banter
01-11-2015, 11:24 AM
In reply to another post (http://www.sharetrader.co.nz/showthread.php?2923-PGG-Wrightson-(-PGW-)&p=595789&viewfull=1#post595789) on the PGW thread, this thread’s going to list some stocks that might be undervalued, according to a model that tries to forecast seven year percentage return (expressed as internal rate of return - IRR), after tax (capital gain or loss, plus after-tax dividends), given usual market PEs, estimated growth rates, dividends, and dividend payout rates *for a particular stock*.
Inputs:
1) MPE - Median market PE for the stock over the past 7 year.
2) Dividend payout % - usually the previous year’s %,
3) Estimated growth in eps over the next 7 years – a guess.
Method
1) A stock will be rerated to its usual PE by the time the next year-end accounts are released.
2) EPS will then grow by the assigned growth rate, and the usual PE will apply for the rest of the seven years.
3) The stock will pay out dividends at a fixed rate for the seven years.
Output
1) IRR using MPE 7PE – forecast return (share price growth rate + divs) per annum over the next 7 years
2) IRR – PE = 15 – as above but with a PE of 15 – just out of interest, so stocks can be compared ‘on a level PE playing field.’
3) How much a stock is undervalued or over valued in year 1.
Obviously the outputs are likely to be wrong, even wildly wrong.
Using AIR as an example - output figures in green:
Stocks
Growth%
MPM7 PE
IRR using MPM7 PE
IRR using PE of 15
Div payout %
PE curr
Y1uv/ov
PEG
AIR.NZ
10%
10.2
25%
32%
50%
5.23
104%
0.5
AIR’s growth in EPS is a special case, estimated at 100% in year 1, and 10% in years 2-7. In most stocks the model used a constant growth rate for the whole seven year forecast period.
The model predicts 104% gain (div plus capital gain) in year 1, and an overall IRR of 25% per annum, compounded over 7 years, given the usual median PE for air of 10.2
Will post figures for other companies later, including PGW.
AIR is the most undervalued NZ50 or NZ50-fringe stock according to this model.
Inputs:
1) MPE - Median market PE for the stock over the past 7 year.
2) Dividend payout % - usually the previous year’s %,
3) Estimated growth in eps over the next 7 years – a guess.
Method
1) A stock will be rerated to its usual PE by the time the next year-end accounts are released.
2) EPS will then grow by the assigned growth rate, and the usual PE will apply for the rest of the seven years.
3) The stock will pay out dividends at a fixed rate for the seven years.
Output
1) IRR using MPE 7PE – forecast return (share price growth rate + divs) per annum over the next 7 years
2) IRR – PE = 15 – as above but with a PE of 15 – just out of interest, so stocks can be compared ‘on a level PE playing field.’
3) How much a stock is undervalued or over valued in year 1.
Obviously the outputs are likely to be wrong, even wildly wrong.
Using AIR as an example - output figures in green:
Stocks
Growth%
MPM7 PE
IRR using MPM7 PE
IRR using PE of 15
Div payout %
PE curr
Y1uv/ov
PEG
AIR.NZ
10%
10.2
25%
32%
50%
5.23
104%
0.5
AIR’s growth in EPS is a special case, estimated at 100% in year 1, and 10% in years 2-7. In most stocks the model used a constant growth rate for the whole seven year forecast period.
The model predicts 104% gain (div plus capital gain) in year 1, and an overall IRR of 25% per annum, compounded over 7 years, given the usual median PE for air of 10.2
Will post figures for other companies later, including PGW.
AIR is the most undervalued NZ50 or NZ50-fringe stock according to this model.