Australian (ASX) Stock Market Forum

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

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Wondering if anyone out there has computed their own IV for RIO, REF and SFH based off RM's methods? I am playing around and would be interested in comparing.

Regards,

Jason
 
I have RIO forward IV at $106 giving it a 33% MOS.

However I think that it will need every % of that MOS in that I'm not a big fan of iron ore at present.
 
Macros said:
I have RIO forward IV at $106 giving it a 33% MOS.

However I think that it will need every % of that MOS in that I'm not a big fan of iron ore at present.
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BHP is around 50% of its IV, depending what figures and RR used but its not that attractive when you look at its previous comparison of SP vs IV.
Also theres the fact they cant rely on China so much to buy their product.
 
And today is a perfect example of why value investors don't follow day to day price movements. Forge (FGE) Was down as low as 4.5% today, but finished even.

Does an IV of $7.87 sound close to the mark for FGE?
 
InvisbleInvestor said:
And today is a perfect example of why value investors don't follow day to day price movements. Forge (FGE) Was down as low as 4.5% today, but finished even.

Does an IV of $7.87 sound close to the mark for FGE?
Click to expand...
I'm getting $8.26.

2011 est. figures.

IRR 12%
DPS $0.11
EPS $0.479
ROE 35.6%
Weighted Ave Eq: $109mil
NPAT $38.80mil
Weighted Ave Shares 81 mil

I'm new to this kind of valuation, so please let me know if I have gone astray somewhere.
 
Sounds great to me, I was using 13% IRR and didn't have the same inputs as you. I was being quite conservative actually.

Try checking the IV for LEI. I have it in the $27 mark, current SP @ $22.03. Given its not perfectly stable management is this coming up on anyone's radar as value.able?
 
Roger mentioned CSL and FLT recently, from memory i think CSL was around value, but as cheap as its been in a long time and FLT with an IV of $23, currently its down to about $20.

Anyone got any thoughts on these?
 
Using a 10% IRR I'm getting an IV of $19.61 for FLT. Perhaps I'm doing something wrong. In any case, I'm going to have a proper look tonight. Also Webjet trading at a slight premium but in a quick glance seems the more favourable. $0 long term debt for WEB! Now that's nice to see!
 
I haven't included my charts however here are my quick valuations:

FGE - Current = $7.24 // Target = $8.00
FLT - Current = $24.07 // Target = $27.04
LEI - Current = $33.91 // Target = $0 (Too much debt and earnings have been all over the place, wouldn't buy myself)
CSL - Current = $34.64 // Target = $33.80
WEB - Current = $2.26 // Target = $2.20

Forge easily the best value opportunity out of these at the moment if you ask me. If flight centre fell some more, could become a reasonable choice, the other 3 don't interest me much at the moment, particularly LEI.

Note i've only plugged them quickly into my spreadsheet and haven't done a full lookthrough of these companies. So DYOR.
 
kermit345 said:
I haven't included my charts however here are my quick valuations:

FGE - Current = $7.24 // Target = $8.00
FLT - Current = $24.07 // Target = $27.04
LEI - Current = $33.91 // Target = $0 (Too much debt and earnings have been all over the place, wouldn't buy myself)
CSL - Current = $34.64 // Target = $33.80
WEB - Current = $2.26 // Target = $2.20

Forge easily the best value opportunity out of these at the moment if you ask me. If flight centre fell some more, could become a reasonable choice, the other 3 don't interest me much at the moment, particularly LEI.

Note i've only plugged them quickly into my spreadsheet and haven't done a full lookthrough of these companies. So DYOR.
Click to expand...


Would be good to have a bit of discussion about FLT if anyone else is interested...could do it here or on the FLT thread?

I have est. NPAT of 160m for this year (giving ROE of roughly 20%)..and I think a RR of 11% is appropriate...10% is not out of the question for FLT in my opinion..but some of their new ventures are quoted by management to be high risk (and thus low capax so far)...thus why I have adopted 11%..
So with that in mind, I have a value of $18.50 heading towards $20 in 2012...

I really do like FLT so I'm hoping for a severe drop down to ~$15...wishful thinking at this stage!
 
Kermit, or even someone else, can you give me a quick run-down of how you choose which IRR to use?

I posted this in another thread, but haven't had any answers.
 
kermit345 said:
I haven't included my charts however here are my quick valuations:

FGE - Current = $7.24 // Target = $8.00
FLT - Current = $24.07 // Target = $27.04
LEI - Current = $33.91 // Target = $0 (Too much debt and earnings have been all over the place, wouldn't buy myself)
CSL - Current = $34.64 // Target = $33.80
WEB - Current = $2.26 // Target = $2.20

Forge easily the best value opportunity out of these at the moment if you ask me. If flight centre fell some more, could become a reasonable choice, the other 3 don't interest me much at the moment, particularly LEI.

Note i've only plugged them quickly into my spreadsheet and haven't done a full lookthrough of these companies. So DYOR.
Click to expand...

Have you looked at CCP. It is starting to look interesting.

I get an IV of 5.70 for this year and it is trading at 4.40 today.
 
Ves said:
Kermit, or even someone else, can you give me a quick run-down of how you choose which IRR to use?

I posted this in another thread, but haven't had any answers.
Click to expand...

The standard IRR that I use is usually 10%. But having a one size fits all approach is a recipe for disaster. If the business you are looking at doesn't have the strongest management team you may think of increasing it by half a percent, or a full percent. If it has very tolerable debt levels you may think of lowering it half a percent. I'm fairly certain that is the line of thinking you should be on when deciding what IRR to use.

Basically, many people simply use it to make their calculations of IV more or less conservative. As it directly affects the multiper you use it is an easy way of doing just that.

Anyone feel free to correct me.
 
My line of thinking was basically more risk = higher IRR, less risk = lower IRR. You seem to agree with this. Although, I might be a bit more conservative, I have been using 11-13%, especially in this market environment. This also increases the margin of safety.
 
Ves said:
This also increases the margin of safety.
Click to expand...

Just on Margin of Safety, what to people use as their margin. For me its 25%.
I have used 10%RR but now more so like to use 11-12%, still with MoS of 25%.
 
Comparing each others RR is only relevant if the equation we are using is exactly the same. My equation differs to Roger Montgomery's, so even if I say my usual RR is 11%, this may not reflect the same outcome using Roger's valuation method even if all other variable are held constant such as earnings, debt etc etc.

However, for discussions sake, I use an RR of 11% usually as a starting point. You then have to manipulate this based on the risk of the company you are valuing. Higher debt, poor management, minimal competitive advantage, low number of producing assets etc etc all should play on your mind when allocating an RR to a company.

In my calcs above I placed an RR of 11% to FGE and 13% to LEI.

FGE management have done a good job to date besides some minor issues, have minimal debt, contracts still flowing and only small let down is the number of companies entering the industry so competitive advantage starts to diminish.

Then you look at leighton, has reasonable debt, management issues, and that alone is enough for me to put an RR of 13% on it, and i probably could have even increased this to 13.5 or 14%.

Anyway as I said, while comparing RR's does have some minor use, each individuals equation will typically vary and therefore mitigate the value in using someone elses RR.

EDIT: I did have an MOS of 20% in my graphs, recently increased this to a desired 25% just to add that extra conservatism to my approach so that if a company is trading with a MOS of 25% I can be reasonably confident that it will eventually move towards the value so I at least make some profit, even if my valuation is out by say 5-10%.
 

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