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02-02-2017, 03:27 PM
#431
Originally Posted by Snoopy
Yes, but in a broadly stable market, how do you create your foresight? I look to the past for future inspiration, while keeping in mind that going too far back into the past is also getting distant from today's (and tomorrow's) reality. Five years is about the shortest company history I am comfortable with if I am looking for a track record. With some companies, I look at records going ten years back. With ANZ, given the Basel 3 capitalisation requirements in force today, my judgement is that going back any further than five years in the record might not be representative of 'the modern banking environment'.
Some brokers just take last year's result for any company and add a fudge factor and call that a forecast.
If you have a better 'forward looking system', then let's hear what it is!
SNOOPY
Always start with the company's own forecasts.Then it is easy to compare results with forecasts.Some companies achieve their forecasts,other don't.I invest in those who do.
I read brokers analysts research from Craigs,Hobson Wealth,FNZC,and the odd Forbar.The good analysts talk to the companies,and their competitors.The good analysts know their sectors they cover.I attend as many AGMs and presentations as I can.I often ring companies,and either talk to the CFO or CEO.
The more research I do,the better the results I achieve.After following the market for 50 years I seem to be able to sort the wheat from the chalf.My own self employed business experience,and circle of knowledgeable business friends also helps.
I invest in sectors that have strong tail winds and avoid those who face headwinds.
I try to simplify my research,so as not to get confused or lost.Stay foccussed on what matters.
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02-02-2017, 03:47 PM
#432
ANZ Forecast Dividend Scenario Analysis (FY2012 -FY2016 data) Attempt 2 Valuation
Originally Posted by Paper Tiger
So when do we actually get the forecast of future earnings, dividend payout and do we get a valuation with that?
I can hardly handle the suspense any longer.
Best Wishes
Paper Tiger
I start from the 'Average Across Five Scenarios' 'Gross Dividend: NZ Investor Perspective'. That figure comes out at $1.524 per share. And this is one key to the valuation.
The other key figure is a bit more subjective, and you as an investor need to answer the question.
"For a bank such as ANZ, what is the gross yield that would feel comfortable with?"
You could say that banks are a quasi-utility that will be there through thick and thin. I use a 6.0% figure for those.
Yet the ANZ, like all the big 4 Aussie banks, has an ivory tower institutional division that does all sorts of high powered stuff with currencies, futures and options. Regular bank customers on the street would go into shock if they found out if they found out their safe solid bank was doing this stuff. Luckily it is so incomprehensible that even half the people who work in the ANZ institutional division do not understand what is going on. So no-one worries about it. Very occasionally it all blows up with dramatic effect, such as in the GFC. Boring bank shares I would accept a 6% yield from. But with 'institutional stuff' going on behind the scenes I would add in a further 0.5% 'risk factor' to the ANZ.
So my answer to the question I posed is 6.5%:
Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:
$A1.524 / 0.065 = $A23.44 or in NZ dollar terms
$A23.44 / 0.95 = $NZ24.67
Current share price on the NZX as I write this is $NZ30.90, which is 25% above my 'comfortable valuation'. So this means I should sell down, or does it?
SNOOPY
Last edited by Snoopy; 04-02-2017 at 08:36 AM.
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03-02-2017, 10:44 PM
#433
Originally Posted by percy
Always start with the company's own forecasts.Then it is easy to compare results with forecasts.Some companies achieve their forecasts,other don't. I invest in those who do.
<snip>
I invest in sectors that have strong tail winds and avoid those who face headwinds.
I feel bad butchering your reply Percy, because actually I think you have a very sound investment strategy, even though it is not the same as mine.
The only comment I would make is that by chasing 'winners' (if that is a fair simplification of what you propose above) you are liable to pay a high price for a share with a consistently good track record in a popular sector. If that track record continues further over a long time, I guess it doesn't matter if you pay a high price in the early stages. If there is a glitch in the plan such shares are slashed by earnings reduction and brutalised by PE multiple deflation, a real double whammy to your bank balance.
Being a 'value hound' I don't like paying high prices, and I definitely detest double whammies. So I don't like chasing winners, or at least winners that everyone else has discovered before me!
Good luck to you.
SNOOPY
Last edited by Snoopy; 03-02-2017 at 10:52 PM.
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04-02-2017, 12:57 AM
#434
Whilst waiting for my movie companions
I am sure that every value investor does not like, and avoids, paying a high price.
But what you regard as a high price based on your approach others see as a good entry point.
We all have our share of buys that went the wrong way don't we?
But hopefully in the long term we are all the richer, in wisdom as well as dollars.
Best Wishes
Paper Tiger
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04-02-2017, 07:03 AM
#435
Originally Posted by Snoopy
I feel bad butchering your reply Percy, because actually I think you have a very sound investment strategy, even though it is not the same as mine.
The only comment I would make is that by chasing 'winners' (if that is a fair simplification of what you propose above) you are liable to pay a high price for a share with a consistently good track record in a popular sector. If that track record continues further over a long time, I guess it doesn't matter if you pay a high price in the early stages. If there is a glitch in the plan such shares are slashed by earnings reduction and brutalised by PE multiple deflation, a real double whammy to your bank balance.
Being a 'value hound' I don't like paying high prices, and I definitely detest double whammies. So I don't like chasing winners, or at least winners that everyone else has discovered before me!
Good luck to you.
SNOOPY
Value? Winners?
Safety insurance?
Real value to me is where eps growth is higher than the company's PE.
OK a lot of shares I have the PE is slighty higher than their PE,but that is because their sp has increased a lot since I brought them.[HBL is one]
Any shares where the PE ratio has gone to 2 or 3 times their growth rate I have sold,[ POT,AIA and FPH] are good examples.
Last edited by percy; 04-02-2017 at 07:36 AM.
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04-02-2017, 09:47 AM
#436
Originally Posted by percy
Value? Winners?
Safety insurance?
Real value to me is where eps growth is higher than the company's PE.
OK a lot of shares I have the PE is slighty higher than their PE,but that is because their sp has increased a lot since I brought them.[HBL is one]
Any shares where the PE ratio has gone to 2 or 3 times their growth rate I have sold,[ POT,AIA and FPH] are good examples.
High PE and low growth investments, like a real bank (ANZ) that knows what cash is (one that you can hold up and run down the street with your swag bag of proceeds Beagle Boys style), look to be off your investment horizon then? As are all utilities (MEL doesn't seem to fit in with your PE/Growth rule)? Just making the observation. Not saying this is a good or bad thing.
SNOOPY
Last edited by Snoopy; 04-02-2017 at 10:02 AM.
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04-02-2017, 10:27 AM
#437
Originally Posted by Snoopy
High PE and low growth investments, like a real bank (ANZ) that knows what cash is (one that you can hold up and run down the street with your swag bag of proceeds Beagle Boys style), look to be off your investment horizon then? As are all utilities (MEL doesn't seem to fit in with your PE/Growth rule)? Just making the observation. Not saying this is a good or bad thing.
SNOOPY
Correct.I have held MEL since float in both my wife's and my portfolios.
I guess the only way I can justify holding it, is by saying I see it as a high yielding "default" bond.??
And no I have not brought more.
HLG is a share I brought a few months ago.PE approx 14. Yield over 8%.Growth I expected to be between 20% and 30%.From yesterday's announcement it looks more like 34%.Good research produces good results.
So they may not be a poor performing high street bank,but I can live profitably with them.lol.
Last edited by percy; 04-02-2017 at 10:29 AM.
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04-02-2017, 10:26 PM
#438
ANZ Forecast Dividend Scenario Analysis (FY2012 -FY2016 data) Attempt 3 Inputs
Originally Posted by Snoopy
Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:
$A1.524 / 0.065 = $A23.44 or in NZ dollar terms
$A23.44 / 0.95 = $NZ24.67
Current share price on the NZX as I write this is $NZ30.90, which is 25% above my 'comfortable valuation'. So this means I should sell down, or does it?
The answer is no, I should not sell down, or at least not sell down on this revelation. Why not? Because my analysis is done from an NZ perspective. Even though I am an NZer and live in NZ, the ANZ share price is largely driven by Australian investors living in Australia. So in my mind it makes most sense to look at this share from an Australian perspective.
Originally Posted by Snoopy
Note:
1/ All dollar figures listed are in Australian dollars, unless specified otherwise.
2/ Because the New Zealand Dividends are not fully imputed, I am assuming that the gross value of imputation credits passed on will not be affected as the gross dividend is reduced.
Note:
1/ All dollar figures listed are in Australian dollars, unless specified otherwise.
2/ Because the Australian Dividends are fully franked (at 30%), I am assuming that the gross value of franking credits passed on will reduce in proportion as the gross dividend is reduced.
|
Scenario FY2012 |
Scenario FY2013 |
Scenario FY2014 |
Scenario FY2015 |
Scenario FY2016 |
Average Across Five Scenarios |
Annual Declared Dividend 'cps' [(final) + (interim)] (imputation credits excluded) |
$1.42 |
$1.52 |
$1.74 |
$1.81 |
$1.75 |
Actual Dividend %ge of 'Cash Profit' |
69.3% |
71.4% |
67.4% |
68.6% |
81.9% |
Scenario First Adjustment: Declared Annual Dividend 'cps' [(final) + (interim)] (62.5% payout ratio) (A) |
$1.28 |
$1.33 |
$1.61 |
$1.65 |
$1.34 |
Actual Number of Shares on Issue EOFY (B) |
2,744m |
2,757m |
2,757m |
2,903m |
2,927m |
Scenario Number of Shares on Issue EOFY (C) |
2,927m |
2,927m |
2,927m |
2,927m |
2,927m |
Scenario Second Adjustment: Normalise Dividend for Today's Number of shares (A) x [(B)/(C)] => {D} |
$1.20 |
$1.25 |
$1.52 |
$1.64 |
$1.34 |
Gross Dividend: Aussie Investor Perspective {D}/0.7 |
$1.71 |
$1.79 |
$2.17 |
$2.34 |
$1.91 |
$1.984 |
SNOOPY
Last edited by Snoopy; 04-02-2017 at 10:46 PM.
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04-02-2017, 10:49 PM
#439
ANZ Forecast Dividend Scenario Analysis (FY2012 -FY2016 data) Attempt 3 Valuation
Originally Posted by Snoopy
I start from the 'Average Across Five Scenarios' 'Gross Dividend: NZ Investor Perspective'. That figure comes out at $1.524 per share. And this is one key to the valuation.
The other key figure is a bit more subjective, and you as an investor need to answer the question.
"For a bank such as ANZ, what is the gross yield that would feel comfortable with?"
You could say that banks are a quasi-utility that will be there through thick and thin. I use a 6.0% figure for those.
Yet the ANZ, like all the big 4 Aussie banks, has an ivory tower institutional division that does all sorts of high powered stuff with currencies, futures and options. Boring bank shares I would accept a 6% yield from. But with 'institutional stuff' going on behind the scenes I would add in a further 0.5% 'risk factor' to the ANZ.
So my answer to the question I posed is 6.5%:
Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:
$A1.524 / 0.065 = $A23.44 or in NZ dollar terms
$A23.44 / 0.95 = $NZ24.67
Current share price on the NZX as I write this is $NZ30.90, which is 25% above my 'comfortable valuation'.
I start from the 'Average Across Five Scenarios' 'Gross Dividend: Aussie Investor Perspective'. That figure comes out at $1.984 per share. And this is one key to the valuation.
The other key figure is a bit more subjective, and you as an investor need to answer the question.
"For a bank such as ANZ, what is the gross yield that would feel comfortable with?"
You could say that banks are a quasi-utility that will be there through thick and thin. I use a 6.0% figure for those.
Yet the ANZ, like all the big 4 Aussie banks, has an ivory tower institutional division that does all sorts of high powered stuff with currencies, futures and options. Boring bank shares I would accept a 6% yield from. But with 'institutional stuff' going on behind the scenes I would add in a further 0.5% 'risk factor' to the ANZ.
So my answer to the question I posed is 6.5%. From an Australian perspective though, I get a slightly different answer. The New Zealand Official cash rate is 1.75%. The Australian Official Cash Rate is 1.5%. To reflect this difference, I am reducing the yield I require from ANZ by the difference in those two figures, 0.25%. This means the new yield I am happy with is 6.25%
Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:
$A1.984 / 0.0625 = $A31.74 or in NZ dollar terms
$A31.74 / 0.95 = $NZ33.41
Current share price on the NZX when I started this exercise was $NZ30.90, which is 7.5% below my 'comfortable valuation'. This result, and giving the share price some room to breathe, tells me that ANZ is 'hold' at these prices.
From an investor perspective, I like to buy at below fair value. So what if I was in the market to buy some more ANZ? For a quasi-utility type investment this means a 20% discount to fair value, a price of $NZ26.73 for ANZ.NZX shares.
SNOOPY
Last edited by Snoopy; 04-02-2017 at 11:18 PM.
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06-02-2017, 07:56 AM
#440
Originally Posted by Snoopy
NZ Owners Yield Perspective
Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:
$A1.524 / 0.065 = $A23.44 or in NZ dollar terms
$A23.44 / 0.95 = $NZ24.67
Current share price on the NZX as I write this is $NZ30.90, which is 25% above my 'comfortable valuation'. So this means I should sell down, or does it?
Originally Posted by Snoopy
Australian Owners Yield Perspective
Divide 'return' by 'the yield' and you get the share price that I would feel comfortable paying:
$A1.984 / 0.0625 = $A31.74 or in NZ dollar terms
$A31.74 / 0.95 = $NZ33.41
Current share price on the NZX when I started this exercise was $NZ30.90, which is 7.5% below my 'comfortable valuation'. This result, and giving the share price some room to breathe, tells me that ANZ is 'hold' at these prices.
From an investor perspective, I like to buy at below fair value. So what if I was in the market to buy some more ANZ? For a quasi-utility type investment this means a 20% discount to fair value, a price of $NZ26.73 for ANZ.NZX shares.
A large difference in valuations for ANZ (about 35% gross value), depending on whether you look at things from an NZ or Australian yield perspective.
In most Australian shares, from an NZ perspective, the difference will be even greater because.
1/ Having a profitable and significant NZ 'arm'. AND
2/ Having the will to set up your company tax affairs so that NZ investors can take advantage of it.
rules out most Aussie companies paying NZ imputation credits.
If you value dividends (I do), there is a strong incentive here to not hold any income generating shares outside of the NZX. Given the low growth outlook for Australian banks, should you replace your Aussie bank shares by transferring that money to an NZX listed fully imputed dividend paying equivalent?
I am tempted to answer 'yes', but unfortunately there is no such thing. Don't be fooled by something like 'Heartland', who can now call themselves a bank, being a kiwi equivalent to the ANZ or Westpac. Heartland's markets by and large do not overlap with the big banks and they are epochs apart on the NZ Reserve bank risk scale. This doesn't mean you should not invest in Heartland. Heartland are a very capable second tier finance industry player. Just don't make the mistake of thinking they are a substitute for one of the big banks.
In the markets, there are some sectors that are not represented with a primary listing on the NZX. To get into those sectors you effectively have to put your money offshore and take the lower dividend payments on the chin. Investing in the banking sector is one of those markets.
SNOOPY
Last edited by Snoopy; 06-02-2017 at 07:08 PM.
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