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  1. #8221
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    Have enjoyed reading the valuable contributions to this thread for the last couple of years and finally found the time to try and learn how to do a DCF valuation.
    I'm going by the method in Fundamental Analysis for Dummies - (Matt Krantz) gotta start somewhere right?

    Wondering if you knowledgeable guys/gals had any ideas on what to do when the FCF for the most recent period is negative? Which is what I have for HBL currently at -40,706 (gathered from here http://tinyurl.com/zxed2pj)
    I tried using an average from the last 5 years, which yields a positive result, but also ends up giving me a valuation of about 2.70!

    Some more data.. would be good to know if I'm on the right track.
    Discount Rate: 0.09166
    CAPM Discount Rate = risk free rate + (expected market return – risk free rate) x stock beta
    Risk free rate: 0.0248 (from the Treasury website)
    Expected market return: 0.0885 (averaged NZSE return since 1971)
    HBL stock beta: 1.05 (Reuters/Financial Times)

    Assumed a long term growth rate of 2% and an intermediate term growth rate of 10%

    Thanks for any thoughts and help

  2. #8222
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    I can't help you with the DCF sorry....good luck with that.
    However $2.70 sounds OK for HBL.
    Just stop at that !
    Cheers
    RTM

  3. #8223
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    If you look carefully at HBL free cash flow figures for the last 5 years http://tinyurl.com/zxed2pj you will notice that none of the annual figures make any sense. That is because a banks free cash flow is not your normal free cash flow calculation.

    Morningstars fcf calculation is simply net cash from operating activities plus purchases of property and equipment. The same for any company.

    A banks fcf is different. How you arrive at a banks fcf I have no idea.

    Would be an interesting discussion though.
    h2

  4. #8224
    Speedy Az winner69's Avatar
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    Quote Originally Posted by AndyLP View Post
    Have enjoyed reading the valuable contributions to this thread for the last couple of years and finally found the time to try and learn how to do a DCF valuation.
    I'm going by the method in Fundamental Analysis for Dummies - (Matt Krantz) gotta start somewhere right?

    Wondering if you knowledgeable guys/gals had any ideas on what to do when the FCF for the most recent period is negative? Which is what I have for HBL currently at -40,706 (gathered from here http://tinyurl.com/zxed2pj)
    I tried using an average from the last 5 years, which yields a positive result, but also ends up giving me a valuation of about 2.70!

    Some more data.. would be good to know if I'm on the right track.
    Discount Rate: 0.09166
    CAPM Discount Rate = risk free rate + (expected market return – risk free rate) x stock beta
    Risk free rate: 0.0248 (from the Treasury website)
    Expected market return: 0.0885 (averaged NZSE return since 1971)
    HBL stock beta: 1.05 (Reuters/Financial Times)

    Assumed a long term growth rate of 2% and an intermediate term growth rate of 10%

    Thanks for any thoughts and help
    Andy - good on you in expanding your financial knowledge and learning new things. iI applaud you

    Re HBL negative cash flow for F16 - if you look at their financial statements you will see that it a result of lending $251m more (ie cash out) while only increasing deposits by $186m (cash out). Not all bad but plays havoc with DCF eh.

    With all due respect I wouldn't start practicing DCFs on banks. I'm sure you would get a much better understanding of the value of a DCF analysis by working on a less 'sophisticated' business than a bank - with a result that possibly be more rewarding for both your efforts/ learnings / pocket

    What other stocks you interested in
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  5. #8225
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    Quote Originally Posted by RTM View Post
    I can't help you with the DCF sorry....good luck with that.
    However $2.70 sounds OK for HBL.
    Just stop at that !
    Cheers
    RTM
    I am very much in the same camp as RTM... but $2.70 does sound very nice!

  6. #8226
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    Quote Originally Posted by trader_jackson View Post
    I am very much in the same camp as RTM... but $2.70 does sound very nice!
    Same thought exactly. LOL!

    How do calculate the fcf again winner?
    Last edited by h2so4; 17-10-2016 at 10:03 AM.
    h2

  7. #8227
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    Such good feedback - thanks winner, h2s04 (and others)

    I did one for SUM as well and came out with $5.91, which feels in the right ball park - 20ish percent upside.. I don't know. Need to do a few more, get more input from you guys before I get enough confidence to execute buys and sells using this stuff.

    I stopped buying stocks in 2014 when PEB tanked (which I eventually sold and made money but not nearly as much as I could have) and so promised myself I'd learn more FA before buying again, as I felt like I had no plan when with that stock. Have held HBL/HNZ through that time and continue to do so. Doing ok with it. Trying to work out what constitutes 'over valued' for this stock.. exit plan and all that.

  8. #8228
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    HBL up 1.3%, outperforming the market by a very wide margin... clearly some are happy to buy quality, robust Growth + Yield stocks (note the bold plus sign)

    HBL is certainly holding up much better than many other stocks on the market... not down as much as the NZX 50 in these past few weeks... I see Aussie financial sector mostly in the green today and the US Banks reporting stronger than expected profits (Bank of America posted record high Q3 profit did I see this morning?)

    Disclosure: not a recommendation to buy, just a statement of how its held up...... so far

  9. #8229
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    I have HUGE regrets with HBL..

    Bought well above what should have when they first became available.. Sold down lower six figures.. They were to much a percentage of my portfolio.

    Sold down another low end six figures for the same reason..

    Still have six figures and REGRET SELLING EVERY SINGLE ONE THAT I DID.. ..

  10. #8230
    percy
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    Quote Originally Posted by janner View Post
    I have HUGE regrets with HBL..

    Bought well above what should have when they first became available.. Sold down lower six figures.. They were to much a percentage of my portfolio.

    Sold down another low end six figures for the same reason..

    Still have six figures and REGRET SELLING EVERY SINGLE ONE THAT I DID.. ..
    Just wait until they break through the $2 mark.!!!!!..lol.

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