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

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?

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

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.

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.

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 %.

The Alchemist wrote:

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 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.

exactly what i'm saying ! If you buy a stock with a p/e of 15 and Price / NAV of 1.5, your ROE 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 ROE 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 ROE is around the 10-15 %.

You may fine tune it according to market conditions. But tell me couple of companies with ROE of you choice, I.e. with the above number 7-10.

Until know for sure they can repeat this earnings atleast 40% next year ( without capital gains) and considering that so many share are below NAV and undervalued in this market I would not pay more than Rs 6 for this.

Now looking at the liquidity and the owners, I would not be suprised it passes what i would pay in a run.

Jake Sully wrote:

But tell me couple of companies with ROE of you choice, I.e. with the above number 7-10.

2 companies (After march quarter)

CDB : PE around 4-5. NAV 0.9
ALLI : PE around 4-5 NAV 1.2

Even NTB falls into the category with PE around 7 and NAV 1.4

There is a lot more that fits the bill in ( specially in BANK fin sector and Plantations)

One thing that most of us tend to forget is the discounting for illiquid nature. Since there are lot of illiquid shares trading at attractive valuations, How much should we discount?
Example- If PLC, CFIN, LFIN trades at 8 PE, can we expect ALLI to trade at 6 times EPS? Can we assume 5-6 PE a fair representation for ALLI, since its already trading above its book value and its Illiquid.

lion wrote:One thing that most of us tend to forget is the discounting for illiquid nature. Since there are lot of illiquid shares trading at attractive valuations, How much should we discount?
Example- If PLC, CFIN, LFIN trades at 8 PE, can we expect ALLI to trade at 6 times EPS? Can we assume 5-6 PE a fair representation for ALLI, since its already trading above its book value and its Illiquid.

Fair point ! Firstly, i think we should clearly distinguish between type of investor viz retailers (small time investors buying small qty's) or HNWI / Institutional Type Investors who are looking for blocks / big parcels. Secondly, we have to differentiate whether the illiquidity is due to tight control / low free float type situation or weather it is due to less number of issued shares of the company.
If you consider ALLI, I consider it a "Triple Gem", i.e. Strong Fundamentals (P/E less than 4, Price to Book approx 1.10-maybe even less with a revaluation of their properties), Low issued Shares (2.4 Mill) and good Free Float. So although it appears to be illiquid, it is an illusion due to high Nominal Value of Share and low number of issued shares. From a Retail Investors point of view, (dealing in small qty's), They should value these characteristics at a Premium P/E to its peers such as CFIN, LFIN etc, due to value unlock mechanism possibilities such as Split / Bonus especially given the high nominal value of share, low number of issued shares and strong fundamentals / low valuation.
Big Instituitonal Investors shy away from these type of shares due to unavailabilty of large blocks, difficulty in exiting if fortunes of the company change suddenly etc. For this class of investors, it is fair that they attach a "illiquidity Discount" . But certainly this is not applicable to small time retail or non institutional investors.

Thanks for the comment Alchemist, would also like to know your comment on another illiquid share ARPI (Arpico Finance Company)
Expected EPS-15,PE- 6 trading below book Value, issued quantity 4.4 MN, Public Float around 40%, will you consider ARPI as Triple gem.

@ The Alchemist
Are same comments given above applicable for RENU.N0000?

lion wrote:Thanks for the comment Alchemist, would also like to know your comment on another illiquid share ARPI (Arpico Finance Company)
Expected EPS-15,PE- 6 trading below book Value, issued quantity 4.4 MN, Public Float around 40%, will you consider ARPI as Triple gem.

ARPI seems attractively valued (main attraction less number of issued shares), but i would not consider it a "Triple Gem" ! Also, ALLI is under 4 times and has a high Nominal value and only 2.4 mill shares issued. ARPI is trading at 6 times, has 4.4 mill shares issued and a relatively less nominal value (trading in 90-100 range). Remember ALLI owns approx 37 % of ARPI (directly and through its 40 % stake in Alfinco Insurance) so more reason to prefer ALLI than ARPI.

worthiness wrote:@ The Alchemist
Are same comments given above applicable for RENU.N0000?

I would consider RENU to be a Value Gem - Trading at 50 % (Adjusted) NAV, and 5-6 P/e based on recurring income excluding Capital Gains from the Equity Portfolio. Only concern here is Controlling Interests lack of desire to unlock value in this share through Good Dividend Payouts and other mechanisms such as Bonus / Splits. RENU generates a solid Rs 40-50 Free Cash Flow Per share and they should be giving at least a Rs 15 -20 Dividend. So i wonder whether they are plain stingy or have some hidden motives / agenda ? The other concern for me personally is that i dont like the "HOTEL" business especially for minority shareholders. This is because there are substantial hidden refurbishment costs to maintain these hotels down the road. With RENU, its bad enough to not get a decent dividend but it will be worse to have part of the equity (Cash) disappear into "Refurbishments", or worse still another expansion or another hotel ! (The current core hotel business yields them approx Rs 10 Cash Per Share). Perhaps we should be patient with Renu and wait and see as the Jake Sully Formula (P/E * P/NAV) is under 3 ! But it may not have the blessings of the Triple Gem

Some points to add

* due to RENU cash rich position, the worries about right issues are less
* they recently made an expansion so another immediate refurbishment/expansion might not be on the cards
* RENU nearly holds 1 DFCC to 1 RENU . Though DFCC increased about 15-20% RENU did not increase ( there are some inefficenies in the market)
* the recent expansion should bring them more core prodit ( hotel)
* even during hard times RENU has customers

But have to agree, RENU management is pretty stingy ( I also mentioned before in the foru)m. Atleast they could give Rs 10-15.,
Secondly there not big market players pushing this., However some collection is happening around Rs 240.

The Alchemist wrote:

worthiness wrote:@ The Alchemist
Are same comments given above applicable for RENU.N0000?

I would consider RENU to be a Value Gem - Trading at 50 % (Adjusted) NAV, and 5-6 P/e based on recurring income excluding Capital Gains from the Equity Portfolio. Only concern here is Controlling Interests lack of desire to unlock value in this share through Good Dividend Payouts and other mechanisms such as Bonus / Splits. RENU generates a solid Rs 40-50 Free Cash Flow Per share and they should be giving at least a Rs 15 -20 Dividend. So i wonder whether they are plain stingy or have some hidden motives / agenda ? The other concern for me personally is that i dont like the "HOTEL" business especially for minority shareholders. This is because there are substantial hidden refurbishment costs to maintain these hotels down the road. With RENU, its bad enough to not get a decent dividend but it will be worse to have part of the equity (Cash) disappear into "Refurbishments", or worse still another expansion or another hotel ! (The current core hotel business yields them approx Rs 10 Cash Per Share). Perhaps we should be patient with Renu and wait and see as the Jake Sully Formula (P/E * P/NAV) is under 3 ! But it may not have the blessings of the Triple Gem

slstock wrote:Some points to add

* due to RENU cash rich position, the worries about right issues are less
* they recently made an expansion so another immediate refurbishment/expansion might not be on the cards
* RENU nearly holds 1 DFCC to 1 RENU . Though DFCC increased about 15-20% RENU did not increase ( there are some inefficenies in the market)
* the recent expansion should bring them more core prodit ( hotel)
* even during hard times RENU has customers

But have to agree, RENU management is pretty stingy ( I also mentioned before in the foru)m. Atleast they could give Rs 10-15.,
Secondly there not big market players pushing this., However some collection is happening around Rs 240.

The Alchemist wrote:

worthiness wrote:@ The Alchemist
Are same comments given above applicable for RENU.N0000?

I would consider RENU to be a Value Gem - Trading at 50 % (Adjusted) NAV, and 5-6 P/e based on recurring income excluding Capital Gains from the Equity Portfolio. Only concern here is Controlling Interests lack of desire to unlock value in this share through Good Dividend Payouts and other mechanisms such as Bonus / Splits. RENU generates a solid Rs 40-50 Free Cash Flow Per share and they should be giving at least a Rs 15 -20 Dividend. So i wonder whether they are plain stingy or have some hidden motives / agenda ? The other concern for me personally is that i dont like the "HOTEL" business especially for minority shareholders. This is because there are substantial hidden refurbishment costs to maintain these hotels down the road. With RENU, its bad enough to not get a decent dividend but it will be worse to have part of the equity (Cash) disappear into "Refurbishments", or worse still another expansion or another hotel ! (The current core hotel business yields them approx Rs 10 Cash Per Share). Perhaps we should be patient with Renu and wait and see as the Jake Sully Formula (P/E * P/NAV) is under 3 ! But it may not have the blessings of the Triple Gem

Also i feel Renu should disclose more details about the loan given to the Australian Company

Gaja

If I am not mistaken, RENU got back their loan.

Gaja wrote:

slstock wrote:Some points to add

* due to RENU cash rich position, the worries about right issues are less
* they recently made an expansion so another immediate refurbishment/expansion might not be on the cards
* RENU nearly holds 1 DFCC to 1 RENU . Though DFCC increased about 15-20% RENU did not increase ( there are some inefficenies in the market)
* the recent expansion should bring them more core prodit ( hotel)
* even during hard times RENU has customers

But have to agree, RENU management is pretty stingy ( I also mentioned before in the foru)m. Atleast they could give Rs 10-15.,
Secondly there not big market players pushing this., However some collection is happening around Rs 240.

The Alchemist wrote:

worthiness wrote:@ The Alchemist
Are same comments given above applicable for RENU.N0000?

I would consider RENU to be a Value Gem - Trading at 50 % (Adjusted) NAV, and 5-6 P/e based on recurring income excluding Capital Gains from the Equity Portfolio. Only concern here is Controlling Interests lack of desire to unlock value in this share through Good Dividend Payouts and other mechanisms such as Bonus / Splits. RENU generates a solid Rs 40-50 Free Cash Flow Per share and they should be giving at least a Rs 15 -20 Dividend. So i wonder whether they are plain stingy or have some hidden motives / agenda ? The other concern for me personally is that i dont like the "HOTEL" business especially for minority shareholders. This is because there are substantial hidden refurbishment costs to maintain these hotels down the road. With RENU, its bad enough to not get a decent dividend but it will be worse to have part of the equity (Cash) disappear into "Refurbishments", or worse still another expansion or another hotel ! (The current core hotel business yields them approx Rs 10 Cash Per Share). Perhaps we should be patient with Renu and wait and see as the Jake Sully Formula (P/E * P/NAV) is under 3 ! But it may not have the blessings of the Triple Gem

Also i feel Renu should disclose more details about the loan given to the Australian Company

slstock wrote:
Gaja

If I am not mistaken, RENU got back their loan.

Gaja wrote:

slstock wrote:Some points to add

* due to RENU cash rich position, the worries about right issues are less
* they recently made an expansion so another immediate refurbishment/expansion might not be on the cards
* RENU nearly holds 1 DFCC to 1 RENU . Though DFCC increased about 15-20% RENU did not increase ( there are some inefficenies in the market)
* the recent expansion should bring them more core prodit ( hotel)
* even during hard times RENU has customers

But have to agree, RENU management is pretty stingy ( I also mentioned before in the foru)m. Atleast they could give Rs 10-15.,
Secondly there not big market players pushing this., However some collection is happening around Rs 240.

The Alchemist wrote:

worthiness wrote:@ The Alchemist
Are same comments given above applicable for RENU.N0000?

I would consider RENU to be a Value Gem - Trading at 50 % (Adjusted) NAV, and 5-6 P/e based on recurring income excluding Capital Gains from the Equity Portfolio. Only concern here is Controlling Interests lack of desire to unlock value in this share through Good Dividend Payouts and other mechanisms such as Bonus / Splits. RENU generates a solid Rs 40-50 Free Cash Flow Per share and they should be giving at least a Rs 15 -20 Dividend. So i wonder whether they are plain stingy or have some hidden motives / agenda ? The other concern for me personally is that i dont like the "HOTEL" business especially for minority shareholders. This is because there are substantial hidden refurbishment costs to maintain these hotels down the road. With RENU, its bad enough to not get a decent dividend but it will be worse to have part of the equity (Cash) disappear into "Refurbishments", or worse still another expansion or another hotel ! (The current core hotel business yields them approx Rs 10 Cash Per Share). Perhaps we should be patient with Renu and wait and see as the Jake Sully Formula (P/E * P/NAV) is under 3 ! But it may not have the blessings of the Triple Gem

Also i feel Renu should disclose more details about the loan given to the Australian Company

That is the confusion friend am having, whether they have adjusted through some other places?