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View Full Version : Where to find Insto's valuation ?



Dazza
09-02-2005, 09:07 AM
hi there simple question, throughout reading this thread i see posters posting valution on co.s from insto's. eg forsayth bar valution of FBu around $7.20

im just wondering can the normal public ie me get this info? or do we have to be clients of those institutions?

also who really uses them!?

zyreon
09-02-2005, 09:18 AM
go to your local broker and open a small account or ask for some info, or anything like that an you'll be on their mailing list for life hehe

stephen
09-02-2005, 09:55 AM
My dad is a Forsyth Barr customer, and he gets their reports. He will often say to me that they value a share at such and such a price.

When I look at the actual reports he gives me, they provide no justification for their valuations. They show projected EPS and P/E three years out, but with no indication as to how they were arrived at. "How do they know?" I ask my dad, and he will splutter for a bit and then change the subject.

My guess is that they estimate cashflows out into the future, and then discount back to arrive at a present value - the DCF (discounted cash flows) method. A conservative person would have to ask how much one can rely on earnings predictions even two years out...

Occasionally I see valuations that make their basis explicit and I find those very interesting. I wouldn't give a fig for any valuation that didn't "show its working".

On this site, you can see some fine work from Dimebag, Halebop and others (mostly on the ASX board) and I would think that armed with an annual report, Macdunk's tea-lady gossip, and a dose of skepticism you could do as well as a broker's tipsheet.

It seems to me that brokers have an incentive to make bullish valuations - they make most money when there are lots of buyers.

I bought a copy of <a href="http://www.amazon.com/exec/obidos/ASIN/0471381985/102-6336725-8024117">this book</a> (Value Investing: From Graham to Buffett and Beyond by Bruce C. N. Greenwald, Judd Kahn, Paul D. Sonkin, Michael van Biema) about 6 months ago from Capital Books in Wellington, and it has helped me a great deal in coming up with "back-of-the-envelope" calculations. Best of all, it reinforces that rough and ready is ok when you restrict yourself to purchases with a large margin of safety (ie, that appear to be substantially undervalued, not just a little bit).

Most of all, think about this. By the time you see that broker's valuation, so have a whole lot of other people. If it were really valuable, accurate stuff, that gave one an edge, then as soon as it's out in the marketplace, everyone else will be acting on it too. On the other hand, if brokers' reports are no more accurate than anyone else's, they wouldn't make much impact.

What do you see happening?

OldRider
09-02-2005, 10:21 AM
As well, brokers neglect the smaller companies, where probably the greatest potential for growth exists. The more reason to establish some form of valuation system for yourself. Then you have for yourself first the results of your knowlege.

I still say observation of a company,how it trades- can give the best insight into its likely future

Halebop
09-02-2005, 10:33 AM
Good post Stephen! And Dazza any data the company releases must be released to the public too. So other than illegal insider tips, there is no "proprietary" information. Some analysts take their investigations to fisher'esque proportions talking to suppliers, competitors and the likes but this process can be flawed too - just look back to some of the analysis on WAM's South Australian acquisition. Most were uninspred but it has been typically profitable for them so far.


quote:Originally posted by stephen

...On this site, you can see some fine work from Dimebag, Halebop and others (mostly on the ASX board) and I would think that armed with an annual report, Macdunk's tea-lady gossip, and a dose of skepticism you could do as well as a broker's tipsheet....


And thanks for the (not really deserved) positive feedback!

You are quite right about base assumptions and how drastically they affect DCF and other calculations. Most of Dimebag's, mine and all the other FA "Detail-ists" are really just p!ss!ng in the wind. The "margin of safety" is absolutely the best defence (and maybe offence too!) and a quick back of the envelope calculation is enough to determine this.

Relying upon ever higher PE multiples or spiralling growth rates is purely an excercise in speculation, which, although having its place, is only a very distant relative of investing discipline. Ultimately no amount or type of analysis will compensate for good sense, scepticism and the balls to back yourself.

Back to valuations though. If I only had one tool available it would be cashflow analysis. No matter what smoke and mirrors get used, cashflow doesn't lie. There are so many spec companies out there in medical, mineral exploration and various esoteric fields that have no business model or cashflow to analyse. I'm consistently perplexed by their popularity. And there is always a shakeout with these types when industry/investment conditions change or hiccup.

Dazza
09-02-2005, 09:12 PM
ic, yes it does make sense.
when u say analzing cashflow, how do u do that properly?

IMO postive/increasing cashflow = thumbs up :D

yet is there more to that , that i should know :D

Dazza
09-02-2005, 09:20 PM
another question,

ive just brought my first SHARES mag.
now in there , theres an advert for subs to fat prophets.... what do u guys think about them?

i mean it is spending... money.. but is it worth it for their info etc?!

Halebop
09-02-2005, 09:48 PM
I have no knowledge of Fat Prophets Dazza so can't help you on that count.

With regards to cashflow there are two sets of cashflow calculations I personally rely on. The published set from the annual report / half yearly etc. What I prefer to see here is that operating cashflows are positive and organic growth and dividends were comfortably funded by operating cashflows (I still allow for borrowing but if organic growth is substantially funded from borrowing you have some potential problems looming with either dilution or ratios - see WHS for recent example)

The other aspect of cashflow is Owner Earnings, a "Buffetism". It is calculated as:

Net Profit After Tax
Add back in Goodwill Amortisation
Deduct Capital Expenditure

This is a hybrid profit and loss / cashflow figure and indicates the businesses ability profitably to fund growth and dividends internally. Many capital intensive businesses look profitable but in fact all the earnings go back into the business. These businesses are often better to be avoided. ION was a good recent example.

stephen
10-02-2005, 06:46 AM
Another thing about cashflow - it's interesting to reconcile operating cashflow with profit. I notice that ASX companies usually have this reconciliation buried in the back of the annual report, but if not, you can at least try and puzzle out major discrepancies.

Dunno about Fat Prophets. What I do is this:

- on a regular basis, I snag dumps of ASX and NZX data.
- I pump them into a spreadsheet and apply some
simple screening rules.
- I then log into ASB's sharetrading site, because they give me Aspect Huntley reports/figures for free
- I snoop around until I find something interesting or can't be bothered any more.
- I keep an eye on this site and a couple of other sources so I can investigate things for fun.

Westie
21-02-2005, 04:10 PM
quote:The other aspect of cashflow is Owner Earnings, a "Buffetism". It is calculated as: Net Profit After Tax Add back in Goodwill Amortisation Deduct Capital Expenditure


I guess this is a little bit of a divergence (sorry Dazza) but the above is similar to the calculation given in the Greenwald book Stephen mentioned (an excellent book i might add) except Greenwald suggests add back depreciation & amortization and deduct cap ex.

My question is, did the source of the "buffetism" give a calculation for cap ex? The Greenwald book has one, which also separates out growth cap ex from maintenance cap ex, but it was difficult to understand (no actual equation, just a verbal description) and when using it i came up with some rather large maintenance cap ex figures for some companies e.g. WHS had maintenance cap ex greater than cashflow, which made me wonder if i had my calculation wrong.

Anyone else into analysing financial statements able to comment on this one or give a reliable cap ex equation?

Dough Boy
11-05-2005, 05:23 PM
Dazza,

Would recommend Market Analysis by James Cornell at www.stockmarket.co.nz for analysis on the NZX and ASX markets. You can read back issues of his report on the website for free. I have been receiving this report for years now.

Sky Tower
21-05-2005, 07:32 PM
Stephen great post! One of the best i've read for a while. All the best with your investing.