Australian (ASX) Stock Market Forum

Students of Roger Montgomery's (Buffett's) intrinsic valuation method

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Actually kermit for NPAT I was using EPS x #Shares, but now I see in the balance sheet that that gives 'Net Profit before abnormals' which is a higher figure than the NPAT they give. What have you been doing for NPAT? Plugging that figure in I get:

Code: FGE
Price: 6.50

INPUT:
............ EqPS .. Shares ... DPS ... EPS ... RR
Next Yr .. 1.56 .. 78.80 ... 0.090 .. 0.456 .. 12
Curr Yr ... 1.19 .. 78.80 ... 0.070 .. 0.397 .. 12
Prior Yr ... 0.71 .. 68.30

OUTPUT:
............. IV: .... ROE .. NPAT .. POR
Next Yr .. 8.56 ... 33 .. 35.93 .. 20%
Curr Yr ... 9.67 ... 41 .. 29.50 .. 18%

Re ROE query I use RM's formula of NPAT/ Avge of Curr and Prior Yr Equity.
 
And entering NPAT the same way from the balance sheet for MML (and using RR of 14) I get the following now:

Code: MML
Price: 7.16

INPUT:
............ EqPS .. Shares ... DPS ... EPS ... RR
Next Yr .. 1.53 .. 187.50 ... 0.123 .. 0.554 .. 14
Curr Yr ... 1.10 .. 187.50 ... 0.059 .. 0.442 .. 14
Prior Yr ... 0.71 .. 185.60

OUTPUT:
............. IV: .... ROE .. NPAT .. POR
Next Yr .. 9.62 ... 42 .. 103.88 .. 22%
Curr Yr ... 8.59 .... 46 .. 77.20 .. 13%
 
For FGE, I'd be interested in what others get too as like RogueTrader I get a falling IV from 2010 to 2011.

My figures are basically the same as RT's but I am using:
2010: NPAT = 31 (off Commsec 's Net Profit before abnormals figure). This in turns increases the ROE, EPS and EqPS figures from RT's output figures
2011: NPAT = 39 (estimated from the half yearly report. They reported half yr profit as $20m so I added 20 to the original projected half yr of 19). Also, shares outstanding = 82.8m (as per the half yearly report, up from 78.8m) and dividends = 9c per share (in the half yearly report they paid 5c per share in the half year plus they announced an upcoming 4c per share).

I calc my ROE the same as RT's i.e. NPAT/(av Equity). However for the lookup ROE figure for the table, I round down to the nearest 2.5% (e.g. ROE of 44% gets a ROE lookup table value of 42.5%)

So my IVs, using 12% RR are 2010: $10.19 and 2011:$9.53. If someone gets anything drastically different than I'd be interested in how as it probably means I screwed it along the way :confused:
 
I think the important thing you guys may be missing is that for 2010 using average equity may not be suitable. This is because ending equity is quite a big larger than beginning equity...and as such a higher estimate of equity may be suitable.

Even after doubling my POR for 2011 (I dont think it will double but may come close..and plus POR wont stay low for ever...so you must factor this into your valuation ) I still get a 20% increase in forecast IV.
 
RogueTrader273 said:
And entering NPAT the same way from the balance sheet for MML (and using RR of 14) I get the following now:

Code: MML
Price: 7.16

INPUT:
............ EqPS .. Shares ... DPS ... EPS ... RR
Next Yr .. 1.53 .. 187.50 ... 0.123 .. 0.554 .. 14
Curr Yr ... 1.10 .. 187.50 ... 0.059 .. 0.442 .. 14
Prior Yr ... 0.71 .. 185.60


OUTPUT:
............. IV: .... ROE .. NPAT .. POR
Next Yr .. 9.62 ... 42 .. 103.88 .. 22%
Curr Yr ... 8.59 .... 46 .. 77.20 .. 13%
Click to expand...



Hi, Just wanted to query your prior year book value of 71c is at June 2009, 1.10 is at June 2010, if we are calculating for (current year) June 2011, should the prior year starting point be 1.10, sorry I am a bit confused. Many thanks for the calculator it has been a great help.
 
cm5762 said:
Hi, Just wanted to query your prior year book value of 71c is at June 2009, 1.10 is at June 2010, if we are calculating for (current year) June 2011, should the prior year starting point be 1.10, sorry I am a bit confused. Many thanks for the calculator it has been a great help.
Click to expand...

Hi cm, maybe one of the valuation experts here could answer that, I'm mainly a spreadsheet guy new to valuing coy's, so don't take any results you get from my sheet as gospel.
 
I was looking at RMs blog today and noticed he had his IV for FGE this year which is around 7.35 which is about the same as i get and also for MCE it is around the same as I get as well.

BTW Their margins of safety are quite thin now. 13percent for FGE and 8 percent for Matrix.

He is also has another couple of new stocks, CDA and ZGL which might be worth a look.
 
Intrinsic Value said:
He is also has another couple of new stocks, CDA and ZGL which might be worth a look.
Click to expand...

Ah, the power of RM! I see both stocks are up considerably this morning especially CDA.

Intrinsic Value, are you able to share your input values for FGE to get a 2011 IV of $7.35? I still get mine around $9.53 and I'm thinking I may need to increase my POR a little (I currently have it at around 19%)

Cheers
 
Has anyone here read Brian Mcniven's book on value investing?
It was published long before RM's book...and if you read Brian's you will find it hard to see that RM hasn't just copied the book but simply marketed it a hell of a lot better...

Whilst RM is viewed as a god by many of his 'students' and blog participants...it is important to remember that everyone must do their own research...by building up the image that he has..all he has to do now is buy a stock then recommend it...and he can make an easy 10 - 30% in a day...

Im not dissing RM, but what I am saying is that too many people appear to be blindly following what he says, which is largely due to how he has gone about marketing himself and his methods...
To get an alternative view check out what happened with RM and how he had a falling out with Clime Capital...a lot of bridges burnt there and definitely another side to the story!
 
titus said:
Ah, the power of RM! I see both stocks are up considerably this morning especially CDA.

Intrinsic Value, are you able to share your input values for FGE to get a 2011 IV of $7.35? I still get mine around $9.53 and I'm thinking I may need to increase my POR a little (I currently have it at around 19%)

Cheers
Click to expand...

I get 9.01 for next year.
 
VSntchr said:
Has anyone here read Brian Mcniven's book on value investing?
It was published long before RM's book...and if you read Brian's you will find it hard to see that RM hasn't just copied the book but simply marketed it a hell of a lot better...

Whilst RM is viewed as a god by many of his 'students' and blog participants...it is important to remember that everyone must do their own research...by building up the image that he has..all he has to do now is buy a stock then recommend it...and he can make an easy 10 - 30% in a day...

Im not dissing RM, but what I am saying is that too many people appear to be blindly following what he says, which is largely due to how he has gone about marketing himself and his methods...
To get an alternative view check out what happened with RM and how he had a falling out with Clime Capital...a lot of bridges burnt there and definitely another side to the story!
Click to expand...

You are sort of right but the good thing about RM is that he has reached a whole new audience that now are starting to think more seriously about their investment strategies.
Most people would never have heard of value investing if there wasn't a RM type character to spruik it.

In the long term what RM says will have little effect on the share price. Yeah you might get a spike in short term but the fundamentals will eventually dictate the price.
 
Hi everyone,

I'm an 18 year old student studying medicine and tried to calculate my first IV last night, after reading Roger Montgomery's book - I ended up with a value close to $119 for BHP. Could anyone please confirm this?

Values used from report released by southern cross equities:

Shares on Issue: 5.52E+09
Equity 7.93E+10
roe 39
equity per share 14.37481884

The value did seem very far off, so I tried again with RIO and got something insane again (close to $200). I then tried wtih a few other companies and started getting pretty decent values, so I'm quite confident my methodology is correct. Also, my IV for FFF is 16c (now trading at 5.9c), and using the same method, my IV for WPL is well below its current trading price. The current multipliers I'm using are the ones from Roger's book. Comments/criticism appreciated - is there any way I can improve my method?

HOLDING: AUT, RIO, SXY and WPL
 
isplicer said:
Hi everyone,

I'm an 18 year old student studying medicine and tried to calculate my first IV last night, after reading Roger Montgomery's book - I ended up with a value close to $119 for BHP. Could anyone please confirm this?

Values used from report released by southern cross equities:

Shares on Issue: 5.52E+09
Equity 7.93E+10
roe 39
equity per share 14.37481884

The value did seem very far off, so I tried again with RIO and got something insane again (close to $200). I then tried wtih a few other companies and started getting pretty decent values, so I'm quite confident my methodology is correct. Also, my IV for FFF is 16c (now trading at 5.9c), and using the same method, my IV for WPL is well below its current trading price. The current multipliers I'm using are the ones from Roger's book. Comments/criticism appreciated - is there any way I can improve my method?

HOLDING: AUT, RIO, SXY and WPL
Click to expand...

I am by no means experienced in RM's IVs either but BHP was one company I did try out. I have a 2010 IV of $36.75 but that was based on the FY 2010 figures and not on the H12011 update. My inputs are different from yours (I get my figures from Commsec). These are my inputs (the first 4 figures are in millions):
BOY Equity = 49240
EOY Equity = 56934
Shares on Issue = 5589
NPAT = 14629
DPS = 102.2c
RR = 12%

This gives an ROE of about 27%, a EPS of around 262c and a POR of around 40%.

I haven't looked at the actual financial statements to confirm whether the Commsec figures are correct.

Hope that helps.
 
Thanks a lot titus, your post was very helpful.

I'm pretty sure you've used a different methodology to what I used - I just got the forecasted equity and divided it by the number of shares to find the equity per share. I used the forecasted ROE as well, which is 39.2% (I think that's where our calculations differed the most - I got my data from SCE research). Then I just consulted Roger's table for 10% return, and applied the multipliers whilst taking into account the payout ratio. We used the same equity (approx).

I notice that you generated your own ROE, and used NPAT and DPS in your calculations, none of which I've considered. Could you (or anyone else) please provide some input regarding how I should change my calculating method? I feel my current one (the exact method provided in the book) is a bit simplistic. I realise that I'm a beginner but I'm very keen to learn!
 
isplicer said:
Thanks a lot titus, your post was very helpful.

I'm pretty sure you've used a different methodology to what I used - I just got the forecasted equity and divided it by the number of shares to find the equity per share. I used the forecasted ROE as well, which is 39.2% (I think that's where our calculations differed the most - I got my data from SCE research). Then I just consulted Roger's table for 10% return, and applied the multipliers whilst taking into account the payout ratio. We used the same equity (approx).

I notice that you generated your own ROE, and used NPAT and DPS in your calculations, none of which I've considered. Could you (or anyone else) please provide some input regarding how I should change my calculating method? I feel my current one (the exact method provided in the book) is a bit simplistic. I realise that I'm a beginner but I'm very keen to learn!
Click to expand...

Hi isplicer
Yes, my ROE, EPS and POR are calculated values derived from the 6 inputs. My formula pretty much follows Ch11 of RM's book. My ROE formula is NPAT/av Equity where av Equity = (BOY Equity + EOY Equity)/2. Others use EOY only or BOY only or even a more weighted Equity for more accuracy. By all means use the analysts' calculated ROE as an input but as RM said in his book, the given ROE may not be the same calculation as RM prefers (using av Equity as the denominator). I think RM goes through a step by step working example in Ch11 using JB HiFi.

You may find the following link helpful in finding what I follow in using what inputs to use:
http://blog.rogermontgomery.com/how-do-your-value-able-valuations-compare/#comment-6865

For forecast IVs for future years, I use the same 6 inputs but instead of using declared figures off the annual report, you have to use forecast analysts' figures and best estimates. This may help you:
http://blog.rogermontgomery.com/how-do-value-able-graduates-calculate-forecast-valuations-2/
Cheers
 
Im curious as to why there are so many IV variations,
with my calcs and a 10%RR, for FGE I get $9.96 and $9.67 for next year.

MCE $19.22 and $13.03 for next year.
Not sure why its value dropped, i think the forecast profit yet raising equity may have something to do with it.
 
I get the following using Etrade data, please let me know if any of
my calcs look wrong:

Code: BHP
Price: 44.76

INPUT:
........ EqPS .. Shares ... DPS ... EPS ... RR
2012 17.28 .. 5589.50 ... 1.075 .. 5.027 .. 10
2011 13.33 .. 5589.50 ... 0.975 .. 4.117 .. 10
2010 10.19 .. 5589.50 ... 1.021 .. 2.620 .. 10
2009 8.85 .. 5564.40

OUTPUT:
......... IV: .... ROE .. NPAT .. POR
2012 112.13 ... 33 .. 28098.42 .. 21%
2011 108.07 ... 35 .. 23011.97 .. 24%
2010 50.80 .... 28 .. 14927.00 .. 39%

and with an RR of 12:

Code: BHP
Price: 44.76

INPUT:
........ EqPS .. Shares ... DPS ... EPS ... RR
2012 17.28 .. 5589.50 ... 1.075 .. 5.027 .. 12
2011 13.33 .. 5589.50 ... 0.975 .. 4.117 .. 12
2010 10.19 .. 5589.50 ... 1.021 .. 2.620 .. 12
2009 8.85 .. 5564.40

OUTPUT:
......... IV: .... ROE .. NPAT .. POR
2012 82.14 ... 33 .. 28098.42 .. 21%
2011 79.08 ... 35 .. 23011.97 .. 24%
2010 37.85 .... 28 .. 14927.00 .. 39%


And for MCE (just plugging the numbers in, no idea why the POR for 2012 suddenly jumps up) :

Code: MCE
Price: 9.15

INPUT:
........ EqPS .. Shares ... DPS ... EPS ... RR
2012 1.72 .. 70.00 ... 0.211 .. 0.582 .. 10
2011 1.35 .. 70.00 ... 0.070 .. 0.559 .. 10
2010 0.86 .. 70.00 ... 0.040 .. 0.294 .. 10
2009 0.00 .. 64.00

OUTPUT:
......... IV: .... ROE .. NPAT .. POR
2012 18.52 ... 38 .. 40.74 .. 36%
2011 23.02 ... 51 .. 39.13 .. 13%
2010 19.39 .... 60 .. 18.20 .. 14%

and an RR of 12:

Code: MCE
Price: 9.15

INPUT:
........ EqPS .. Shares ... DPS ... EPS ... RR
2012 1.72 .. 70.00 ... 0.211 .. 0.582 .. 12
2011 1.35 .. 70.00 ... 0.070 .. 0.559 .. 12
2010 0.86 .. 70.00 ... 0.040 .. 0.294 .. 12
2009 0.00 .. 64.00

OUTPUT:
......... IV: .... ROE .. NPAT .. POR
2012 13.60 ... 38 .. 40.74 .. 36%
2011 16.68 ... 51 .. 39.13 .. 13%
2010 14.05 .... 60 .. 18.20 .. 14%

New spreadsheet version here: http://www.sendspace.com/file/rmv7sx
 
Hey there Rogue, Your IV's are slightly different to what I get.
Can I ask why you use a RR of 12 and 14????
I find that if I tweak the RR above 10 it makes the IV alot less and unrealistic.
Having said that I then add a Margin of Safety of 25%. I take it your margin of safety is less?
my BHP iv is (with 10% RR)
2012 $113.81
2011 $97.02
2010 $45.26

for MCE iv is:- (10% RR)
2012 $13.03
2011 $19.22
2010 $5.86

Interesting why your MCE values are so much higher.
My data comes from BellDirect which is consistent i know with CommSec and CMC. Not sure about Etrade.
 

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