Rinker warrant

[Fab]

I believe Rinker will keep on rising and would like to buy a Call warrant on it. Not sure which warrant is the best to play this share. Can anyone advise and give me the reason for their advise.

Cheers

 

[wayneL]

I believe Rinker will keep on rising and would like to buy a Call warrant on it. Not sure which warrant is the best to play this share. Can anyone advise and give me the reason for their advise.

Cheers

I don't think anyone will give you "advise", nor should they. But it might help if you know what time frame you are looking over... i.e. 1 day, 1 week, 1 month, 1 year?.. and what you are wanting to achieve with the trade.

Then folks can give you things to consider.

Cheers

 

[michael_selway]

I believe Rinker will keep on rising and would like to buy a Call warrant on it. Not sure which warrant is the best to play this share. Can anyone advise and give me the reason for their advise.

Cheers

hm u think Rinker will still rise? it rose alot very recently, and P/E is like nearly 20 now, and they havent increased forecasts by much at all

Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 62.8 100.3 123.8 136.6
DPS 21.0 35.0 40.2 44.6

thx

MS

 

[Fab]

Michael,

Fair enough. Can you please explain what a P/E of 20 exactly means? Sorry for my lack of knowledge on these indicators. I was more thinking down the line that Rinker is well placed in the rebuilding of New Orleans.

 

[ice]

Here's the list of what's available.
Pretty clear which one the market favours today (assuming that was mostly buying and not selling).

http://www.asx.com.au/asx/markets/WarrantPricesSearchResults.jsp?DataSet=rin&State=127

I don't follow Rinker so have no view on it myself.


ice

 

[michael_selway]

Michael,

Fair enough. Can you please explain what a P/E of 20 exactly means? Sorry for my lack of knowledge on these indicators. I was more thinking down the line that Rinker is well placed in the rebuilding of New Orleans.

PE = Price Earnings Ratio = Current Price/EPS
EPS = Earnings Per Share = NPAT/total no. of shares in the company
NPAT = Net Profit After Tax

Im sure u know what NPAT is roughly. So why divided by total no. of shares to get EPS? Well think of each share in a company being an "owner". So each year its NPAT has to be split between the no of owners (shares). Thats how they calculate DPS (dividends per share) which is a certain % of EPS (payout ratio) usually.

Ok So for PE, why current price divided by EPS? Well actually its better to look at 1/PE which is the Return On Invetsment (ROI). If u put $100 in the bank, it will earn about $5 interest pa. So this is a ROI of 5% pa. or a PE of 1/0.05 = 20. But money in bank is risk free and pretty much guaranteed

Money in the stock market is not guaranteed any return and has risk. When the economy is bad, thats when the risk is the highest. Others like SARS, Terror Attacks also can affect the share price as well as a lift in interest rates/commodity price etc. Also the company itself, risky/cyclical industries, eg housing boom, high oil prices can affect NPAT.

So generally All Ords average PE shouldnt be 20+, otherwise its not incorporating the "risk premium" of holding money in shares as to money in the bank. Atm All Ords is about 16 average which is ok but definitly not cheap. PE of 15 is a bench mark fair value I think (ROI of 6.66%). One should also look at average PE of the industry/sector

Ok but can one still have a high PE? Yes.

A high PE can be justified by high growth in Forecast EPS

On Comsec Current PE is calculated by:

The current price divided by the average of the last actual earnings per share figure and the projected EPS figure for the next year. The two figures are weighted based on the elapsed time between each period.

We use both forecast and historical EPS to give a more balanced P/E ratio than using either one alone.

This is the most accurate imo as what is past is past, and what lies ahead becomes more important as we get closer to it. Thats why forecasts are very important, because if one does not meet forecasts, price drops, even though it did much better than last yr

Rin year end is 30/03/06 so we are nearly to 2006 forecast EPS of 100c. Current price is $19, so PE is about 19/1 = 19

RIN - Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 62.8 100.3 123.8 136.6
DPS 21.0 35.0 40.2 44.6

EPS(c) PE Growth
Year Ending 30-03-06 100.3 19.0 59.8%
Year Ending 30-03-07 123.8 15.4 23.4%

From Commsec (consensus forecasts)

CONTRIBUTING ANALYSTS
GOLDMAN SACHS JB WERE, J.P. MORGAN, DEUTSCHE BANK SECURITIES, MERRILL LYNCH (INTERNATIONAL RESEARCH), CREDIT SUISSE - AUSTRALIA, MACQUARIE RESEARCH EQUITIES, CITIGROUP, ABN AMRO, UBS

So 2007 forward PE = 19/1.238 = 15.34
So 2008 forward PE = 19/1.366 = 13.90

13.90 is quite high compared to others. This can be lower if they increase forecasts but are they willing to? What happens if they cant make forecasts?

*one also should look at 2009 and 2010 to be more accurate but u would suspect less than 10% = 1.366/1.238, which sucks

Lets compare with TIM

TIM - Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 21.1 25.3 28.8 32.5
DPS 7.8 9.1 11.6 13.6

EPS(c) PE Growth
Year Ending 30-09-06 25.3 13.8 20.1%
Year Ending 30-09-07 28.8 12.1 13.8%

So 2007 forward PE = 3.5/0.288 = 12.15
So 2008 forward PE = 3.5/0.325 = 10.77

Cleary 10.77 is cheaper than 13.90 by quite a bit, assuming forecasts in fact come true. Not only that, but TIM's 2009 and 2010 growth in EPS will be a higher % than RIN one suspects.

One thing about RIN is the whole Hurricane Katrina thing in New Orleans. But read below...isnt New Orleans is in the state of Louisiana! Anyway maybe Hurricane Larry might boost RIN's NPAT by a bit?

The strategy of RIN is to grow its asset base in North America. Currently 80% of revenue and earnings are derived from the US. RIN has stated it intends to spend US$200m per year on acquisition to further build its market position through consolidating the building materials market across strategic growth states within the US. The core earning driver for RIN comes from the Florida with the other key states being Arizona and Nevada. The combination of these three states represents 70% of revenue. Florida accounted for 52% of US revenues in FY05.

thx

MS