Originally Posted by
Snoopy
Due to past losses, dividends will be unimputed (so the quoted dividend figures paid are gross) for the forseeable future.
Plugging in a representative yield, one that represents the ups and downs of the financing cycle of Geneva Finance, we can now arrive at our 'Capitalised Dividend Model' valuation
(Representative Dividend per Share) / (Acceptable Yield) = Share Price (an algebraeic manipulation of: Dividend per Share / Share Price = Yield )
0.7c / 0.085 = 8.2c
A reminder here that NTA was:
$24.9m/ 70.4m = 35cps at balance date (31-03-2017).
This means my fair valuation is at a good discount to asset value. Capitalising the dividend will punish a company when the period examined includes years where no dividend was paid. That was the case here. But it would be wrong to think that under different (less favourable) market conditions, the company couldn't return to a situation where no dividend was paid. It is also true that if the allowance for bad loans was increased to the same percentage that applied in FY2015, a substantial amount of capital would disappear from the balance sheet. So I believe that my 8.2c valuation is fair.
This $0.082 valuation is measured at the average point in the business cycle. One might argue that we are now riding high in the business cycle and that this $0.082 valuation is consequently too low given today's circumstances. I wouldn't argue with that. But would the real valuation at the top of the business cycle increase share value by a factor of 7? Ever the bargain hound, I wouldn't look at buying any shares myself until that share price drifts down to that 8.2c level. Consequently I won't be buying at market levels of over 50c, a price that can only be justified but ignoring all history up to the present (although I accept that some will do this).