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  1. #501
    Member Te Whetu's Avatar
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    Quote Originally Posted by Sauce
    You have to be very careful with RYMs equity figure because it is loaded up with asset revaluations. When they changed their accounting from GAAP to IFRS they were forced to book village revaluation gains as profit that ends up as equity on the balance sheet. So ROE is not the right figure to use to understand the economic benefits to shareholders. And it's easy to see right? If their ROE was 14% and their retention rate was 50%, their implied growth rate would be 7% - yet they growth is over 17%. What you have to do is strip out all the revaluation gains from the equity figure, and you are left with all true contributed equity and retained earnings. The return on this figure is 30% if you beginning numbers or 27.5% if you use average of end/start. Which then makes sense as 30% - (1 * 50%) = 15% or approximately RYMs growth rate.
    Quite right you are. Really have not been in RYM accounts long enough to pick items like this up...

    Quote Originally Posted by Sauce
    You also have to be careful with their operating cashflow, as the operating cashflow includes cash from residents which are effectively an interest free loan. The 'cash' left over that could actually be considered 'take home cash for owners' is the 72m reported (and as an aside RYMs depreciation of about 5m is spot with their annual maintenance schedule costs).

    Finally, their true cost of capital would be very because their villages are self funding through resident's right-to-occupy fees, which as mentioned are basically an interest free loan to RYM. That said, in my estimates of value for RYM I build in a 10% discount rate, as I feel that is a conservative estimate, and because I feel a rational investor would likely expect a 10% after tax return for the risk of owning RYM.
    10% to an equity holder would mean less for WACC. What I've done is treat the fees from occupiers as effectively partly working capital, which is a big positive that needs to be accounted for. Could put this in the WACC or the FCFF... I put it in FCFF and assumed the WACC is just for bank debt and equity holders. In any case this is a far from complete analysis, my question is has any investor done the complete analysis?

    Quote Originally Posted by Sauce
    Unfotunately I am away until monday night.. If I get time from work today I will post some numbers. I disagree that you need to opt for such precision in your modelling, and I will put forward a simpler (but no less like to be wrong) way to think about their economics, future prospects and value, that I believe is more than sufficient to make an investment case, and will avoid the false precision inherent in DCF valuations (i.e. garbage in = garbage out as Bruce Greenwald would so aptly say). For interests sake I get a current valuation of $2.48 - $2.86. And since my tendency now is to use the more conservative figure I would say RYM is certainly no bargain anymore, but I believe it was an obvious value buy last year when it was trading around $2.
    Yep, this is why I have not built a simple DCF, if you build a DCF it needs to be done properly. Rather I've used derivations of the Gordon Growth Model to take a high level veiw on "what would need to be true".

  2. #502
    percy
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    Te Whetu,
    thank you for your reply.

  3. #503
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    Quote Originally Posted by Te Whetu View Post

    Yep, this is why I have not built a simple DCF, if you build a DCF it needs to be done properly. Rather I've used derivations of the Gordon Growth Model to take a high level veiw on "what would need to be true". In any case this is a far from complete analysis, my question is has any investor done the complete analysis?
    Thanks for this Te Whetu. Your abilities to do the gymnastics required for a full detailed analysis are beyond my competence I would imagine. When I get time I will post my full (you will probably feel over-simplified) RYM valuation and if you feel inclined I am happy if you take it to shreds

    Cheers
    Sauce

  4. #504
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    Quote Originally Posted by buns
    Why don’t you agree with this WACC at 9.6%? I actually feel it is well overstated as RYM funds itself with the rest coming from debt which is a whole lot cheaper than this. If you were to lower this a tad (but leave it a little high for to add in something to offset risk) it would change your valuations substantially over 21.1 years.
    Sorry, didn't mean to imply that I don't believe RYM WACC, just that I don't agree with all WACC in the document.

    Quote Originally Posted by buns
    I think RYM will get pretty close to achieving the 15% FCFF growth needed to justify its current value, and taking into account my comment above 15% would make us undervalued!
    15% in one year <> 15% for nine years.

    Quote Originally Posted by buns
    On valuation specifically:
    - Yes I have valued RYM, not there exact market value (direct valuation) but have done so on a combination of metrics (mostly comparable types) which give me an indication of RYM’s Earnings value, stability and risk. I usually do this on a 1year forward basis, so for FY12 for RYM. If the numbers look alright, and I know they aren’t going to get worse from here I see this point to do more research on where they could go past FY12. I will continually do this until I feel RYM is overvalued.
    A fine approach, be careful what comps you use though (but you've been around here long enough to know that, comments mainly for others).

    Quote Originally Posted by buns
    - I think RYM will always be a touch overvalued (because it’s on the NZX, nature of its shareholders, and its position in the market), and am prepared to take that into account when buying. I asked sauce about it earlier but I think these companies trade on higher multiples than others, so I was asking if there is another way to value such companies. Your post points our direct valuation (the only other way).
    Agreed about the NZX generally being overvalued. However this is not always the case.

    Quote Originally Posted by buns
    - Obviously you have a very low risk tolerance, which is 100% fine! Do you not feel safe assuming RYM can grow by say 10% YOY, with anything above 10% being upside or a bonus? Unless you are some kind of genius, I don’t know how one can understand a variety of markets/industries the detail you require, hence must get stuck with a conservative (companies which grow understandably/slowly) and narrow portfolio (as you shy away from so many industries)
    I will buy growth if I feel it's undervalued. I have held growth in the past, I currently hold one cyclical stock (NPX.NZ) and one defensive (not saying which as currently accumulating more as I feel it's under-priced). Note I'm not in love with NPX at the moment, but that's mainly managements fault.

    You will note I'm not terribly diversified. This means I'll only buy when I am confident of undervaluation... I'd prefer to outperform the market.

    Also I can model growth with reasonable accuracy, but it requires much more effort (a lot of research is required of forecast trends, demographics etc). I'll only put in the effort if a high level look says it's worth it.

    Cheers
    Te Whetu

  5. #505
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    Very impressive analysis guys. Since the market is always forward looking and assuming Forbar's forecast is reasonable for 2012 at a further 15% profit growth (which is clearly consistent with management objectives), we should be looking at underlying core profit of $82 million / 500 million shares = E.P.S. 16.4 cents and based on yesterdays closing price of $2.68 cum dividend we get a forward looking 2012 P.E. of 16.11, based on the ex dividend price. They suggest Ryman has traded on an average forward PE of 16.5 times over the last five years so on that basis that suggests a fair price for Ryman is currently approx $2.74 , so no its not a cheap stock where it currently sits, but its highly defensive, has highly predictable growth and is in a needs based industry that has superb demand growth demographics. Also there's an absolute paucity of quality growth stocks out there especially if you're looking for top quality management, low debt and so on.

    Taking into account recent and projcted growth this places the company on a Price Earnings to Growth Ratio, (PEG Ratio) of approximatly 1 which suggests to me the company is good value at current prices. I think the market is overlooking the increasing economies of scale that will probably build as Ryman expands over the years. Sure top line sales, underlying expenses and profitability were remarkably all consistent in their expansion rates this year, and I accept its a very labour intensive industry but economies of scale must start to come to fruition over time.

    Sauce, yeah, the irony of planning for one's retirement by investing in Ryman isn't lost on me
    Regards
    Last edited by Beagle; 20-05-2011 at 08:51 AM.

  6. #506
    Member Te Whetu's Avatar
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    Quote Originally Posted by Sauce
    Thanks for this Te Whetu. Your abilities to do the gymnastics required for a full detailed analysis are beyond my competence I would imagine. When I get time I will post my full (you will probably feel over-simplified) RYM valuation and if you feel inclined I am happy if you take it to shreds
    I'm sure it will be fine, all your other posts I've read have been excellent. Also helps that your coming from the point of view that RYM could be appropriately valued at the moment, as opposed to saying that just because they have great management + growth they are therefore under-priced. I suspect some use the second method for determining value.

  7. #507
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    Quote Originally Posted by Te Whetu View Post
    Sorry, didn't mean to imply that I don't believe RYM WACC, just that I don't agree with all WACC in the document.
    Please ignore this comment all together, I deleted it from my orginal post as it was wrong.

    RYM having low debt, means they are mostly equity funded hence should have a higher than usual WACC (with debt being so cheap right now), even if the equity beta is close to 1.

    I'm interested in your thoughts on the PWC report. I also feel it is wrong, and all a tad low as NZ's are scared of investing/don't understand it hence our equity premium should be a lot higher than it is, this is partly offset by our companies being boring/high div paying companies which equates to low risk/low beta's.

    Still, companies on the NZX should have high costs of equity as both local and international investors shy away from the NZX.

    Thanks for your feedback though - I'm still a bit unsure if my comparables approach I use on small caps really works on mature companies like this. RYM far and away my largest Mark Cap holding

  8. #508
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    Quote Originally Posted by Te Whetu View Post
    I'm sure it will be fine, all your other posts I've read have been excellent. Also helps that your coming from the point of view that RYM could be appropriately valued at the moment, as opposed to saying that just because they have great management + growth they are therefore under-priced. I suspect some use the second method for determining value.
    Thanks Te Whetu.
    P.s. in the meantime, if its of any interest, I have seen three fully blown DCF models for RYM (done by the various analysts) which range from $2.90 - $3.10. So my estimate of value is certainly more conservative than their models..

  9. #509
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    Wow, blink and its up to $2.77, should have spent less time posting and more time buying.
    Just want another 10,000 for now, I don't suppose anyone would let me have them at yesterday's price , thought not, lol
    Last edited by Beagle; 20-05-2011 at 09:49 AM.

  10. #510
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    Did anyone else notice this in the Full Year results announcement (in bold):

    The underlying profit growth has prompted the directors to lift the annual
    dividend by 18% to 7.2 cents per share, with the remaining 50% of the
    company's profits being retained for investment in new villages both in New
    Zealand and Australia
    .
    I have a strong suspicion we won't be too far away from an announcement that a site has been secured in Australia for RYMs 26th village. Although not necessary for continued compounding wealth generation, Australia will be game changing for RYM if they pull it off.

    Cheers
    Sauce

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