Originally Posted by
Beagle
My thoughts.
Market was disappointed with just 2% EPS growth this year.
Market was disappointed with no dividend growth this year
Market has some trepidation about the whole restructuring thing.
Current PE is 13.2. FY19 PE is 12.7, FY20 PE is 11.8 and FY21 PE is 11.2 (based on average analyst forecasts as recorded on market screener) so there is decent growth in EPS forecast in future years with EPS of 14.8 cps forecast in FY21 which suggests 18% total growth in earnings over the next 3 years or just on 5.7% compound average EPS growth.
Unlike Ben Graham's model which priced shares based on historical EPS and applied a multiple of 8.5 for a no growth company and 2 x g (where g is estimated long term growth for the next 7-10 years) I apply a multiple of 1 to ensure I am buying value but use current year earnings.
This suggests to me a fair PE is 8.5 + 5.7 (yes I think with HBL's unique business model they can grow earnings sustainably at that rate with their very high NIM and very strong growth in reverse equity loans) = 14.2. Current year earnings are forecast at 13.1 cps so to me the shares have an intrinsic value of 14.2 x 13.1 = $1.86 and are underpriced.
I looked this morning at the average PE of the six major Australian banks I follow, NAB, ANZ, BEN, CBA, WBC and BOQ. Their current average FY18 PE is 12.37 compared to HBL of 13.2 however forecasted PE based on earnings growth in the FY20 year sees the Australian peer group average decline to just a PE of 12 (showing quite moderate average EPS growth in the next 2 years), whereas HBL declines to a PE of 11.8 in FY20 and just 11.2 in FY21.
We can see that HBL's forecasted EPS growth is materially higher than its peer group in the years ahead which I think warrants the PE mentioned above.
My Conclusion. The current SP of HBL is being affected by factors mentioned at the beginning of this post and is not fairly representative of the future earnings potential and earnings growth of the company.
I think its underpriced by about 20 cps at present and I expect relative outperformance in the year ahead from the current level of $1.66.
I correctly called this a SELL at $2.14 in December 2017 when it got well ahead of itself. I now rank it as a BUY and have been doing exactly that. Presently my #1 investment position even ahead of SUM !