5 + 0.5 same as you.

      What’s this “POR” you mention? If it’s Payout Ratio, I have it at 14%. That’s my EPS at $0.51 divided by DPS at $0.07. I can’t see how it can be 25% on your figures.

      My IV at ROE=13% is $8.54 for 2011 and $10.51 for 2012.

      I hope that helps.


      PS I’m a beginner at this, so don’t take my comments as any sort of authority!

      • Hi Robert,

        To incorporate the capital raising, I have raised the ending equity by the amount raised (as you have), and lowered the forecast ROE. Using average equity, I calculate 2011 ROE at 39.8%, however I see this dropping to 34.3% in 2012 due to the higher equity base. I have adopted a higher payout ratio than you have, I have used 40%.

        If I was to critique your approach, I would say your ROE is too high, and your payout ratio is too low. It implies an unrealistic rate of profit growth to continue to reinvest 75% of profits into the business, and achieve a 40% return on all these funds. Thats just imo though, everyone has their own view.


      • Russell Robinson

        Hi Brent,

        The payout ratio (from Value.able) is the DPS divided by the EPS.

        MCE paid out around 14% in dividends last year. Why would we increase that to 40% when using the valuation model?

        Has the board said it plans to pay higher dividends?

        Just trying to understand….I look forward to your reply as it might help me and maybe others.


  14. Hi Guys,

    I wonder if anyone done an IV calculation on KCN? I tried but I am not sure how to go about it in view of their takeover of Dominion.

    Any advice will be greatly appreciated.


  15. David Sherington

    This is a great list of companies of which I own quite a few of and I look forward to the upcomming commentary on each, however I must say that I am thoroughly disappointed that Cedar Woods did not rate a mention. Its a great company in a lousy sector and has delivered a 30%p.a. compound return over 10 years for investors. Only this kind of return can be delivered by a company with good fundamentals or one with a massive medical, scientific or mineral discovery. While Roger rates this an A3, he did indicate that the stock had an intrinsic value going forward similar to my own – in excess of $8 in some recent homework issued to Valuable graduates. This is almost double the current share price. Their latest earnings and forward guidance indicate very good prospects for the near term, but I believe that these will be repetable for just shy of another decade because the revenue being derived is from long-life projects that keep giving back as they can afford to reduce block sizes and increase prices – propery may be struggling a little, but trust me as a gen Y, there is also a massive shortage of land too and while it may sound a little demanding or ungrateful, most of us do not want to buy asbestos ridden boxes in the inner city that are falling to pieces for ridiculous prices when we can get something brand new and more contemporary in the suburbs (P.S. I personally hate all the media articles that unfairly trash Gen Y). I live next to one of thier biggest developments and have observed this trend over 2.5 years. They are currently exposed to growth areas in WA and Victoria and I am also excited about their proposed expansion into the north west where rents can exceed $1000 a week. I gather they will be getting a pretty good deal from the WA government, who are keen to support mining developments up there. Management has a large stake in the business (I have met some of them) and I back their long-term track record.

    I am hoping some of my ideas are useful regarding this stock and I do not want to sound like an aimless promoter. While this may not have quite the quality of a Matrix or Forge, I would like to challenge Valuable graduates to find a stock with similar quality (A3) or better at discount to IV that exceeds 50%. I have been told in the past that looking at A3 companies was like “scraping the barrel”, but I think there are quite a few sound companies that would be in this category and maybe a few may go on to be A1s.

    • A1, B1, A2, B2, A3 and B3 are all ‘investment grade’. The bottom of the barrel is populated by C5 companies. Transpacific has been a C4 or C5 for many years and its recent announcement was therefore unsurprising and a typical example of the MQRs working as they should.

      • Tyler Goldberg

        I saw CWP a couple of weeks back, looks interesing although i havent done much research.

        I picked up DGX as i believe it has really good earnings prospects, management are major shareholders, little capex & the have adequate funding facilities (80mil drawn out of 150 mil available) as they need the debt for project financing (so does have quit high debt to equity).

        The competitive advantage i see in DGX is that it is vertically integrated. The construction side is quite stable proving 1-3 mil profit & helps as the timing of the propery development business is very lumpy. I quote “in recent times,
        developers primary concern is securing a builder capable of delivery and for the right price. Fortunately,
        we do not have such concerns because of our vertically intergraded business model.”


      • Tyler,

        I picked up some DGX after their half year announcement, when the price dropped from 28 cents to 17 cents, but I consider it a speculation and kept it as a small portion of my portfolio. You’ll get a better price now of course.

        These guys fail an important test though, as the extraordinary high wages they pay to themselves isn’t exactly in the interests of shareholders.

        $500k each to the three largest shareholders.

        Nice if you can get it, but that’s a massive chunk compared to the earnings. (When there are earnings).

        On a positive note I did inquire via some contacts in the Perth property development scene and they did not reveal anything disturbing. They were quite positive when discussing Diploma.

        Hope that helps.

      • Roger,

        Thanks for this enlightening statement on the MQR:
        “A1, B1, A2, B2, A3 and B3 are all ‘investment grade’. ”

        I think it is a common misunderstanding of the readers of your blog that the grading is sequential A1, 2, 3 then to B1, 2, 3.

        As I understand it, the letter refers to balance sheet risk (default/liquidity event probability) while the numeral refers to forecast growth potential.

        The MQR thus embodies the concept of risk versus growth.

        Correct me if I am wrong.


      • Hi Lloyd. Don’t think the numerals refer to growth (as this will rule out many high quality mature companies that are not anticipated to grow considerably). Pretty sure you’re right that the letter refers to the health of the balance sheet but I think the number refers to the current performance of the company based on a number of metrics. I could be wrong however…

      • Jonesy,

        So far Roger hasn’t corrected me despite the invitation to do so if my understanding in incorrect. Hmmm! Am I correct or is Roger just being coy?


      • I wouldn’t assume you’re correct Lloyd because he hasn’t commented. He’s said that’s one thing he won’t be giving – and he’s given plenty – and I’m not sure he’ll change his mind. He might just keep stonewalling you.

        Just by stating the MQR’s for the various companies though, as he’s done, has allowed me to get a great insight into the risk management process.

        I might not be able to identify the smoking gun of why Roger rates one firm lower risk than another, but I’ve got a better idea of risk – I’m certain – just through the exercise of comparing some A1’s to A2’s, A3’s or B1’s. I’m sure a lot of people on this blog are doing the same.

        Bloody handy this blog!

  16. Hi all,
    Thankyou very much for this list Roger and I’m relieved to hear that some of the valuations are a bit out, I was going through my excel and was concerned I’d stuffed up some of my formulaes (hey I still might have !).
    Anyway on another note for what it’s worth, one thing I feel is important for any newbie value.able grads out there like myself to think about, (even more so in light of Roger’s new A1 service about to be released), is to ensure we are all comfortable with how Roger is valuing a business and how he is determining what gets priority for our investment dollar. While I look forward to the A1 service and without knowing all it’s in-built functionality, I always get a little worried about black box applications and what we learn from them. I guess what I’m saying is to keep re-reading Value-able and ensure you can continue to work out and calculate on your own all those Value-able metrics (cashflow, IV, ROE etc etc), that the new A1 service will almost certainly do for you once it’s available.


    • Thankfully it will make that decision for you easier. A1, B1, A2, B2, A3 and B3 are all ‘investment grade’. C5 companies, for example, are not. Transpacific has been a C4 or C5 for many years and its recent announcement was therefore unsurprising and a typical example of the MQRs working as they should. I for one am happy to see the A1 service remain for ‘internal use only’. Indeed the decision to offer access to it at all (those who have tried it have all indicated they want it back asap) is a source of ongoing debate here. We have five internal core ‘values’ and one of them is to always be Generous. I keep getting shouted down for breaching that core value when I suggest we keep it in-house.

  17. Hi Roger,

    Doing some research and came across Infomedia ( ifm ) does anyone know anything about this one?

  18. Thank you Roger for this list.

    Can I also make the point that it is also really important to understand the company you are buying and not just focus on value. You buy companies when they are cheap once you have ticked all other boxes and fully understand the companies Moat.

    Also these valuations are based on analysts forecasts which are not always right. I have found that extensive research can often expose different prospects to earnings to what analysts have come up with. This has helped me enormously with investing.

    So when I look at the list above, my valuations are in most cases the same as Rogers, but in some cases vastly different but based on my own forecasts of earnings.

  19. bob bellhouse

    Hi Roger,
    While I’m glad to hear that there may be a glitch with a few valuations, I had come to the conclusion that I was happy with your valuation for VOC. That way I might get to buy some more if lots of people take it at face value.

    Thanks for the list,


  20. Macca McLennan

    Well done Roger
    You’ve done the heavy lifting by providing the MQR

    Can you tell us What is your “Required Rate of Return”


    • An enormous amount of technical research and testing has gone into establishing the method for determining the required returns so you will have to do your own work – especially those of you trying to build stuff. I was never happy with the wet-thumb-in-the-air method but nor was I happy with the equally simplistic approach of allocating weights to individual factors to produce a multivariate approach. I am entirely comfortable now with our Required Return algorithm – and it has produced some stunning successes while keeping us out of the duds or the dud times – but it is too Value.able to just bandy it about.

  21. Hey Roger,

    In the last few months (I can’t specifically remember when) you stated that MTU’s 2012 IV was around $4.60 – however now you have it at $3.53 – just wondering what inputs had changed, or whether you just adopted a higher RR for the sake of being conservative?



  22. Hi Roger,

    A few questions regarding MCE’s A1 rating that have been puzzling me for awhile:

    1.If MCE does not demonstrate cashflow this year, will you be downgrading your MQR? Does MCE’s capital raising (which anyone could have seen was likely based on cashflow analysis of last report) make it ‘less of an A1?’

    2. How do you stress test companies that have a zero-dividend policy? Obviously you rely on them following GAAP accounting, but it’s always difficult to tell how much capital expenditure is actually replacement and how much is investment of retained profits for incremental growth. Is it fair to see that it is easier to assess (and therefore assign higher ratings to) companies with high FCF yields? Whilst obviously these companies have greater returns due to re-invested profits, balance sheet analysis is a lot harder, and *I think* you need a big MOS to warrant risk in these enterprises (to ensure safety of principle).

    3. Do you assign weight to owner earnings in your MQR/ or is this too difficult to automate?

    Thanks once again- your blog is a fantastic resource!

    • Hi Mal,

      1) There are over 35 discrete factors that determine the quality ratings. Cash flow will certainly be reviewed. Whether the quality rating changes eg to A2 or A3 will depend on all the factors.
      2) See answer (1) there are aspects of cash flow that give us some sense.
      3) owners earnings is easy to automate but I am not sure from your question that we have the same definition of it.

      • Tyler Goldberg

        “owner earnings.” These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges such as Company N’s items (1) and (4) less ( c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume. (If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in ( c) . However, businesses following the LIFO inventory method usually do not require additional working capital if unit volume does not change.)

        Roger, I agree with Mal you do have to estimate the annual maintanence capex, if this is wrong id like an explanation please.


      • Hi Tyler,

        Interesting. Maintenance Capex isn’t hard to estimate but it isn’t easy to get right. From annual reports the most common proxy is depreciation but for airlines it understates and transurban it overstates. My definition of owners earnings is very different to yours. The definition you have provided seems reasonable but to make it clear can you take us through 2010 ‘owners earnings’ for QBE or CBA? Just kidding. Seriously though how about 2010 Neptune Marine (ASX: NMS) and what about Patties Foods (ASX: PFL)? One because its hugely capital intensive and the other because it should more capital intensive than it is.

      • Hi Roger,

        I have the same definition as Tyler for owner earnings. On the basis of this definition, I find it very difficult to automate owner earnings, but high and improving dividend yields are a very good proxy for good owner earnings, as I’m sure you will find that most of these companies have higher D&A than replacement capex.

        The companies that aren’t paying out dividends, although they are theoretically building shareholder value by re-investing retained profits at high returns could be actually more capital intensive than they proclaim to be. In growing companies, for the most part it is very difficult to see how the companies expense new capital versus replacement capital, particularly as you don’t have the ‘track record’ to go by. In MCE’s case, I would have to see growing free cashflow to accept that they are not overly capital intensive.

      • Oh there’s capital involved. You already have all the proof you need. The definition you have for owners earnings is just a cut and paste. Go ahead and apply it to a few companies.

      • Tyler Goldberg

        To get a good estimate of maintanence capex i think you need an understanding of those two businesses, which i dont have.
        scrolled through NMS capex averaged about $16-20mil They have had an 8 mil depreciation charge last year. Since they have not grown most of that capex has seemed to be a waste. plus i would never buy that business, too much capex with hardly a return on equity. in 2010 i’d estimate their owners earnings to be less than zero. They have had to issue shares.

        To get a good estimate of maintenance capex, i believe you need to get a thorough understanding of the business & its competitive advantage.

        I have zero understanding of each business, maybe a little understanding for PFL because its simple.

        In the case of NMS, i would estimate owners earnings to be near zero or even less than zero. Often you can just contact the company & get a better understanding of the amount required to maintain unit volume.

        In the case of PFL. the depreciation charge has been similar to the capex over the past two years. However the 2 years before capex was much greater than depreciation. This probably has something to do with your hint “it should be more capital intensive than it is”.

        I agree about TCL (is that because they spend alot in 2005/6) & the airlines.

        Could you explain how it “should be more capital intensive than it is” & how did you work it out?

        & whats your definition? i was just quoting buffett when he compares Scott Fetzer with different accounting.

      • Hi Tyler,

        It sounds like my point is made. Its one thing to cut and paste a definition for owners earnings but quite another to apply it to real companies. Regarding “should be more capital intensive than it is” – that comes down to knowledge of the business and whether it has spent the money yet on upgrading/updating/maintaining. if it hasn’t spent the dollars yet, then the numbers will mislead you into thinking it isn’t capital intensive – even though it will be.

      • Tyler’s definition is a direct quote from Wikipedia, and is attributed to Buffett. Have you reinvented the definition Roger ?


      • I think I made the point that I wanted you to try and apply it. Its one thing to write out something and another to try and apply it. Yes, I have my own definition.

      • Ive always had trouble differentiating between FCF and Owner’s Earnings..can anyone care to explain? Infact i think they are just the same thing..

      • Roger won’t allow the link- but go to Berkshire Hathaway, letters and then to the 1986 letter and search for Warren Buffett’s attitude to owner earnings. Reported free cashflow does not subtract sustaining capex. That is why it is much easier to automate free cashflow from company reports, but some deeper level of analysis needs to occur to calculate owner earnings.

        This is the same reason why it is very difficult to work out the true owner earnings of rapidly growing companies in the absence of a dividend. MCE’s total cash balance is going down, although profits are going up. A large part of this is put down to capital expenditure to get Henderson up and running, but I don’t really know how much is going into sustaining capex. Same problem goes for most mining and oil companies. One of the great things about dividends is that (provided you are not issuing shares or borrowing to fund them) they are a proof of a degree of owner earnings. Companies that are steadily increasing their dividends are increasing their free cashflows. Unfortunately, there are very few companies with low payout ratios (ie that are re-investing profits) that offer the safety of dividends!

      • The objective of owner earnings thinking should be to establish if the accounting profit is all yield on Economic Capital or does it include some degree of return of economic capital.

        If the accounting return includes some economic capital return because stay in business depreciation/capex costs etc are understated then your accounting yield is artificially high and you are effectively slowly liquidating your economic interest. Problem is companies don’t like to liquidate so they will at some stage make big capital investments to stay in business and repeat the process, inevitably asking their banks or owners to fit the bill.

        Once you understand the economic picture you’re trying to observe. It’s much easier to pick out the ratios to watch. “Longitudinal observations” of ROIC and Operational Cash Flow / NTA are useful starters.

      • As always, thanks Gavin. Perhaps if you use a property (a rented apartment that is never repainted or repaired as an example) it might help explain that the reported profits are artificially boosted and that eventually, in order to maintain the competitive position of the property in the market place, the owners or the bank will be called upon to get it up to date again…

      • Hi Tyler

        This is a bit of a tangent from your main point but worthwhile noting. Listed companies must follow Accounting Standards as per the Corporations Law, & therefore the LIFO inventory method is expressly forbidden.

  23. Hi Roger; Thanks once again for the knowledge sharing.
    Re reading Value.able for the third time time and was drawn to the mention of “buying below the business’ equity”
    Could you expand on this especially re ROK which has a current equity per share of $2.40 [25m shares vs $60m equity] vs last quote of $2.20.It is of course theRockhampton Building Society,has a strong brand presence in Capricornia and delivers a consistent ROE of 10% [low I know]with a 75% payout ratio.Does such a discount to equity qualify it for purchase consideration?
    Many Thanks Doug

      • Tyler Goldberg

        If the business earns 6% on capital over 40 years and you hold it for that 40 years, you’re not going to make much different than a 6% return—even if you originally buy it at a huge discount.


    • Lawyers – I avoid them like the plague in life and business. A rule I carry over to investing. In my experience, they just screw you around and empty your wallet in the process.

      • Peter M (Mully)

        Very funny Lloyd :). Come to think of it, any business that’s good at emptying people’s wallets must to be a good business and therefore a good investment :)

      • William Gill

        Hi Roger Lloyd,
        Quote Poor Charlie’s Almanack (Shakespear’ s King Henry the V1,
        “First thing we do is kill all the lawyers.”
        Charlie an Attorney, might reject that idea,but accountants? Well
        Sorry to Ash and all the other Accountants / Lawyers, who contribute to the blog, my thoughts are always with you

      • A small ironic anecdote:
        I am an old grey-head (and beard). I don’t do Facebook. This morning I received my first personal invitation to sign up to Facebook….. from a legal firm!

        What did I do to deserve this?

      • Lawyers – will make a lot of money out of Gorgon project. Given there are billions in messy contracts going on right now.

  24. Roger,

    I noticed this recent addition at the foot of the comments box:

    “To continue the highest levels of integrity and camaraderie of the Value.able blog, comments will be published or deleted at Roger Montgomery’s discretion.”

    Fair enough I say, but sad to say that such a footnote is even required.

    Lets all keep the discussion civil and respect the fact that a great diversity of opinion and views are what makes a market.

    However, I do feel compelled to ask whether the content of your posts, or bloggers’ responses, are being targeted for written/verbal abuse and/or disparagement by a particular group or sector in the investment community?

    I can understand that your shared insights and some of the blog commentary would be challenging to many of those on the sell-side, or with a vested interest, or position, in certain sectors or businesses that receive a less than favorable MQR, or review. Does this lead to a hostile response that necessitates your footnote?

    That it has come to require such a footnote is a sad commentary on the attitude of some, but at the same time it is the highest compliment that your insights and commentary must be really hitting the target.

    Thanks for the insights, the sharing of your knowledge and the maintenance of one of the most civil investment blogs/forums on the web….. a rare occurrence indeed!


    • Hi Lloyd and all,

      Somewhat surprisingly the comments I don’t allow are directed towards others’ comments. Why a difference of opinion over stocks creates any animosity at all still escapes me. It mystifies me that some people get emotional at all when another investor has a different view. Whether informed or not, I will not allow the sort of language and personal invective that populates forums. Everyone who posts a comment about a company here is respected and their ideas about stocks are given a voice.

  25. Hi Roger
    Fantastic work! One question, why is ACR’s and CST’s 2012 IV not able to be calculated?


    • If the table says not calculable it could be there was insufficient data but more likely it was in the transposing which has identified a couple of glitches in our attempt to automate the blog publication.

      • Macca McLennan

        HI Roger
        CST there is a takeover offer which has about a 50%(???) chance of succeeding
        ACR a biotechnology stock which wiil have a payout of over 100% close to impossible to value.

    • It’s most probably because ACRs income is related to milestone payments in the development of its product so it is variable and unpredictable. CST is currently mulling a takeover offer.

  26. Hi Roger,

    In previous tables, similar to those above, you have listed the “3 year expected change in IV”. It would be fantastic to see that for these stocks because, as we know, this is crucial for assessing the value of a business. Is this a metric that your service will provide? Thanks.

  27. Hi Roger,

    Thanks very much for publishing your latest list. I hold a number of the companies listed in my portfolio and have gone through the exercise of valuing others when deciding if I would or wouldn’t buy them.

    It appears to me that generally, IV guidance for 2012 has been lowered across the board from where it was one or two months ago.

    I appreciate you have a couple of dozen inputs to feed into your IV model, but would be interested in your views on the common theme weaving its way through the companies that cause the lowering of IV guidance into 2012/13.


    • Mount Gibson is probably coming into a lot of money and I think a big reason it is so underpriced is the paucity of information that they release. Everyone knows they are rolling in cash, but noone seems to know how much (what the margins etc are), but they are priced at such a big discount that they are very cheap. You should also factor in the fact they have some 400million in cash (probably significantly more now), which is not an insignificant component of their share price. Their quarterly should come out by the end of this month and should be illuminating.

      • Don’t forget that two of their biggest Chinese customers are also board members – talk about related party transactions ! The “paucity of information” and the resignation of the chairman over corporate governance should be ringing very loud alarm bells.


      • I agree Brian, Mount Gibson is a very good case study re issues involving foreign investment and corporate governance.

    • From someone more informed than most and its pretty hard to argue against the proposition he puts forward. Fasten seat-belts please!

    • Hi Ron,

      Just wanted to throw something out there as a counterpoint to comments like the above which i think really tip toe the line as to relevance and quality, I hope you have not gone into that emotional world of investing where you fall in love with a companys story so much that it blinkers you to anything else. It just seems that you are posting multiple comments in a few blogs about the same company. Also, it might excite a few of the less analytical members of the community and at worse might be considered ramping up a stock you own for personal gain.

      I have been in that area before and it lost me money as i was missing warning signs at the expense of the story which made me think it would be getting better and better.

      I am not saying that BigAir are not a good company, i indeed had them pop up on my list of companys to analyse before you mentioned it and will get around to them soon.

      I also would hate to see this blog become a place on debate of the merits of the NBN. A quick look through the comments section on news websites will show why. I just think that the above post doesn’t really add much and seems to be sent for no other reason than to back up the opinion of Ron about the NBN.

      I am not saying i agree or disagree with him but i think instead of posting links with a sentence from the linked article maybe these posts should need to have some type of comment from the writer as to why it is relevant to the discussion.

      • hi Andrew and Roger,

        all i would like to add is that if this is an insights blog into companies, then all insights should be shared with others about companies we discuss. so if i come upon an article or new information about a company, i just post it up here to share.


      • and in regards to the NBN, many companies discussed on this blog, such as BGL, MTU, TLS, MAQ, VOC, IIN, TPM etc., will be effected in some way by the NBN, so there is no reason why we shouldn’t discuss their industry and its future, no matter what each of our views is. thanks.

      • The NBN is a game changer (a good one for some and a bad one for many companies). Just remember NBN is about broadband so don’t confuse it with companies that receive the bulk of their revenue from mobile phone services.

      • Hi Ron,

        All I can say is keep up the great work. We will all have different ideas from time to time but the blog is about discussing issues that effect our investments. Your insights are fantastic and while I may not invest in every idea you come up with, I certainly get an enormous amount out of your insights as do many others.

      • Agreed that news adds to insights, but if we all were to just start posting links to news and commentary relating to shares we own or are interested in there wouldn’t be enough time in the day to read it all. There are so mant unknowns regarding the NBN that I believe we need to watch it play out rather than predict what may or may not happen. I get very nervous when a government of any persuasion has a significant influence on the future of any industries or investments I invest in. Political influence can fall one way or the other but to rely on it is not a commercially sound strategy.

      • Hi andrew.

        I have thoughts along the same line.

        I reckon, as a holder of any stock, that you should be able to prosecute a compelling case for why you shouldn’t hold that stock. If you can’t then you’re probably already a victim of confirmation bias and a sitting duck to being blindsided.

        The deepest insights come when you invert your perspective. That an investment is suitable – should be you’re a hypothesis. Your ongoing investment management work should be to disprove (not prove) your hypothesis. Decreasing risk only comes about by continuality challenging your beliefs and opinions.

      • hi Gavin,

        i totally agree with you.

        But, what you are saying above are things i have already done BEFORE taking a position in BGL or any other company i choose to invest in. once I am happy with the risks associated with the investment and if i have a LARGE enough MOS, then i decide to take a high conviction position.


      • Hi Ron

        I was talking generally – not specifically in relation to you.

        Building on your response thought I think the following points are relevant.

        Being the devil’s advocate is easier before you take a position but more important after.

        A Margin of Safety can only be determined with reference to your assumption. The higher your conviction the greater is the importance to continually challenge your assumptions on an ongoing basis.

        How about you try and prosecute the case for not investing in BGL – And see if the exercise adds any value. If you really know the company well and try you’re hardest, yet fail to make a convincing case for not investing then you have a sound basis for continued holding. Continually trying to undermine the positive investment hypothesis is the best way I know of managing risk in an open position. High conviction deserves and warrants high, ongoing scrutiny.


      • Exactly right Gavin, a first rate contribution.

        Before I make any investment I always try and formulate a case against investing in that company and even ask a few of my more intelligent stock market friends to do the same. If after doing a lot of research I can make up an excellent case against making that investment I will move on to other prospects.

        Charlie Munger is very fond of quoting the famous algebraist Carlo Jacobi who said ‘invert always invert’ and this is wonderful advice when trying to determine the solution to any problem.

      • Excellent points. I have been doing some reading on business failure that has really helped focus my investment analysis. The reading really drove home some key points:-

        -All businesses irrespective of size can fail – think about what a business is exposed to and use common sense to evaluate this exposure. A ‘rule of thumb’ is that 1 in 10 businesses will fail.
        -Business failure is usually not catastrophic (bankruptcy or liquidation) but rather a slow lingering death over many years – sustainable competitive advantage is key.
        -Start up businesses have a high failure rate however once a business has been operating for a few years, the failure rate reduces to that of a large established businesses – do not worry about small caps.

        I therefore have some simple rules:-

        1. I will only consider valuing a business that has a profitable history for the last 5 years.
        2. If I believe a business has some ‘potential’ but has yet to prove itself with profitable history for the last 5 years, I will only purchase the shares in the business that when they are selling at a large (minimum 50%) discount to the liquidation value.

        I believe these two rules keep the odds firmly in my favour.

        And finally the most important question I ask in any investment analysis:-

        How confident am I that the business is going to still be profitable in 5 years time?

      • Those odds will definitely keep you in a safety hat. Give Australia’s small size and the speed with which businesses mature, I wonder whether you may be limiting your options to companies that have already been through their rapid (and potentially highly profitable) growth phase. Are you confining yourself to mature businesses only?

      • It all comes down to the expected value of the investment. I am willing to buy shares in a young business (1-3 years old) without a profitable history as long as they are at a large discount to the liquidation value and have ‘potential’. If my guess about the ‘potential’ is wrong, the business starts to fail and is hopefully liquidated efficiently by the board I can still make a reasonable return. If my guess about the ‘potential’ is right then I will make a large return. I do not lose money. The expected value of an investment in a mature business is easier to calculate than for a new business, a mature business has an operating history which provides facts to make an informed guess on the future returns – a new business does not have these facts rather it has future revenue graphs shaped liked hockey sticks. Sometimes it easier to accept that the complexity of trying to calculate the future profitability of a new business is a waste of time, it is only a best guess so instead focus on your returns if your guess is wrong.

        I would be interested in sharing information on business failure rates.

      • Thanks Roger.

        When it comes to investing Buffet and Munger are often quoted however my favourite “investing” quote is from late two-time champion world poker player Puggy Pearson – “Only three things to gamblin’, knowing the 60/40 end of a proposition, money management and knowing yourself.”

  28. Hi Roger,

    Thanks for your generosity posting the list of your Yr12 IV’s and your MQRs.

    Thanks to all the bloggers who posted their stocks. It altered me to some I never had on my watch list

    I am also wondering if the JBH Yr 12 IV is a typo mistake. Maybe it should be $16.69 instead of $13.39.

    I can comprehend with a downgrade, the company maturing and like all Retail stocks they are facing headwinds with
    1. Online buying

    2. $A dollar high deflating prices, consequently more volume needs to be sold to maintain earnings

    3. Australians are saving more and the demand for credit has been slowing for sometime.

    3.Consumer sediment is down compared to12 months ago, most likely because of rising household costs for utilities’, petrol, insurance, fruit & vegies – will come down if there is no more natural hazards. Interest rates have risen with more to come according to the RBA.

    4. I do think all the talk about the carbon tax has people concerned.

    I am not allowing market fear to takeover my thoughts, but I think one can’t ignore all of the economic macro drivers. Some of the negatives may abate, but for what my opinion is worth, I don’t think they all will in the foreseeable future

    Maybe the $13.39 stated for JBH is correct, if it is have you decreased your ROE and/or increased your RR.

    Myself, up to early this year I had been using 10% RR, then changed it to 11% RR.

    Kind regards
    Ron F

  29. Hi Roger,

    I have had mount gibson (MGX) during the Japan earthquake sell off. Although very attractive IV, Do you see management and the key shareholders dumbing this one down because of conflict?

    I’d be thinking that would be economic suicide for the big shareholders.

  30. One surprise absentee on this list is MND. Trading well above it’s 2012 IV unfortunately, but outstanding track record for earnings growth.
    Mark Ab

      • Harold JANUS

        MND looks like an excellent coy. My half hour results using Commsec data for 2010 and predicting 2011, estimates an IV of 16.33 for 2011 & 19.00 for 2012
        Last time MND was 16.33 was on 28/10/2010. Present 18.70 so not cheap any more.
        It is difficult to find coy below IV [using 10%]. Harold

  31. (Roger please post this instead of previous comment)

    BGL article:


    and I’m quoting:

    “Why wouldn’t a gorilla like Telstra just spend $10 million building a wireless network on its own?

    Linwar Securities’ analyst Owen Humphries says it would be better value for a gorilla to just buy BigAir because of the technical difficulties. He then waxes lyrical about the virtues and ubiquitous nature of the internet “cloud”.”

    • ..and I have never heard of an analyst being wrong either. They may indeed bid for BGL (indeed I wouldn’t be surprised) but the ONLY reason will be to get rid of a competitor.

      • I suggest that it would be more prudent for TLS, from the perspective of the competition regulatory risk, to simply out-build BGL and then cherry-pick the highest value customers with an offering of more reliable, faster greater bandwidth at lower cost. Then TLS can point the regulator to the existence of a competitor and avoid the otherwise inevitable competition regulatory enema. After all,TLS has had enough of the latter in recent years and I am sure would do anything to avoid having to bend over and accept another from the ACCC at some point in the future.

      • I thing the big four periodically take a group enema for recreational purposes … the just laugh about it…. all the way to the bank. There isn’t a competitive regulatory enema, or anyone to big enough to give to these guys.

      • Hi Lloyd

        When I looked at BGL and how little capital is actually required to build a base station ($100k according to a micro equities research report), I thought TLS could replicate their network for about $10 million. The other thing I haven’t seen discussed is how will the rollout of TLS 4g network impact a company like BGL? If 4g can work at speeds similar to WiMax without the need for a high gain antenna surely it will prove more popular in the long run? By all reports the 4g testing by TLS has proved very successful.



      • I couldn’t agree more – 4G is imminent and it won’t take long for handset manufacturers to follow suit. I was involved in the deployment of the first 3G network here in Australia, Hutchison Telecoms – 3. We launched with a limited handset range and at the time they suffered from a number of issues, primarily being size and battery life. However within 6 months the next-generation of handsets were being trialled for release. The retail telecommunications industry changes at an extraordinary rate, coupled with tight margins and market saturation in Australia, makes it a difficult playing field. Personally I steer clear of these types of businesses, at least in Australia.

      • Peter M (Mully)

        For the sake of BGL shareholders (which I’m not) I hope they do, because if they don’t I think BGL could be on an uphill slope with a healthy dose of capital and perhaps even some debt being required to fund and maintain their competitive position in this rapidly changing and capital intensive sector.

  32. Geoff Cruickshank

    Thank you Roger, you continue to throw up very thought provoking topics. I’m not seeing a lot of value except in the things I already own, so whether to top up or sit tight is what is exercising me. Given that about 95% of listed companies are not doing very well, and even many good companies are overpriced, I wouldn’t be surprised to see the general market continue gloomy and better offers available later down the track.
    An anecdote: the advisor who helped me set up my SMSF is retiring as of June 30. I rang him yesterday to wish him well. He asked me how the fund had done for the 12 months, and I heard a little gasp at the other end of the phone… All credit due to Value.able and I remind myself not to get too cocky!

  33. Roger,

    My valuation for VOC is much, much higher… Why do you anticipate such a large loss of value?

  34. Thank you for posting the valuations. The standout points for me are:

    * Big falls in IV for JBH and VOC
    * MGX valuation shows a big MOS (though one that I most likely would not buy)
    * Suprisingly little interest in MND and FWD – companies with excellent track records
    * ARP – no suprise here – but I just wanted to mention it anyway – great business!

  35. Roger,

    With MCE in February you had the value at $10.21 and now you have value at $9.72 in 2012.

    Why the fall in value for MCE when profits are suggested to grow?


  36. Fantastic stuff Roger, many many thanks.

    I have followed with great interest your declining IV for Vocus. Starting out I believe at $2.45 (Eureka Report) going to $1.74 in a recent edition of Money Magazine to $1.33 in today’s post.

    “When the facts change, I change my mind. What do you do, sir?”

    All credit to you for calling it as you see it.

    (I own a few shares in Vocus and think they’re a buy at under $1.90)

    I was also happy to see RQL rate nothing but a short mention as one of the least mentioned stocks with only 1 recommendation (me.) If it had received many I’d have had to consider that perhaps it was too popular (and perhaps overvalued) and I’d have had to consider that maybe it was close to selling. As my top prospect and largest holding I am happy this is not the case although I also own a few shares in MCE (the top mentioned stock) although I would not consider selling this, popular or not.

    • Hi Nick, The capital raisings do reduce the IV but I believe that valuation on the table may be a victim of the tranposing probelm I think has occured in trying to fully automate the publication of the table for the blog. Stay tuned.

      • Tyler Goldberg

        Wouldnt the capital raising over the long term be good for MCE?
        If the money if used wisely, let says it achieves 20% + returns (ROE of 20%+) it creates more than one dollar of market value for each dollar of book value injected. It may negatively effect IV in short term as they have to put the cash to work. Im not sure if this is the case with MCE or not.

        Im just drawing on my knowledge of CCV who raised money to repurchase stores on a 20% earnings yield (so ROE of 20 approx) which will be a good thing in the long term however ROE is being effect in the short term as they held 50mil of cash.

  37. I am certainly looking forward to the A1 announcement Roger! August is going to be flat out and it may also end up being quite rewarding.


  38. Roger,

    An excellent article, and I can imagine many people updating watch lists tonight. My concern is with VOC.

    On March 9 your ValueLine column “Making Money Underwater” concluded with giving VOC an MQR of B2 and an estimate of Intrinsic Value of $2.45. Now 4 months later this list maintains their B2 rating but gives an IV of $1.33.

    Now I fully accept and support your assertion that you are under no obligation to keep anyone informed of changes to IV or views on a company, however I cant find any announcement or developments or anything that has effectively halved VOC’s IV , what have I missed?

    All the best

    Scott T

    • Hi Scott,

      I now think its a victim of some glitch in trying to fully automate and transpose the data for the blog. There are a couple of other little issues I have noticed like decimal places in the wrong place etc. We will put a refreshed table up imminently.

  39. Hi Roger,
    The IV works as an anchor for me, good to see the companies I have invested in, are showing higher RM’s IV than the price I paid for except for JBH. Also interesting to see BGL is A2 while VOC is B2 for you. I thought you would rank it otherway around, after reading your thoughts about both the companies.
    I am still waiting for the entry point for VOC and MCE, finger was on triger and was feeling quite itchy for last week or so, I think I will take my hands off the gun for a while now.

    Roger, can I ask you numbers you are using for JBH IV. My IV for FY11 is around 13.00 AUD but shows around 25 AUD for FY12, May be the guidance I am using for FY2012 is much higher than yours.


  40. I have been having problems posting comments. Trying again.
    re reporting etc. Reporting month varies. Campbell Bros (CPB) has just released their annual report. There are a few ‘quirks’. Their per share numbers do not necessarily reflect what is needed for the calculations. They have a significant ‘intangibles’ and as far as I can deduce their per share ‘nta’ does not include this. Just be careful in calculating an IV etc

  41. G,day Roger,
    Are they typo’s for JBH and VOC, because the last IV you had in the eureka report for JBH was $22 and VOC was $2.45, I don’t think the world has changed that much in the past month for the value of these companies to be cut in half.

      • Hey Roger,

        Thanks very much for this list. We love a good list!

        I am also very interested to hear the reasons for some of these big downgrades in value. Hope you wouldn’t mind providing a brief explanation. VOC & JBH appear to be the 2 with the biggest drops. I know you previously said you saw VOC potentially being substantially higher in a few years time. Has this changed? Appears to be very over-priced on your new value. Hoping your new service will project value a few years out.

        Are there specific events that have caused the downgrades or is it based on your updated list of broker forecasts? Thanks in advance!

      • Hi Roger and Darren,

        From what both of you are saying, this means that the ROE should be declining significantly over the next year for both JBH and VOC? Roger, I remember you saying that Vocus was purchased at close to intrinsic value but since earnings we expected to double over the next year, the IV was meaningless (I am poorly paraphrasing). So are you expecting Vocus to earn less than previously thought in 2011/2012? Or perhaps their use of the newly raised capital isn’t as profitable as before, causing a decline in ROE? Obviously, none of us have the report for the next year.

        Also, on JBH, the “consensus” forecast in commsec looks like they will at least have a flat IV above $20 by my calculations. Of course, we should all take both commsec and “consensus” forecasts with a salt shaker. I would be very interested to hear other peoples thoughts on these two companies over the next few years.


      • Hi Luke, you should go and check those comments. I dont beleive I said earnings would double over the ‘next year’. In our efforts to fully automate the publication processs, there has may be a glitch in the transposing (between members of my team too) so I am going to review asap.

      • Harold JANUS

        Hi Rodger, The value for ZGL at 50.67 looks like a typo.
        However, many thanks for your list of MQR

      • Yes, I made a reference earlier to our attempt to fully automate the list publicatioon. There appear to have been a couple of little glitches which I am glad we have identified now rather than during reporting season.

    • Pat Fitzgerald

      Hi Darren

      I can understand a drop in VOC’s IV because of the capital raising but I have not seen any mass downgrading of JBH’s 2012 earnings by the big stockbrokers. I currently have a 2012 IV for JBH of $18.74, a very big difference to Roger’s. My IV’s for the other businesses are mostly within 10% of Rogers with only a few 20% or more different. I will have to keep a lookout for JBH earnings updates.

      • We have identified some issued with the transposing from excel for the blog and will repair and republish shortly. There have been some movements in decimal places and some line and row misalignments. stay tuned.

    • Kent Bermingham

      Ash I am suprised by your comments, I think the quality rating is probably correct but I have identified a number of issues with the IV’s that have been produced and Ithought you would have as well. I informed Roger but had my blog was removed at his dicretion.

      • Kent Bermingham

        Thanks Roger, I was being supportive of Valueable but was pointing out that your current IV on the post were much different than mine in some cases and I was concerned I was doing something wrong.
        As I invest on this methodology I wanted to make sure we were in the same playing field,
        You have since answered my question in your response to fellow graduates and I look forward to your revised IV’s for these companies.
        My comment to Ash quoting ” the list stacks up well”, was that I believe the MQR’s do but the IV’s don’t in some cases and was wondering why Ash said this before checking the valuations as I rate his comments with high regards.

      • Hi Kent

        I was referring to The quality of our picks not the IV

        Hope this explains things

      • Kent Bermingham

        Hi Ash,
        Great to see you visited Roger
        I understand your explanation and thanks

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