# Rinker a Value Analysis



## ducati916 (26 August 2006)

Current Price $51.98
Code RIN
Yield 6.3%
Market Capitalization $12412.9 [adjusted]
TCI Price Target $26.50 to $36.35
Investment Sector Cement
Price Earnings Ratio 12.5
Recommendation Watch List


Industry Statistics

Market Capitalization:	64B
Price / Earnings:	15.4
Price / Book:	4.3
Net Profit Margin 	8.6%
Price To Free Cash Flow 	55.4
Return on Equity:	18.9%
Total Debt / Equity:	0.9
Dividend Yield:	2.3%

The Industry taken as a composite is selling at approximately overall market valuations when measured from a P/E ratio.
RIN at 12.5 is a little lower, but not significantly currently. The dividend yield at 6.3% is more attractive than the Industry average however.

Staying with a direct Industry comparison for the moment, are there more attractive opportunities based on a very superficial examination of some commonly utilized ratio’s?

Price Earnings Ratio

Laggards in P/E Ratio 	
MONARCH CEMENT CO [MCEM.OB] 
8.49 
READY MIX INC. [RMX] 
9.51 
HANSON PLC (HLDG CO) [HAN] 
9.53 
EAGLE MATERIALS INC [EXP] 
10.17 
CEMEX SAB DE CV ADR [CX] 
10.58 
US CONCRETE INC [RMIX] 
11.28 
FLORIDA ROCK IND INC [FRK] 
11.94 
RINKER GRP LTD ADR [RIN] 
12.46 
C R H PLC ADR [CRH] 
15.45 
TEXAS IND [TXI] 
128.29 


There are seven companies selling at lower P/E ratios than RIN. Certainly CX, has wide international exposure, originating from Mexico.

Price/Book Ratio

Laggards in P/B Ratio 	
US CONCRETE INC [RMIX] 
0.82 
MONARCH CEMENT CO [MCEM.OB] 
1.22 
READY MIX INC. [RMX] 
1.39 
CEMEX SAB DE CV ADR [CX] 
1.79 
HANSON PLC (HLDG CO) [HAN] 
1.79 
C R H PLC ADR [CRH] 
2.26 
TEXAS IND [TXI] 
2.28 
FLORIDA ROCK IND INC [FRK] 
2.71 
EAGLE MATERIALS INC [EXP] 
3.50 
RINKER GRP LTD ADR [RIN] 
3.53 


Again, there are businesses that are selling at currently more attractive prices than RIN. 

Profit Margin

Laggards in Net Profit Margin 	
JAMES HARDIE IND ADR [JHX] 
-166.98% 
SMITH-MIDLAND CORP [SMID.OB] 
-1.37% 
US CONCRETE INC [RMIX] 
3.82% 
READY MIX INC. [RMX] 
4.54% 
C R H PLC ADR [CRH] 
7.53% 
HANSON PLC (HLDG CO) [HAN] 
8.32% 
CEMEX SAB DE CV ADR [CX] 
12.55% 
MONARCH CEMENT CO [MCEM.OB] 
12.60% 
RINKER GRP LTD ADR [RIN] 
14.12% 
TEXAS IND [TXI] 
15.85%


In the very important comparison within Profit Margins, again CX, while not the equal of RIN, is not far behind, and based on the cheaper valuation may, provide a superior investment.

CAPITALIZATION

The capitalization structure has been adjusted to reflect the effect of Operational Leases. These have been backed out as detailed information was not available. They would represent a question to management to supply greater detail. 
Including the capitalized Operating Leases, the Capital structure of RIN is conservative, and investment grade. Debt represents only 5% of the capitalization.

INCOME STATEMENT

The Income Statement is a strong one, and certainly reflects the strong cycle that the industry has being enjoying over the last couple of years. The margins are excellent and have been expanding. Bond interest has ample coverage, and certainly fulfills investment grade.

One yellow flag is the omission of a line entry detailing Depreciation charges. I again have adjusted and backed out the charge but more on the significance and possible implications later.
Costs have been brought back under control from their expansion in the last analysis. This bodes well as control of costs reflects directly on management efficiency and effectiveness. 

BALANCE SHEET

Inventories and Receivables with reserved losses on Receivables seem consistent, and do not draw any undue attention to them.
Cash is also within the aggregate range, and as an acquisition has also been purchased, would again not draw undue concern.
Working Capital when examined on a comparative basis has only grown at a four year compounded rate of 1.29%.
Year on Year it has contracted by 13%., this is odd. With growth in Revenue [18.5%], growth in Cost of Goods [11.1%], growth in Selling General & Administration [18.9%] growth in Operating Income [47.8%] growth in Capital Expenditures [31%] it seems odd that Working Capital has shrunk. 

The Current Ratio at 1.91 would while strictly failing the investment grade of 2.0, would normally be given the benefit of doubt, however with the question mark over Working Capital; the ratio must fail to pass on investment grade currently. The five year aggregate at 1.78 fails the criteria and provides warning that even in a strong cycle, liquidity is still an issue.

The Revenues generated from Plant Property & Equipment reveals a low profit business. This would indicate that volume of business is an essential component. Fixed costs would by implication be expected to be high, thus in a cyclical downturn, if it were to occur would impact earnings hard.

CASH FLOW STATEMENT

Depreciation as previously mentioned was not given a line entry. This is more than a little strange.
Using adjusted figures we can trace the depreciation charge through cash flows.
Cash flow from operations has been strong and rising certainly year on year as is revealed from reductions in ratios tracking capital spending in a rising year on year within Capital Expenditures.

Here is the first anomaly; with rising Capital Expenditures you would expect to see rising Depreciation. This is not the case; Depreciation is falling by some 11% on aggregate compared with Depreciation charges and some 22% when compared to Capital Expenditures. This can have the effect of bolstering earnings.

Examination of cash flows for hidden cash flow reveals that Selling General & Administration could account for $37.5 million or $0.20 per ADR/share this is 5% of the earnings per share, and could be considered material. This accounts for $20 million from the Depreciation charge and an additional $17.5 million that is unaccounted for. Therefore, rather than bolstering earnings, earnings have in point of fact been depressed by $17.5 million that may have weakened the Working Capital with the other $20 million being potentially diverted from Depreciation.

SUMMARY

RIN is overall a strong business with some unresolved management issues. 
Management should be more forthcoming with reasons and or explanations of the business strategy.
In addition at current prices, RIN is still overvalued even though the share price has markedly decreased over the last few months.
I believe that the intrinsic value for RIN resides somewhere between $26.50 & $36.35 per ADR share [$5.30 - $7.27]
At the current price the investor will be paying a premium to this value and thus lacks a quantifiable margin of safety.
I would therefore recommend waiting to see if price falls some fifty percent below intrinsic value before considering a purchase for investment purposes.

jog on
d998


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## wayneL (26 August 2006)

They won't like it Duc. But good work.

Cheers


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## noirua (26 August 2006)

All I can say really is to compare the latest information on Rinker Group to the first post on this thread: http://www.rinker.com/downloads/QEJ_trading_update_to_ASX_18_jul_06.pdf


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## noirua (26 August 2006)

noirua said:
			
		

> All I can say really is to compare the latest information on Rinker Group to the first post on this thread: http://www.rinker.com/downloads/QEJ_trading_update_to_ASX_18_jul_06.pdf




...and then read this: http://www.stockhouse.com/news/news.asp?newsid=3806871&tick=RIN


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## Realist (26 August 2006)

Well I posted this on the first of August...



			
				Realist said:
			
		

> RIN is now fairly valued based on the last 4 years earnings.
> 
> And with growth of about 16% p.a. up to now it would be cheap if you did not look forward.
> 
> ...





I bought at $12.89.

The very next day Australia's largest super investor Perpetual spent $130,000,000 on RIN shares. The stock price then went up to $14.

I suspect it will not go back down to $13 again.

My valuation has merit.

Now....



			
				Ducati said:
			
		

> I believe that the intrinsic value for RIN resides somewhere between $26.50 & $36.35 per ADR share [$5.30 - $7.27]
> At the current price the investor will be paying a premium to this value and thus lacks a quantifiable margin of safety.
> I would therefore recommend waiting to see if price falls some fifty percent below intrinsic value before considering a purchase for investment purposes.




 

$5.30 a share, gimme a break..   

Well all I can say is if you multiply Ducati's intrinsic valuations by between 3 and 5 you get the real valuation.

Ducati, I'll ask again, please list one stock on the ASX that meets your BUY criteria now?

It's gotta have a PER of 2 and a yield of about 80% I'm guessing.


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## Realist (26 August 2006)

ducati916 said:
			
		

> I believe that the intrinsic value for RIN resides somewhere between [$5.30 - $7.27]
> 
> I would therefore recommend waiting to see if price falls some fifty percent below intrinsic value before considering a purchase for investment purposes.




So you are suggesting investors wait until the price falls to about $2.65 a share?   

I'd suggest they'll be waiting a long long long time.  

And if buy chance RIN ever became $2.65 a share they'd have made so many losses recently they would not be worth buying.


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## ducati916 (26 August 2006)

*noirua* 

The posted links refer to the Quarterly results [which are good] but that has to be taken into a much broader context and analysis from an investment perspective.

However, if you are looking to *trade the news* that is a completely different strategy entirely and this may well represent a legitimate opportunity.

jog on
d998


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## ducati916 (26 August 2006)

*Realist* 



> Originally Posted by Realist
> RIN is now fairly valued based on the last 4 years earnings.




It all really depends on how you calculate *fairly valued*
I calculate fair value or intrinsic value very consevatively as I require a quantifiable margin of safety and a premium market return, thus my valuations are harsh.

There are many other ways of calculating a valuation.



> I bought at $12.89.
> The very next day Australia's largest super investor Perpetual spent $130,000,000 on RIN shares. The stock price then went up to $14.
> I suspect it will not go back down to $13 again.
> My valuation has merit.




This is not a method that I would favour.
You seemingly justify your buying point on the confirmation of someone elses purchase & an increase of $1.00/share over a couple of days [viz. market action]

That the market action may be little more than shorts covering positions, or a legitimate accumulation point, how will you differentiate?
Market price?
This is not the methodology of a value based investment operation.
As you claim to be a value investor, this can only lead to the conclusion that you are either stretching the definition, or are misguided.



> Well all I can say is if you multiply Ducati's intrinsic valuations by between 3 and 5 you get the real valuation.




Your multiplier conveniently produces .......shock.....your buying price.



> So you are suggesting investors wait until the price falls to about $2.65 a share?




In essence exactly so.
For the reason that they will realize a profit of at least 50% & quite conceivably 100% if the market again accords a premium to this industry, which is quite possible.



> And if buy chance RIN ever became $2.65 a share they'd have made so many losses recently they would not be worth buying.




You are making some very large assumptions, based on no quantitative data.
You are negating entirely the factor of negative sentiment.
In short, you are demonstrating all the foibles of a novice.



> I'd suggest they'll be waiting a long long long time.




For RIN, that is a possibility.
However there are enough comparable stocks selling for exactly these discount valuations, and they will provide the margin of safety, and the 50%+ returns that accrue to the discerning purchaser.

jog on
d998


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## Realist (26 August 2006)

Ducati, please name one ASX stock that is currently fairly or undervalued?


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## Realist (26 August 2006)

ducati916 said:
			
		

> You seemingly justify your buying point on the confirmation of someone elses purchase & an increase of $1.00/share over a couple of days [viz. market action]




Yes, because Australia's largest super investor bought $130,000,000 worth of RIN shares. And RIN themselves are buying back a sh*tload of shares.

Fer Christ sakes, that is not just market sentiment....

Your valuations are quite simply ridiculous.

There is not a share on the ASX at the moment that you could buy using your methodologies.

Where do you put your money then?  I'd like to see your value analysis of a term deposit.


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## ducati916 (26 August 2006)

*Realist* 

I do not trade or invest in Australia, and do not follow very closely the ASX.
I invest in the US.
I have a current live portfolio that runs on reef, here is the update as of todays close.

CALL......$4.76........................$3.08...... ...................(-35.2%)
SAFM......$26.45.....................$26.30....... .................[0.0%]
FORD......$10.74.....................$4.99....... .................(-53.5%)
UST.......$41.25.....................$52.71....... ..................+27.8%
CTT......$4.00.......................$2.29........ ..................(-42.7%)
CQB......$17.47.....................$15.96........ .................(-8.6%)
TOL......$29.78.....................$25.98........ .................(-12.7%)


SGTL....$10.30.....................$4.78...... .....................(-53.5%)
EVCI....$1.44.......................$0.89........ ...................(-38.1%)
DRYS....$10.59....................$13.50...... ....................+27.4%
SEPR....$92.50.................................... ..............................
OFIX....$37.44....................$39.61............................+5.8%
WON....$6.65.....................$7.10..............................+6.8%
NAFC...$20.52....................$21.27.............................+3.6%

Aggregate......................................... ....................[-12.5%]

Paper trades
CD.....$2.25....................$2.00...............................[-11.1%]

Closed Trades 

ISSC...................+8.1%
HNR....................+21.6%
EGY....................+61.8%
LRT....................+29.2%
KND....................+34.0%
GKIS..................+37.8%

Aggregate..............+32.1%

jog on
d998


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## Realist (26 August 2006)

Have you read the Intelligent Investor and Securtiy Analysis?


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## noirua (26 August 2006)

A letter has been sent to shareholders, dated 17 August 2006, by Mr John Morschel, Chairman of Rinker Group, Headed:

Dear Shareholder

BEWARE OF OFFERS TO PURCHASE YOUR RINKER SHARES - THEY MAY UNDERVALUE YOUR INVESTMENT

I am writing to inform and warn you about Below-value Share Offers that may aim to entice you to sell your Rinker shares below their true market value. You may receive an offer like this shortly.

At the Annual General Meeting last month I mentioned that a law firm, acting on behalf of a company called " Direct Share Purchasing Corporation Pty Ltd " ( DSPC ) wrote to Rinker requesting a copy of our share register.

Unfortunately, under the Corporations Act, they are entitled to do this.

We understand that this company is associated with Mr David Tweed.  You may know him; he is mentioned frequently in the media, in regard to heavily-discounted share purchase offers being made to shareholders of listed companies.

The offers take various forms. They may simply offer a price that is under the prevailing market price.  Or they may offer you an amount above the prevailing price - but paid in instalments over a very lenghty period, perhaps 20 years.  This substantially reduces the real value of the offer ( perhaps to around half the face value of the sum offered ) and may result in unforeseen taxation consequences for you. Furthermore, future payments may not be secured.

You may receive such an offer shortly.  If you do, please check it carefully. It concerns me greatly that shareholders may unknowingly accept an offer for their Rinker shares that substantially undervalues their holding.

We are certainly not recommending that you sell your Rinker shares. However, if you do want to sell your shares for some reason, we suggest that you contact your broker.  If you do not have a regular broker, information on how to get in touch with one is available from the Australian Stock Exchange's Customer Service Centre, telephone 131 279.

Thank you for being a shareholder in Rinker.

Yours sincerely  -  John Morschel, Chairman


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## ducati916 (26 August 2006)

*Realist* 



> Yes, because Australia's largest super investor bought $130,000,000 worth of RIN shares. And RIN themselves are buying back a sh*tload of shares.




Their [super investor] requirements and financial resources are likely very different from yours or my investment requirements. If you are convinced of their superior valuation techniques, can I assume that your money is deposited with them?

When companies buy back their own shares, there are any number of reasons for this. One rather noxious one is the requirement to buy back shares to meet the demand of exercised options that were granted to management.
This can produce some very poor purchases.

As it happens irrespective of the reasons, the current repurchase of shares at current prices represents good value for the business, and shareholders, however, they are still paying a premium.



> Your valuations are quite simply ridiculous.




Your lips are flapping, and there is lots of noise.
I have yet to ascertain a reasoned argument as to why my valuations are ridiculous.

jog on
d998


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## ducati916 (26 August 2006)

*Realist* 



> Have you read the Intelligent Investor and Securtiy Analysis?




Yes, I have.

jog on
d998


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## Realist (26 August 2006)

CALL...... Makes losses
SAFM...... PE of 60
FORD...... plummetting now, wait for Chinese cars.
UST.......Tobacco may be a big problem soon
CTT...... Makes losses
CQB...... PE of 30
TOL...... Looks good, at first glance the only one I'd buy

Well I'd love to see your analysis of SAFM and its intinsic value...

If a PE of 60 is good for them, but a PE of 12 is not good enough for BHP.

TOL is the only one I'd buy.


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## Realist (26 August 2006)

ducati916 said:
			
		

> Their [super investor] requirements and financial resources are likely very different from yours or my investment requirements. If you are convinced of their superior valuation techniques, can I assume that your money is deposited with them?




YES



			
				ducati916 said:
			
		

> When companies buy back their own shares, there are any number of reasons for this. One rather noxious one is the requirement to buy back shares to meet the demand of exercised options that were granted to management.
> This can produce some very poor purchases.




I actually mentioned that on the RIN thread, this is not the case with RIN though. Look at shares outstanding, it is not an issue.



			
				ducati916 said:
			
		

> As it happens irrespective of the reasons, the current repurchase of shares at current prices represents good value for the business, and shareholders, however, they are still paying a premium.




Only in your opinion. In the opinion of Australia's largest Super investor, RIN's opinion, analysts opinions, and my opinion $13 is a fair price.

There is no one else on this planet that thinks $2.65 is a fair price. You're own your own there.


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## Realist (26 August 2006)

ducati916 said:
			
		

> *Realist*
> 
> 
> 
> Yes, I have.




Then how come you can not quickly and accurately value a company  then?


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## NettAssets (26 August 2006)

Then DT is being entirely fair, he is just using Duc's valuation method.


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## ducati916 (26 August 2006)

*Realist* 

As usual your analysis lacks any clarity and logical thought;
FORD....is not the car manufacturer which is ticker *F* 

As previously detailed, but obviously ignored;
GAAP profits need not be profits,
GAAP losses, need not be losses.

Each situation needs to be analyzed individually, and a decision taken on their merits, or lack thereof.

P/E is the lazy-man's, or novice way of approaching a valuation.
They can be highly inaccurate for a variety of reasons.

The question you should have asked but didn't;
Of the stocks listed in the portfolio listed....*which ones were selected on an undervalued basis?* as the portfolio has a number of different strategies employed.

jog on
d998


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## Realist (26 August 2006)

NettAssets said:
			
		

> Then DT is being entirely fair, he is just using Duc's valuation method.





Hahahaaa, I think even DT will offer about 3 times Duc's recommended buying price.


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## Realist (26 August 2006)

> As usual your analysis lacks any clarity and logical thought;
> FORD....is not the car manufacturer which is ticker *F*




Fair enough, I did not even look that one up, I had to be quick.



> As previously detailed, but obviously ignored;
> GAAP profits need not be profits,
> GAAP losses, need not be losses.




A loss is a loss to me.





> P/E is the lazy-man's, or novice way of approaching a valuation.




It is Ben Graham's way, NTA and PE are his babies.  I live by them and so did he!!


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## ducati916 (26 August 2006)

*Realist* 



> There is no one else on this planet that thinks $2.65 is a fair price. You're own your own there.




Your inaccuracy is quite illuminating.
I did not state that $2.65 was a *fair valuation* 
I stated that $2.65 represented circa *a 50% undervaluation from fair value* 

It is this sort of slipshod attention to detail that identifies you as a layperson, certainly within a valuation context.

jog on 
d998


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## brisvegas (26 August 2006)

Realist said:
			
		

> Then how come you can not quickly and accurately value a company  then?





you got to be joking right . is it really that easy ?  as someone once said a little bit of information is a dangerous thing . please enlighten me with your methodology for quickly and easily valueing a company and we will see if we can break it down for you . ive got a spare few minutes . waiting patiently


................... bris


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## Realist (26 August 2006)

You've read Graham's books but you buy shares with high PE's and that do not pay dividends?

 


You'd be better off buying RIN for $13 IMHO.


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## noirua (26 August 2006)

noirua said:
			
		

> A letter has been sent to shareholders, dated 17 August 2006, by Mr John Morschel, Chairman of Rinker Group, Headed:
> 
> Dear Shareholder
> 
> ...





************ WARNING: Please note this warning from Rinker's Chairman SERIOUSLY.


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## ducati916 (26 August 2006)

*Realist* 



> A loss is a loss to me.




Of course it is.
You do not read financial statements, and you may very well lack the ability to read one, even if you weren't so lazy.



> It is Ben Graham's way, NTA and PE are his babies. I live by them and so did he!!




Further evidence of your laziness.
Graham certainly did not live by the two ratios highlighted.
That you do, I do not doubt at all.

jog on
d998


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## Realist (26 August 2006)

brisvegas said:
			
		

> you got to be joking right . is it really that easy ?  as someone once said a little bit of information is a dangerous thing . please enlighten me with your methodology for quickly and easily valueing a company and we will see if we can break it down for you . ive got a spare few minutes . waiting patiently




Value = earnings multiplier * (expected dividend + 1/3 expected earnings) + adjustment for asset values


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## ducati916 (26 August 2006)

*Realist* 



> You've read Graham's books but you buy shares with high PE's and that do not pay dividends?




Simply because I also invest in;
Bankruptcies
Turnarounds
Spinoffs
Special situations
Arbitrages
Undervaluations

jog on
d998


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## brisvegas (26 August 2006)

Realist said:
			
		

> Value = earnings multiplier * (expected dividend + 1/3 expected earnings) + adjustment for asset values




ok just to clarify couple points so i can approach this with as little to and fro as possible . where are we sourcing these expected dividends from along with the forecast earnings ? what makes you trust the source of predictions ? how forward do we look at these projections ? what about risk , debt , tgt market with currency fluct taken into acc. ( not solid on RIN fundies atm but i believe lot of rev from OS ) . i see you are anti housing on other threads and happy to be a renter yet you paradoxically are bullish on a company that relies on this industry . any particular reason for the seemingly contradictory opinions ? i will get into some RIN fundementals when my broker site is back online and we can debate the pros and cons


.......... bris


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## noirua (26 August 2006)

I would like to ask WHY seriously negative posts are being made against Rinker Group and whether any posters have a connection with "Mr David Tweed" or "Direct Share Purchasing Corporation Pty Ltd. ( DSPC )" ?? ( see post 13 ).


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## ducati916 (26 August 2006)

*Realist* 



> Value = earnings multiplier * (expected dividend + 1/3 expected earnings) + adjustment for asset values




This explains why you have difficulty with the concept of an *undervaluation* 

This is Grahams formula utilized for dividend paying stocks, which tend, due to the dividend, if believed to be sustainable [viz. not open to any chance of reduction] to place a floor under the shareprice.

However, in this formula Graham is identifying Wall St's valuation technique of selecting a *capitalization rate that reflects future or expected earnings* 

Graham himself did not value common stocks in this manner.
He also recommends it for Industrials & Rails, not Miners, Utilities etc.
You have read the words, but missed their meaning.

jog on
d998


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## brisvegas (26 August 2006)

dividends for last few years pretty slim really with last one including 50c capital return . without access to my data i cant be sure but i would say probability is that the div cannot be maintained at that rate . if it can could you please correct me with a point in direction to find this info . i will scroll through a few announcements etc 

Ex Date Amount Franking% Books Closed Payable 
05-Jun-2006 0.64 22% 09-Jun-2006 04-Jul-2006 
21-Nov-2005 0.14 60% 25-Nov-2005 12-Dec-2005 
06-Jun-2005 0.14 60% 10-Jun-2005 01-Jul-2005 
22-Nov-2004 0.07 100% 26-Nov-2004 13-Dec-2004 
07-Jun-2004 0.08 100% 11-Jun-2004 02-Jul-2004 
24-Nov-2003 0.06 100% 28-Nov-2003 15-Dec-2003 
30-May-2003 0.07 70% 05-Jun-2003 03-Jul-2003 


................ bris


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## Realist (26 August 2006)

You are right Ducati, but that does not mean that the formula mentioned is wrong.

I value a stock based on past 5 years earnings.

They need to be consistent - no losses, they need to show growth, and there needs to be consistent and growing dividends.

As a quick calculation is to add up the past 5 years earnings and multiply that by 4 to get the approximate Market Cap.


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## noirua (26 August 2006)

noirua said:
			
		

> ...and then read this: http://www.stockhouse.com/news/news.asp?newsid=3806871&tick=RIN




If anyone is feeling seriously negative about Rinker, then read the link above once more.


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## ducati916 (26 August 2006)

*Realist* 



> You are right Ducati, but that does not mean that the formula mentioned is wrong.




No the formula is correct, after all it was written by Graham.
It is your interpretation and utilization of the formula that is questionable.
You clearly do not understand when it is applicable, and when it is not.



> I value a stock based on past 5 years earnings.



I have seen precious little evidence of any analytical ability, or even the inclination to apply thought to the problem at hand. In short you are looking for an easy ride, and assuming that purely superficial reading of Graham is sufficient.



> They need to be consistent - no losses, they need to show growth, and there needs to be consistent and growing dividends.




Without understanding the quirks of GAAP and applying them, you do not understand what you are looking at. In short, you can look at NPAT that are positive, but in reality, the business is losing money.



> As a quick calculation is to add up the past 5 years earnings and multiply that by 4 to get the approximate Market Cap.




Yes, so what?

jog on
d998


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## Realist (26 August 2006)

Ducati, you seem to be speaking to me as if you know what you are doing and I don't.

Yet your valuations are the most ridiculous and incorrect litanies of waffle and mistakes I have ever set eyes on.

To suggest BHP have a PER of 2, and that Rinker would need to drop to $2.65 before anyone buy it is quite simply lunacy.

There is not one ASX stock that you can recommend anyone buy, so why on earth 'value' any of them.

David Tweed offers more value to investors than you do.


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## brisvegas (26 August 2006)

Realist said:
			
		

> As a quick calculation is to add up the past 5 years earnings and multiply that by 4 to get the approximate Market Cap.




Do you drive around looking behind you all the time ? where we have been matters but where we are going is much more important   



................... bris


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## noirua (26 August 2006)

Sometimes analysis goes out of the window when a predator is in the wings. Lafarge is the name at these prices: http://www.aggregateresearch.com/finance/article.asp?id=9234

Perhaps, just perhaps, someone sees an opportunity here, me thinks.


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## Realist (26 August 2006)

brisvegas said:
			
		

> Do you drive around looking behind you all the time ? where we have been matters but where we are going is much more important




Unfortunately I don't have a crystal ball that works.

Obviously you do, what is a stock that's gonna boom next year and I should buy?


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## Realist (26 August 2006)

"The Rinker share price has been sold off over 30 per cent in the last few weeks, but it has been way overdone and bargain hunters are coming into the market in anticipation of a possible takeover."

Yes Siree....


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## brisvegas (26 August 2006)

Realist said:
			
		

> Unfortunately I don't have a crystal ball that works.
> 
> Obviously you do, what is a stock that's gonna boom next year and I should buy?





you answer my questions first then we will address yours . my 06 portfolio picks are approaching 100% return in under 9 months . i cant see why we cant repeat that in 07 . first things first though

.............. bris


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## ducati916 (26 August 2006)

*Realist* 



> Ducati, you seem to be speaking to me as if you know what you are doing and I don't.




That's correct.
The reason for that is demonstrated within the laxity of your accuracy.



> Yet your valuations are the most ridiculous and incorrect litanies of waffle and mistakes I have ever set eyes on.




Again, mere opinion.
Rather than more opinion, why not a cognizent argument with some factual basis as to their weakness.



> To suggest BHP have a PER of 2, and that Rinker would need to drop to $2.65 before anyone buy it is quite simply lunacy.




Again inaccurate.
I stated that at the price of *$2.65, there would be a 50% discount from intrinsic value* In addition, I provided a range, thus even $2.65 is an incorrect statement. Your lack of attention to detail delineates you as the speculator that you undoubtably are. In addition I stated before *I would buy it* not that there would be no takers for the stock.
True value investors would be waiting for lower prices, as of course, we can earn a better and safer return.



> There is not one ASX stock that you can recommend anyone buy, so why on earth 'value' any of them.




Because I was interested in seeing what you could bring to the party.
On the evidence offered so far, not seemingly a great deal.

jog on
d998


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## Realist (26 August 2006)

ducati916 said:
			
		

> True value investors would be waiting for lower prices, as of course, we can earn a better and safer return.




Rubbish, where can you earn a better and safer return from the ASX?

Your US stocks are not better or safer either, some have made losses, some have a PER of 60 fer christ sakes, and some do not pay dividends.

RIN is superior IMHO to some of the stocks you own.


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## ducati916 (27 August 2006)

*Realist* 



> Rubbish, where can you earn a better and safer return from the ASX?




Thought we had covered this one.
I do not follow the ASX. 



> Your US stocks are not better or safer either, some have made losses, some have a PER of 60 fer christ sakes, and some do not pay dividends.




Again as previously detailed, not all the public selections are examples of *undervaluations* some are examples of *Turnarounds, Recaps, etc*
If you wanted to compare apples to apples, you should check your facts first
This is just a further example of your lack of attention to detail.



> RIN is superior IMHO to some of the stocks you own.




As a business, I would agree.
Nowhere in my analysis did I say that the business was a poor one.
If however you are looking to purchase RIN as a legitimate *undervaluation* the analysis delineates a value range that RIN would become a legitimate undervaluation. This then is very different to the strategy that you are advocating, which is *buy a good business at a fair price* and hold the business for a very long haul.

This, with the exception of GEICO, was not Grahams strategy.
This of course is Charlie Mungers strategy.
However, this would require that RIN have a competitive advantage that is not easily duplicated by the competition.

Your analysis fails the criteria for identifying an undervaluation.
It fails to provide a logical, progressive, and coherent analysis for buying a business under Mungers strategy.

What are you left with?
A formula approach, that you do not understand the philosophy of, ineptly applied, you in a quote from Munger, have become the person he castigated;



> To a man with a hammer, everything looks like a nail




jog on
d998


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## Fab (27 August 2006)

Just a quick question about RIN. I have had RIN for over 10 years and bought at 4.80 not a bad ride nevertheless I now need to sell them. I noticed they are offering a Buy back at the moment.
I am wondering how to participate to this Buy back and is there any interest iin doing so or is it the same as selling this shares by myself on COMMSEC ?

Cheers


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## brisvegas (30 August 2006)

Realist said:
			
		

> Value = earnings multiplier * (expected dividend + 1/3 expected earnings) + adjustment for asset values






			
				brisvegas said:
			
		

> ok just to clarify couple points so i can approach this with as little to and fro as possible . where are we sourcing these expected dividends from along with the forecast earnings ? what makes you trust the source of predictions ? how forward do we look at these projections ? what about risk , debt , tgt market with currency fluct taken into acc. ( not solid on RIN fundies atm but i believe lot of rev from OS ) . i see you are anti housing on other threads and happy to be a renter yet you paradoxically are bullish on a company that relies on this industry . any particular reason for the seemingly contradictory opinions ? i will get into some RIN fundementals when my broker site is back online and we can debate the pros and cons
> 
> 
> .......... bris






gone all quiet on this front . ducking and weaving or what ????


................. bris


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## pacer (30 August 2006)

You bunch of analytical boof heads!.......

Buy if want, sell if you want.........

The graph says long term up.....possible short term down if no offer is made.....

Follow the leaders

There are bound to be quite a few take-over offers on the top 200 within the next 2 months, I wont bother to go short for a few more months on anything...look at Coles!

I could have been sucked in to a short on Coles at the wrong time, but I am a big fan of a reverse position at the first sign of that happening.

History always repeats.......beware the uninformed.

Good luck to all who hold....possibly better luck to those who go short now, as an offer for Rinker HAS NOT BEEN MADE!.......

Getting close to a short possy if you ask me, and see it hit $10-11!!!!!!!

Just my opinion......what do I know?

Recon if it hits $10.80 then it's either a buy (short term) or a sell long term to $8....panic can ruin a company.......don't believe that interest rates wont hit 18% again...they could quite easily.

I'm buying silver myself at the moment......................


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## michael_selway (30 August 2006)

pacer said:
			
		

> You bunch of analytical boof heads!.......
> 
> Buy if want, sell if you want.........
> 
> ...




Forward Terminal PE of 10

Earnings and Dividends Forecast (cents per share) 
2006 2007 2008 2009 
EPS 106.6 122.2 129.6 138.4 
DPS 78.0 42.8 45.3 48.4 

So I value it as about $14 currently

thx

MS


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## pch (31 August 2006)

You appear to be doing a DCF based on EPS growth and I agree with your number based on your assumptions.. ducati916 on the other hard appears to be doing the buffet style DCF method of growing future earnings by growing ROE which *tends* to come out a lot lower.

Having said that, some of my best performers have been cases, both EPS and ROE models suggested it was seriously undervalued and some of my worst have been EPS only DCF valuations. But to then complicate matters, I have had other great performers that would have never come up on either radar 

But to find a buffet style company in the first place that has the sort of ROE he likes filters 90% of the ASX out anyway ;-)


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## ducati916 (31 August 2006)

*et al* 

One size analysis, fundamentally has severe restrictions.

RIN, a building company,
NAB, a bank,
BHP, a mining company,
QBE, an insurance company......etc

All have different business models, and thus different analytical techniques are required. This in essence is why Buffett coined the phrase; *circle of competence* 

Without understanding the business model, you won't understand the elements of analysis to focus on when searching for value.

jog on
d998


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## Realist (31 August 2006)

brisvegas said:
			
		

> Originally Posted by brisvegas
> ok just to clarify couple points so i can approach this with as little to and fro as possible . where are we sourcing these expected dividends from along with the forecast earnings ? what makes you trust the source of predictions ? how forward do we look at these projections ? what about risk , debt , tgt market with currency fluct taken into acc. ( not solid on RIN fundies atm but i believe lot of rev from OS ) . i see you are anti housing on other threads and happy to be a renter yet you paradoxically are bullish on a company that relies on this industry . any particular reason for the seemingly contradictory opinions ? i will get into some RIN fundementals when my broker site is back online and we can debate the pros and cons
> 
> .......... bris




Just use current figures, unless you know different.

I am a housing bear, however if a great house in a great suburb was for sale at a very good discount, hell yeah I'd buy it!! 

RIN is for sale at a cheap price IMHO.

Also I like to diversify.  I have Insurance companies, banks, property, mining etc. even in industries which others deem as poor growth prospects. RIN fits my diversification rule nicely.


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## pch (1 September 2006)

ducati916 said:
			
		

> *et al*
> 
> Without understanding the business model, you won't understand the elements of analysis to focus on when searching for value.
> 
> ...




Funny thing is often management and the board doesn't understand the business model either!


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