How to Value a Financial Holding Company

[Buffett Jr]

I put some criteria into the Google Stock Screener today.

Market cap: 20 million or bigger
Dividend yield: 0.5% or higher
ROE: 8% or higher
Current Ratio (short term assets/short term liabilities): 1 or greater
Debt/Equity Ratio: 1 or less
Revenue Growth 5 Year Average: 5% or higher

This came back with 28 companies on the ASX and 3 companies on the NZX. Looking through a large majority are financial holding companies. Basically, they invest in publicly held companies and private companies, similar to what Berkshire Hathaway does.

How would one go about valuing these types of companies, what would one be looking for and overall what are your thoughts. Would be interested to get a discussion on this.

[luigi]

You'd be looking at the value on the sum of the parts basis.

To the extent that you can, value the individual portfolio companies. If they are private, the listed holding company will provide a net asset value and often a directors' valuation opinion.

As with most listed funds, these companies tend to trade at a discount to the sum of parts due to management fees and uncertainty over value.