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FINANCIAL CHRONICLE™ » CORPORATE CHRONICLE™ » For education purposes_Neta asset value vs mkt price

For education purposes_Neta asset value vs mkt price

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bullseye

bullseye
Manager - Equity Analytics
Manager - Equity Analytics
i noted that NAV of Lb finance is just Rs.89/- & current mkt price is 126/-

 though the intrinsic value of LB Finance is lower than the mkt price, why the investors are still buying this share at over pricing of 126/-??????????



Please clarify and educate us on this dear experts

tkc

tkc
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
You have to compare with Industry P/Bv value. Some industries have higher P/Bv value like office equipment, Land companies. Most of the Banks and Finance companies have P/bv ratio around 1.5-2.0x that means MP is higher that the Net asset value per share. That is the nature of business.

But if you consider P/E analysis : LFIN is 126/25(Forward P.E) = 5 which is highly attractive. However, curently there are lot of stocks are undervalued according to P/E. That means companies are doing well but investors are reluctant to act. The market is really dry as you can see the numer of trades per day. So, the interest is not there now to invest in cse. 

So, You have to consider all the facts to decide on a stock. P/Bv is just one factor and it can not justify everything. 

Thanks!

PS: This is not a Buy or Sell instruction, and I don't hold any of LFINs.

EquityChamp

EquityChamp
Moderator
Moderator
@tkc wrote:You have to compare with Industry P/Bv value. Some industries have higher P/Bv value like office equipment, Land companies. Most of the Banks and Finance companies have P/bv ratio around 1.5-2.0x that means MP is higher that the Net asset value per share. That is the nature of business.

But if you consider P/E analysis : LFIN is 126/25(Forward P.E) = 5 which is highly attractive. However, curently there are lot of stocks are undervalued according to P/E. That means companies are doing well but investors are reluctant to act. The market is really dry as you can see the numer of trades per day. So, the interest is not there now to invest in cse. 

So, You have to consider all the facts to decide on a stock. P/Bv is just one factor and it can not justify everything. 

Thanks!

PS: This is not a Buy or Sell instruction, and I don't hold any of LFINs.

Points are valid but some other factors too will play a greater roll.
a) How the future performance is going to impact for future share price
b) What is the industry outlook going to be including the broader macro economic environment as well 
c) What is the pattern of dividend distribution
d) What is the PE/PBV trajectory of the stock
e) What is the perception of the investors on the top management ( this factor has a huge influence on Renuka group shares and Vallible group shares)

etc

Thanks

tkc

tkc
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@EquityChamp wrote:
@tkc wrote:You have to compare with Industry P/Bv value. Some industries have higher P/Bv value like office equipment, Land companies. Most of the Banks and Finance companies have P/bv ratio around 1.5-2.0x that means MP is higher that the Net asset value per share. That is the nature of business.

But if you consider P/E analysis : LFIN is 126/25(Forward P.E) = 5 which is highly attractive. However, curently there are lot of stocks are undervalued according to P/E. That means companies are doing well but investors are reluctant to act. The market is really dry as you can see the numer of trades per day. So, the interest is not there now to invest in cse. 

So, You have to consider all the facts to decide on a stock. P/Bv is just one factor and it can not justify everything. 

Thanks!

PS: This is not a Buy or Sell instruction, and I don't hold any of LFINs.

Points are valid but some other factors too will play a greater roll.
a) How the future performance is going to impact for future share price
b) What is the industry outlook going to be including the broader macro economic environment as well 
c) What is the pattern of dividend distribution
d) What is the PE/PBV trajectory of the stock
e) What is the perception of the investors on the top management ( this factor has a huge influence on Renuka group shares and Vallible group shares)

etc

Thanks
I have not mentioned all the facts.

If you want to do a proper analysis there are more theories. have you heard CANSLIM model?

C - Current earning
A - Annualized earning
N - New mgt/Innovation/ upcoming improvements
S - Number of shares issued
L - Whether market leader
I - Institutional buying like EPF/ Directors
M- Beta value 

Thanks

TARGET


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@tkc wrote:
@EquityChamp wrote:
@tkc wrote:You have to compare with Industry P/Bv value. Some industries have higher P/Bv value like office equipment, Land companies. Most of the Banks and Finance companies have P/bv ratio around 1.5-2.0x that means MP is higher that the Net asset value per share. That is the nature of business.

But if you consider P/E analysis : LFIN is 126/25(Forward P.E) = 5 which is highly attractive. However, curently there are lot of stocks are undervalued according to P/E. That means companies are doing well but investors are reluctant to act. The market is really dry as you can see the numer of trades per day. So, the interest is not there now to invest in cse. 

So, You have to consider all the facts to decide on a stock. P/Bv is just one factor and it can not justify everything. 

Thanks!

PS: This is not a Buy or Sell instruction, and I don't hold any of LFINs.

Points are valid but some other factors too will play a greater roll.
a) How the future performance is going to impact for future share price
b) What is the industry outlook going to be including the broader macro economic environment as well 
c) What is the pattern of dividend distribution
d) What is the PE/PBV trajectory of the stock
e) What is the perception of the investors on the top management ( this factor has a huge influence on Renuka group shares and Vallible group shares)

etc

Thanks
I have not mentioned all the facts.

If you want to do a proper analysis there are more theories. have you heard CANSLIM model?

C - Current earning
A - Annualized earning
N - New mgt/Innovation/ upcoming improvements
S - Number of shares issued
L - Whether market leader
I - Institutional buying like EPF/ Directors
M- Beta value 

Thanks
Dear tkc can you please show us an example using a real share how to calculate CANSLIM ?

tkc

tkc
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Ya sure Target. I ll do it by today EOD.

EquityChamp

EquityChamp
Moderator
Moderator
Theories won't make much difference unless they are linked with market sentiment which is the important lesson I learn for over a two decade of my research on most of the equity markets. You can come up with so many sophisticated theories but we need to see the investors actually making something. My objective in this forum is not to show others the amount I know but to show them the value which sometimes they may not be seen.

I have talked a lot on these kind of valuation gaps on LITE,PARQ,COMB, SAMP,TAFL,GRAN,COCR etc etc. You also can refer them.

Thanks

tkc

tkc
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Equity champ,

This theory directly relates with your points. Always better to explain with a simple theory like CANSLIM. This is not sophisticated.

Thanks

TARGET


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
@tkc wrote:Ya sure Target. I ll do it by today EOD.
Thanks tkc.

EquityChamp

EquityChamp
Moderator
Moderator
TARGET since you ask for and tkc since you mentioned the CANSLIM model, here is an example that how you could use it for stock picking.

You can evaluate GRAN by using CANSLIM developed by William O'Neil. CANSLIM criterion in a summary as per below.




  1. C = Current quarterly earnings per share - Earnings must be up at least 18-20%.

  2. A = Annual earnings per share – These figures should show meaningful growth for the last five years.

  3. N = New things - Buy companies with new products, new management, or significant new changes in industry conditions. Most importantly, buy stocks when they start to hit new price highs. Forget cheap stocks; they are that way for a reason.

  4. S = Shares outstanding - This should be a small and reasonable number. CAN SLIM investors are not looking for older companies with a large capitalization.

  5. L = Leaders - Buy market leaders, avoid laggards.

  6. I = Institutional sponsorship - Buy stocks with at least a few institutional sponsors who have better-than-average recent performance records.

  7. M = General market - The market will determine whether you win or lose, so learn how to discern the market's overall current direction, and interpret the general market indexes (price and volume changes) and action of the individual market leaders.

GRAN last quarter EPS grew by 29%

Its last five years annual compounded growth in earnings was 30% which is significant

Though the company has not introduced new things the poultry industry in Sri Lanka is now evolving faster than ever before and we can see rapid increase in average poultry consumption by consumers mainly due the cheapest way of getting high level of proteins so that poultry stocks will thrive in the next decade or so. Also the opportunities are opening up to export poultry products.

Out of the 60Mn issued shares only 14Mn or 23% is owned by retail shareholders other than the top 20. Therefore if any strategic investor wants to acquire a strategic stake there will be a price premium on offer to mop up the liquidity.

Its the market leader in poultry segment with many products in the product portfolio including animal food. Its last years revenue of Rs13.7Bn is more than three times of its next rivalry BFL which has the annual revenue of Rs3.9Bn

If you look at the top 20 shareholders 71% stake is holding by institutions namely Prima, EPF, Supra, Eka, Laugfs, Mellon Bank, Global Rubber & Timex

Finally the  stock market is in an extended Bear run at the moment will soon turn back. The current beta in excess of 1 for GRAN mean a 10% rise in ASPI could lead to more than 10% growth at any given period of time. The market PE has come down from 18x during 2011-12 period to a PE of 13x now which means market has become relatively cheap pointing to a reverse at any time.

So based on CANSLIM criterion GRAN appears to be a super value stock. Also note that it has achieved an all time high of 263/- when the earnings are 400Mn but trading at 90/- today when the earnings outlook are well sure above 1Bn this time.

This is the essence I have written in my thread of GRAN below though I have not mentioning any model or text book theories.
http://forum.srilankaequity.com/t50637-ceylon-grain-elevators-a-value-rich-stock?highlight=ceylon+grain+elevators

Also if you are really interesting then you can study various other models such as Growth investing, Income investing, GARP methodology, Dogs of the Dow etc. But in summary even if you don't know these theories I have written the essence in all of my threads in simple and self explain language. Think that is enough for you all to understand the hidden values.

Thanks 


  

TARGET


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Thanks EC for consuming your valuable time for educating us. Great stuff brother.

tkc

tkc
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Good I don't need to do a one then. But how did you calculate PE?

EquityChamp

EquityChamp
Moderator
Moderator
Many thanks TARGET. I would like to put another one of my favorite tocks under CANSLIM framework.

 

If I put CCS then the analysis would be like this.

 

CCS recorded a growth in quarterly EPS by 49% which is significant.

 

Also their earnings grew by astonishing annual compounded growth rate of 70% over the last five year period

 

Apart from their Ice Cream , soft drinks and meet processing business in the domestic market now they are targeting to invade foreign markets for the soft drink brands. This is a new market and will generate significant revenues in the years to come so the revenue growth potential will be huge.

 

Out of the 95Mn issued quantity close to 90% is owned by the top 20 shareholders. Given its growth trajectory the ready-to-sell quantity at any point of time would be much lessor than the balance 10Mn shares hence it is very illiquid.

 

It is the no one in ice cream and soft drinks markets in Sri Lanka and soon will be a significant player in international markets as well.

 

If you screen the top 20 shareholders we could see about 12 institutional shareholders owning almost 88% of the issued quantity which means this is a stock admired by institutions.

 

If you look at the beta value which is 1.89 as of 3rd quarter points out that its kind of a share that would yield close to 2 times of return compared to market return. Also it is likely to establish a new all time high beating the previous all time high of 980/- generating substantial returns in the future.

 

So according to CANSLIM methodology this is a stock that is qualified as a AAA+ investment grade stock.

 

But in essence all this is covered under my thread on CCS.

http://forum.srilankaequity.com/t47291-ceylon-cold-stores-a-valuable-illiquid-stock?highlight=ceylon+cold+stores

 

So be happy that I have given you enough to take proper decisions.

 

Thanks 

tkc

tkc
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
How did you calculate GRAN PE ratio?

TARGET


Senior Manager - Equity Analytics
Senior Manager - Equity Analytics
Thank you EC again. I think you can't get this kind of knowledge or education even for money. But the amazing thing here is all these valuable knowledge we are getting for free, but the expense of precious time of someone. (Here it's EC's time).  So  at-least we should show our gratitude for them.
Great explanation EC.. study

noels


Equity Analytic
Equity Analytic
@TARGET wrote:Thank you EC again. I think you can't get this kind of knowledge or education even for money. But the amazing thing here is all these valuable knowledge we are getting for free, but the expense of precious time of someone. (Here it's EC's time).  So  at-least we should show our gratitude for them.
Great explanation EC.. study
Thank you very much EquityChamp for sharing your knowledge
It's very useful.

PrasannaMani

PrasannaMani
Manager - Equity Analytics
Manager - Equity Analytics
http://www.sec.gov.lk/?p=10014


How  will this  have an impact on CSE?

bullseye

bullseye
Manager - Equity Analytics
Manager - Equity Analytics
Thank you gents!!!! more questions in my head still running, will ask more questions. right at the moment studying again the valuation theory and trying to apply in practical (cse)

tkc

tkc
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
Dear Equity champ,

Can you tell me how did you calculate GRAN PE ratio?

point

point
Manager - Equity Analytics
Manager - Equity Analytics
Laughing Laughing Laughing its market PE not gran

tkc

tkc
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
@point wrote:Laughing Laughing Laughing its market PE not gran
I know. I am asking here how did he calculate P/E ratio of GRAN.N. Clear?

EquityChamp

EquityChamp
Moderator
Moderator
@tkc wrote:
@point wrote:Laughing Laughing Laughing its market PE not gran
I know. I am asking here how did he calculate P/E ratio of GRAN.N. Clear?

Do you think there is a different way that I can calculate PE? PE is calculated based on UAM.

Market price/EPS. EPS can be annualized, trailing or forecast. Don't think that there is a PE issue in this seriously.

point

point
Manager - Equity Analytics
Manager - Equity Analytics
@EquityChamp wrote:
@tkc wrote:
@point wrote:Laughing Laughing Laughing its market PE not gran
I know. I am asking here how did he calculate P/E ratio of GRAN.N. Clear?

Do you think there is a different way that I can calculate PE? PE is calculated based on UAM.

Market price/EPS. EPS can be annualized, trailing or forecast. Don't think that there is a PE issue in this seriously.
i thought he misunderstand about your market PE as gran PE so i post it as a clarification. but it is not what i thought.

tkc

tkc
Assistant Vice President - Equity Analytics
Assistant Vice President - Equity Analytics
For me GRAN.N annualized EPS would be near Rs.19/= so P/E is 90/19 = 4.75x according to me. 

I don't know how did you calculate 13x. 

Please explain with the figures. I am trying to solve a confusion here. I am here after 1,5 years. So, I may forget all the stuff. Thats why. 

Please share the calculations with figures.

point

point
Manager - Equity Analytics
Manager - Equity Analytics
@tkc wrote:For me GRAN.N annualized EPS would be near Rs.19/= so P/E is 90/19 = 4.75x according to me. 

I don't know how did you calculate 13x. 

Please explain with the figures. I am trying to solve a confusion here. I am here after 1,5 years. So, I may forget all the stuff. Thats why. 

Please share the calculations with figures.
that figure is for index boss not for GRAN
TO calculate a sector (or index) P/E ratio you need to sum the market caps of the constituent stocks and divide it by the sum of the total earnings of the constituent stocks (including stocks that have negative earnings). There are no "per share" figures used in the calculation

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