NZ Finance - Building an Empire

[clearasmud]

quote:Originally posted by rmbbrave

According to http://www.investopedia.com/university/peratio/

The P/E is Share Price divided by EPS
And the EPS is (Net Income minus dividends) divided by Number of shares

Total revenue for NZF for the six months to 30 September 2004 was $5,667,824 so for one year I assume it is $12m. The number of shares is 69m

PE is price of share*number of shares (=market capitalisation)divided by net profit after tax.

ie 69m*.6/2.08m=19.9

just a quick estimate.












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The EPS is 12m/69m = 0.17
The P/E is therefore 0.57/0.17 = 3.35.

I have provided my working and assumptions so please feel free to correct any mistakes.

[k1w1]

Revenue is gross , earnings is net profit. Brave your error t is similar to confusing your gross sales figure with the net profit of your business. You have to pay out all your expenses before you can figure out what the profit is. P/E is the net profit of the company divided by the number of shares in the company.

The P/E tells you how many years of earnings it would take to repay the cost of purchasing the share.

[rmbbrave]

Thanks very much for correcting my calculations guys.

While I have been struggling to calculate the P/E the SP has jumped another 14% rendering all calculations redundant anyway. It is now at 65 so as promised it is time to change the name of this thread.

[rmbbrave]

Thanks Long Strangle,

Could you please show formulae and working so we don't make the same mistake again.

[Halebop]

Price Earnings (PE) is the market price of shares divided by the earnings per share (EPS)

EPS is Net Profit after Tax divided by the number of shares.

So in Long Strangle's example he has forecast earnings of $3.5m and the number of Shares on Issue as aprox 72.2m.

Therefore EPS is 3.5m/72.2m = 4.85 cents per share

If we divided the current share price of 65 cents by 4.85 cents we get 13.4 or a PE of 13.4 times earnings.

This is something you really need to understand if you want to invest in shares and/or analyse the fundamentals of companies.

[rmbbrave]

Thanks very much guys.

[rmbbrave]

Now the SP is up to 70! This is getting silly! If it gets to 90 I'll have to change the title of this thread again.

Buyers still outnumber sellers 4 to 1 so 90 is a outside possibility.

Recently I have been thinking about an exit strategy.

Sometime after the 1st of April 2,666,667 new shares in NZF will be issued at 45 cents to the old owners of Approved Mortgage Brokers. I reckon these people will definitely want to sell a few, (to buy a new boat etc.) so I think it might be a good idea to sell before then.

[Halebop]

Personally I'd be inclined to take some profits now but then I wasn't bright enough to buy them in the first place. A small company like this without much history is very difficult to analyse from the outside.

Mr Strangle says they have plenty of room to grow earnings. They would need to grow at these prices. Have you got some industry insight LS?

I do find it funny that most big banks are trying to wean themselves away from buying growth via brokers while other lenders are trying to get in bed with them. I guess in this market they can all be right. Perhaps the next soft patch will sort the Bulls from the Sheep?

[rmbbrave]

Here is an interesting article about BLUESTONE - another small finance company. I wonder how much they have in common with NZF. Does anyone know?

Up to his eyes in debt - and loving it
20 February 2005

The Kiwi founder of Australia's fastest growing company is back on home ground, writes ROB STOCK.


After conquering Australia, Dunedin-born Alistair Jeffrey has his eyes firmly set on New Zealand expansion.

Jeffrey is the founder of Bluestone, a mortgage company which specialises in lending to those the banks find hard to cater for - the self-employed, and the credit-impaired.

The growing army of such people in Australia helped Bluestone claim the title of Australia's fastest growing company last year, according to Sunday Star-Times' sister publication Business Review Weekly, with turnover rising by 886% in 2004 to $A41.5 million ($45.6 million).

Its operations in New Zealand were no slouch either, and the lender has racked up NZ$200m in home loans here, and it has an active year ahead.

In the next few months, Jeffrey says Bluestone plans to raise capital here. It plans to secure a multi-million dollar package of home loans and sell them as income investments to New Zealand institutions as well as mum and dad investors.

It will be a chance for Kiwis to own some of this country's estimated $100 billion mortgage debt, the majority of which is supplied by foreign investors who bank the interest Kiwi home buyers pay.

In addition Bluestone is looking to become the fourth provider of equity release home loans in New Zealand.

Equity release is a controversial product which allows older people to get loans against the equity in their homes. The interest is rolled up each year with the capital and interest paid back on death or when they sell their home. That can mean a small loan can end up eating up a large part of a home's equity, though Jeffrey says it is a misunderstood product because the interest paid on the loan is partially offset by rises in property values historically in the 6% per annum range.

The product, which Bluestone already sells in Australia, is in a market that has all the right hallmarks, says Jeffrey. It's a niche market growing faster than the economy as a whole with few providers competing to service a rapidly aging population, many of whom will live in 'relative poverty' unless they find a way to tap into their property wealth.

Even New Zealand First's Winston Peters thinks it's a product whose time has come, though the party advocates a government-run scheme open to all New Zealanders.

Currently only Sentinel, a Kiwi company with operations in Australia, Save & Invest and Christchurch-based Avon Investments offer the product in New Zealand.

Readers who haven't heard of Bluestone should not be surprised.

The company sells its loans exclusively through mortgage brokers who deal often with those the banks won't touch.

Jeffrey says the company has two kinds of home loan borrowers: back foot borrowers (such as those with bad credit records) and front foot borrowers (up-and-coming business people and the self-employed).

In Australia front foot borrowers are the focus of the non-conforming market (Jeffrey much prefers the less pejorative 'specialist lending market'), while in New Zealand the focus has been on back-foot borrowers.

The fame and fortune Jeffrey has now were not always the game-plan for an Otago University-trained mining engineer, whose first job was shoring up subsidence around the site of the Clyde Dam. The young Jeffrey spent eight years in the industry before deciding a life in pre-fabricated villages wasn't for him.

Jeffrey found his way to London where he cut his teeth as an investment banker with the Goldman Sachs and Nomura investment banks.

While at Nomura advising on company sales and purchases he saw the business plan of the Kensington Mortgage Company - the equivalent of Bluestone in the UK, and now a multi-billion dollar operation.

He joined the company, learned how it worked, then moved to Sydney and

[rmbbrave]

Here I am answering my own question again.

NZF has quite a bit in common with Bluestone - NZF send business Bluestones way. NZF has just purchased a mortgage broker and is therefore following an Australian trend.

Here is another article.

By the way, if anyone is interested NZF is up ANOTHER 10% TODAY.


Australian banks likely to takeover mortgage brokers: Deloitte
A declining number of house sales and fierce competition in the mortgage market in Australia is likely to lead to consolidation of the mortgage broking industry
Friday, 14 January 2005

By Jenny Ruth

A declining number of house sales and fierce competition in the mortgage market in Australia is likely to lead to consolidation of the mortgage broking industry which may include some of the larger firms being taken over by the major banks, according to a report by Deloitte Financial Services.

Corporate finance partner Peter Riedel says that since 1998, Australian mortgage settlements have more than doubled from $A86 billion ($NZ93.3 billion) to about $A200 billion in 2004 and that mortgage brokers�Eshare of that has gone from 10% to as much as 35% of some lenders mortgage books.

"Based on the increased size of the mortgage market and current average commission rates (60 basis points upfront and 25 basis points trail), we estimate mortgage broker groups generated around $A600 million dollars in revenue in 2003," Riedel says.

That reflects "an extraodinary compound average growth rate of the order of 37% per annum" over the past five years.

But the Australian industry is highly fragmented with the top five players accounting for 48% of revenue and the top 100 accounting for 90%.

"The halcyon days of a booming property market are, however, beginning to turn. The broker industry itself is emerging from its infancy and heading for its next stage of development and maturity," Riedel says.

Independent brokers are facing increasing competition from banks, including ANZ Bank and Commonwealth Bank of Australia, establishing their own franchised broker networks. This competition and the downturn in the housing market is likely to lead to lower commission levels.

At the same time, costs of things such as regulation and technology will rise, making industry consolidation to provide economies of scale inevitable, he says.

To date, only a small number of transactions of mortgage broking firms have occurred, the most recent and most significant being GE Money’s $A435 million purchase of the AFIG Group, which includes Wizard Home Loans and a broking arm, Borrowers Choice. GE’s entry into the market may be a precursor to further consolidation activity.

But while there will probably be mergers and acquisitions among mortgage broking firms, it is also likely that the banks will want a piece of the action. "A substantial portion of the mortgage profit margin, the distribution margin, that used to be earned by the banks is currently flowing to the brokers," Riedel says.

The most recent profit reporting season implied that one of the reasons for declining interest margins among the big banks was loss of distribution margin to brokers, he says.

However, there are a number of problems with banks purchasing mortgage brokers directly, including the risk of compromising a broker’s brand image of being independent. "The implied promise that the consumer will get the best deal with an independent broker has clearly been a major contributor to growth."

But this problem could be solved if the bank’s wealth management operations did the acquiring. Riedel argues that mortgage broking is to some degree complementary to financial planning and that such an acquisition should lead to cross-selling opportunities.

"In my opinion, the combination of financial planners and mortgage brokers makes sense both from a business perspective (for planners and their banking parents) and from a cultural perspective, which is critical to the success of mergers in the financial services sector," Riedel says.

While the banks traditionally have adopted an "