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  1. #11
    The Wolf of Sharetrader
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    So this all suggests to me that the market believes eventually ATM will increase profits by about 800% minimum.

    How do I figure this? Lets say in a few years time things have improved in Europe, new offices gaining traction etc and MFT are returning 8%. Not unreasonable at all I believe.

    Therefore to make it worthwhile investing in ATM it has to outperform MFT (or any other similar company) and to do this profit needs to increase from the current 1% return to 8% minimum. That still only brings it in line with MFT etc, not allowing for any risk that it might not make it.

    So the market must collectively believe profit growth will be say 900% over a few years (to justify the risk and not just invest in say MFT etc instead which is already there) OR people are buying shares hoping for growth in ATM revenue and an increase in shareprice as others are happy to accept a lower yield (eg shareprice rises to $1. Profit rises but not as fast as the shareprice so the return becomes say 5% which others are still happy to buy in to).

    I'm not saying I do or don't believe ATM will do it, the point I'm trying to make it is I guess the market is currently indicating they believe growth in ATM will be at least 800% and anyone looking to invest would need to decide if they think this is going to happen.

  2. #12
    On the doghouse
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    Quote Originally Posted by nextbigthing View Post
    So this all suggests to me that the market believes eventually ATM will increase profits by about 800% minimum.

    How do I figure this? Lets say in a few years time things have improved in Europe, new offices gaining traction etc and MFT are returning 8%. Not unreasonable at all I believe.

    Therefore to make it worthwhile investing in ATM it has to outperform MFT (or any other similar company) and to do this profit needs to increase from the current 1% return to 8% minimum. That still only brings it in line with MFT etc, not allowing for any risk that it might not make it.

    So the market must collectively believe profit growth will be say 900% over a few years (to justify the risk and not just invest in say MFT etc instead which is already there) OR people are buying shares hoping for growth in ATM revenue and an increase in shareprice as others are happy to accept a lower yield (eg shareprice rises to $1. Profit rises but not as fast as the shareprice so the return becomes say 5% which others are still happy to buy in to).

    I'm not saying I do or don't believe ATM will do it, the point I'm trying to make it is I guess the market is currently indicating they believe growth in ATM will be at least 800% and anyone looking to invest would need to decide if they think this is going to happen.
    I think you are correct in that the sharemarket is assuming ATM will penetrate a new geographical market, and that this is already included in the ATM share price. How well ATM does will depend on how well ATM integrates with the local distribution chains. Mainfreight OTOH has a rather different expansion model, preferring to joint venture or buy outright existing businesses. There are different risks with either method of expansion, and different potential rewards as well.

    Although I do not believe in the efficient market theory, nevertheless anything in the NZX50 has enough analysts running over the numbers for NZX50 listed companies, for that market at least at least to be relatively efficient. So I would argue that to definitely choose ATM over MFT you would probably only have to be satisfied it was 5% more efficient and set to produce 840% (not 900% ) more profit than Mainfreight - assuming growth prospects going forwards, at that point of profit equality, were equal. I would argue that if ATM could successfully break into the UK (for example) that might give more confidence it could crack another big overseas market. So I would argue that A2 would likely trade on a greater multiple than MFT, even if profits were equal in dollar terms. That is equivalent to what you said about shareholders being happy with a 5% rather than an 8% return.

    As for shareholders buying in today and their expected profit for ATM in the future, I am not sure you should use MFT as the one and only measuring stick for all other companies. But the general thrust of your argument, that new ATM are already paying for significant assumed future growth, I think is correct.

    SNOOPY
    Last edited by Snoopy; 22-08-2013 at 03:38 PM.
    Watch out for the most persistent and dangerous version of Covid-19: B.S.24/7

  3. #13
    The Wolf of Sharetrader
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    Quote Originally Posted by Snoopy View Post
    As for shareholders buying in today and their expected profit for ATM in the future, I am not sure you should use MFT as the one and only measuring stick for all other companies. But the general thrust of your argument, that new ATM are already paying for significant assumed future growth, I think is correct.

    SNOOPY
    I agree re not using MFT solely. The thing I'm getting at is that really to make supernormal returns you need to find companies that are going to return more than say 9% in shareprice growth P.A. otherwise you might as well just buy the MFT's etc, or the CNU's with its almost 9% dividend. The 'brightest' or these companies or even just a managed fund could be used as the mark.

    And a good starting point would be to estimate sales growth as KW and Lizard talked about given that shareprice will likely follow.

    So amongst other things (such as managing costs etc) sales growth becomes important.

    My question then becomes, how do people estimate sales? Obviously some cases are easier than others but take ATM as an example. To justify the current shareprice as we've discussed they need to grow in other countries. But just because they attained a 6% market share in Australia doesn't mean they will in the U.K. where people may not care about the benefits of A2? Or they may be very health conscious people and ATM may secure a 10% market share? Who knows?

    I've used ATM as an example but again the list of companies priced for expected growth is endless.... DIL PEB and RYM just to name a few.

    Does anybody have any growth projections for any companies they've fully researched and feel brave enough to share what process they went through to estimate the growth?

    Cheers,

    NBT

  4. #14
    The Wolf of Sharetrader
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    Quote Originally Posted by KW View Post
    Quarterly cashflow statements are useful - look for a reduction in operating cash outflows over time, and the transition to positive operating cash flows.
    Thanks KW

    Free cash flow is a term i hear bantered around a lot. For those that are interested;

    http://www.investopedia.com/terms/f/freecashflow.asp

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