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FINANCIAL CHRONICLE™ » FINANCIAL CHRONICLE™ » Can you guys give me a reasonable value for this Share?

Can you guys give me a reasonable value for this Share?

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hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
Expected EPS for the year ended March 31st 2013 : Rs.3.90 - Rs.4.10

Expected NAV as at March 31st 2013 : Rs.4.25



Note: Earnings are realized and can assume to be in the same range in next year also.


The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@hariesha wrote:Expected EPS for the year ended March 31st 2013 : Rs.3.90 - Rs.4.10

Expected NAV as at March 31st 2013 : Rs.4.25



Note: Earnings are realized and can assume to be in the same range in next year also.
The question is what was the EPS as at 31st Dec 2012 ? The valuation of the share will depend on that.

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
Simple : 3.90 / 4 * 3

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@hariesha wrote:Expected EPS for the year ended March 31st 2013 : Rs.3.90 - Rs.4.10

Expected NAV as at March 31st 2013 : Rs.4.25



Note: Earnings are realized and can assume to be in the same range in next year also.



Hariesha, I can try and guess what stock you are referring to. EPS is primarily "Other Income", as a result of some strategic transactions so how can you assume it to be in the same range in the next year ? If its the one i'm thinking about, its trading at it FY 2013 NAV.

Chinwi

Chinwi
Associate Director - Equity Analytics
Associate Director - Equity Analytics
@hariesha wrote:Simple : 3.90 / 4 * 3


You said EPS is Rs.3.90

3.90 /4 x 3 = 2.90

you are expecting to buy is @ 2.90 ?

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
If I can buy @ 2.90 I am making a 100% fund allocation.

Jiggysaurus

Jiggysaurus
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Ayyo kelin kiyandako. Lajja wenda epa

You're talking about TAP (which the market has replaced T with CR)

The one off other income is not going to happen again, it's more realistic to value it based on 75 cents profit of the prior year.

0.75* 8 (can't give more because of the Lion*art/Greggers connection) so 6 is a fair price.

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
OK without talking about the share, I appreciate your valuation, which is fair.

But I am certain on the next year’s earnings of the share which I am talking about. Some thing around 2.50 to 3.50 for 2013/14 and expecting a dividend of minimum 35 cts to 50 cts during 2013/14.

Can you value again?

Jiggysaurus

Jiggysaurus
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@hariesha wrote:OK without talking about the share, I appreciate your valuation, which is fair.

But I am certain on the next year’s earnings of the share which I am talking about. Some thing around 2.50 to 3.50 for 2013/14 and expecting a dividend of minimum 35 cts to 50 cts during 2013/14.

Can you value again?

If you have secret inside information and you are sure that they will continously give profits of 2.50 per share then 2.5*8= Rs 20, but you would be the only one thinking that way. Take a look at the price chart, this is a buy at 4 sell at 5 kind of share. Over the last year it has never gone past 6.50 so the market doesn't agree with you.

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Using the same logic as followed above, how would you value a share with the following parameters -

NAV as at 31st March 2013 - Rs 750
EPS as at 31st March 2013 - Rs 225
Estimated EPS as at 31/3/2014 - Rs 275-300
Dividend expected in next 12 months - Rs 60-90
Only 2.4 million shares
good possibility of Bonus / Split
MD bought shares at Rs 800 recently

Antonym

Antonym
Vice President - Equity Analytics
Vice President - Equity Analytics
@hariesha wrote:Expected EPS for the year ended March 31st 2013 : Rs 2.50 - Rs 3.50
Expected NAV as at March 31st 2013 : Rs.4.25
Note: Earnings are realized and can assume to be in the same range in next year also.

My simple formula assigns weights to financial performance parameters that matter to me:
(5 x EPS) + (0.6 x BVPS) + (10 x DPS)
So, (5 x 3.00) + (0.6 x 4.25) + (10 x 0.425) = (15 + 2.55 + 4.25) = Rs 21.80



Last edited by Antonym on Sat Apr 13, 2013 12:22 am; edited 1 time in total

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
@Jiggysaurus wrote:
@hariesha wrote:OK without talking about the share, I appreciate your valuation, which is fair.

But I am certain on the next year’s earnings of the share which I am talking about. Some thing around 2.50 to 3.50 for 2013/14 and expecting a dividend of minimum 35 cts to 50 cts during 2013/14.

Can you value again?

If you have secret inside information and you are sure that they will continously give profits of 2.50 per share then 2.5*8= Rs 20, but you would be the only one thinking that way. Take a look at the price chart, this is a buy at 4 sell at 5 kind of share. Over the last year it has never gone past 6.50 so the market doesn't agree with you.


What I said was that, I am appreciating your valuation, but without naming a share and I invited to value again with some additional points.

The matter that you are referring at the end, I think not logical, as it is applicable to most of the shares due to market condition.

The share that you are referring to came in a very much depressed market as an introduction. As a result free float is very limited and I think most of the promoters did not have the intention of exiting at the prices which prevailed. Otherwise we could have seen more quantities in the market.

Further, I don’t have any inside information on any of the companies on CSE.

hariesha


Vice President - Equity Analytics
Vice President - Equity Analytics
@The Alchemist wrote:Using the same logic as followed above, how would you value a share with the following parameters -

NAV as at 31st March 2013 - Rs 750
EPS as at 31st March 2013 - Rs 225
Estimated EPS as at 31/3/2014 - Rs 275-300
Dividend expected in next 12 months - Rs 60-90
Only 2.4 million shares
good possibility of Bonus / Split
MD bought shares at Rs 800 recently

I am expecting a good re-rating for this share. (If it is in the Finance sector as per my guess). Months ahead will be really interesting with improved portfolio values.

Antonym

Antonym
Vice President - Equity Analytics
Vice President - Equity Analytics
@The Alchemist wrote:Using the same logic as followed above, how would you value a share with the following parameters -

NAV as at 31st March 2013 - Rs 750
EPS as at 31st March 2013 - Rs 225
Estimated EPS as at 31/3/2014 - Rs 275-300
Dividend expected in next 12 months - Rs 60-90
Only 2.4 million shares
good possibility of Bonus / Split
MD bought shares at Rs 800 recently
This jumbo would be worth (5 x 225) + (0.6 x 750) + (10 x 75) = Rs 2,325.
You've got a potential multi-bagger there, Alchemist!

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Hariesha, however attractive your share maybe, only approx 60,000 shares traded in past 30 days out of total xxx,xxx,xxx number of shares. The top 20 owns approx 99.65 %. so liquidity is also a problem ?

Gaja


Associate Director - Equity Analytics
Associate Director - Equity Analytics
@Antonym wrote:
@The Alchemist wrote:Using the same logic as followed above, how would you value a share with the following parameters -

NAV as at 31st March 2013 - Rs 750
EPS as at 31st March 2013 - Rs 225
Estimated EPS as at 31/3/2014 - Rs 275-300
Dividend expected in next 12 months - Rs 60-90
Only 2.4 million shares
good possibility of Bonus / Split
MD bought shares at Rs 800 recently
This jumbo would be worth (5 x 225) + (0.6 x 750) + (10 x 75) = Rs 2,325.
You've got a potential multi-bagger there, Alchemist!

Is Mr. Silva Bought from 12.03 to 27.03?

Jake Sully

Jake Sully
Manager - Equity Analytics
Manager - Equity Analytics
You can buy if the product of the PE times and price/book value does not exceed 22.5. Hope other factors are constant.

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Jake Sully wrote:You can buy if the product of the PE times and price/book value does not exceed 22.5. Hope other factors are constant.

According to your formula, even a maximum 22.5 is way too much to pay to buy ! The inverse (100 divided by your formula PE times into Price / Book Value) is the RRR (Required Rate of Return on Equity). So at 22.5 indicates a RRR of only 4-5 %, which is way to low considering the current rate of Inflation and Interest Rates.
I would expect an RRR of approx 10-15 % so as per your formula, maximum i will pay is 7-10 (the product of PE times Price/Book Value).
Only caveat is i would revalue Net Assets by Marking to Market, and not blindly taking stated Book Value in the Accounts.



Last edited by The Alchemist on Sun Apr 14, 2013 10:38 am; edited 1 time in total (Reason for editing : modified ROE to RRR)

Jake Sully

Jake Sully
Manager - Equity Analytics
Manager - Equity Analytics
@The Alchemist wrote:
@Jake Sully wrote:You can buy if the product of the PE times and price/book value does not exceed 22.5. Hope other factors are constant.

According to your formula, even a maximum 22.5 is way too much to pay to buy ! The inverse (100 divided by your formula PE times into Price / Book Value) is the ROE (Return on Equity). So at 22.5 indicates a ROE of only 4-5 %, which is way to low considering the current rate of Inflation and Interest Rates.
I would expect an ROE of approx 10-15 % so as per your formula, maximum i will pay is 7-10 (the product of PE times Price/Book Value).
Only caveat is i would revalue Net Assets by Marking to Market, and not blindly taking stated Book Value in the Accounts.

Its not that the price should be 22.5. and book valu mean NAV here. for example, lets say, price/earnings is 15. price/NAV is 1.5. so the product is 22.5. so you can go on buy that company whatever the share price is. this is far too a general approach for a defensive investor. You should prefer price/NAV to be very low for better results. You may have to eliminate lots of shares from your favorite list if you apply this in current market level.

The Alchemist


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@Jake Sully wrote:
@The Alchemist wrote:
@Jake Sully wrote:You can buy if the product of the PE times and price/book value does not exceed 22.5. Hope other factors are constant.

According to your formula, even a maximum 22.5 is way too much to pay to buy ! The inverse (100 divided by your formula PE times into Price / Book Value) is the RRR (Required Rate of Return on Equity). So at 22.5 indicates a RRR of only 4-5 %, which is way to low considering the current rate of Inflation and Interest Rates.
I would expect an RRR of approx 10-15 % so as per your formula, maximum i will pay is 7-10 (the product of PE times Price/Book Value).
Only caveat is i would revalue Net Assets by Marking to Market, and not blindly taking stated Book Value in the Accounts.

Its not that the price should be 22.5. and book valu mean NAV here. for example, lets say, price/earnings is 15. price/NAV is 1.5. so the product is 22.5. so you can go on buy that company whatever the share price is. this is far too a general approach for a defensive investor. You should prefer price/NAV to be very low for better results. You may have to eliminate lots of shares from your favorite list if you apply this in current market level.

exactly what i'm saying ! If you buy a stock with a p/e of 15 and Price / NAV of 1.5, your RRR is only 4-5 % which is way to low and not attractive ! As per your formula, the max number should be 7-10 so that RRR is 10-15 %.
So going back to your example, if the p/e is 15, then Price to NAV should be 0.5 to 0.67. If the Price to NAV is 1.5, then P/E should be 5-7. These numbers ensure that the RRR is around the 10-15 %.



Last edited by The Alchemist on Sun Apr 14, 2013 10:41 am; edited 1 time in total

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