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

[Intrinsic Value]

RM did have a competition going a year or two ago with some other fund managers and he significantly outperformed them. I think it was over a 6 month time frame. It should be on record somewhere.

Re Silverlake he let that one slip out a few weeks back on your money your call.

Interestingly enough last night he never mentioned MCE which he had been spruiking a lot in the past. In fact even thou the share price is around 5.50 he didn't reveal that he bought any last week when the market was really down. He did deploy a lot of capital and revealed that he bought ANZ,CBA,WOW,FGE, G Engineering, JBHIFI that is all I can recall at the moment. Said he is still sitting on 70 percent cash.

 

[notting]

He won that competition using Dogs of the Dow stratergy!!!

 

[Intrinsic Value]

He won that competition using Dogs of the Dow stratergy!!!

I don't know what stocks he invested in never paid much attention just saw the results.

Where they all high yield stocks?

Even if they were he still signifcantly outperformed his competitors.

 

[McCoy Pauley]

Anyone care to take a look at ACR's numbers released this morning? I'm stymied by the fact that ACR paid a special dividend of $100 million in the financial year just completed, which is well in excess of ACR's actual NPAT and which had a big effect on the ACR's equity. Flat-chat at work and just can't find the time to work through the ramifications of whether to strip out the special dividend (and hence have a dividend payout ratio of 0%) or to account for it in some other way.

 

[skc]

Anyone care to take a look at ACR's numbers released this morning? I'm stymied by the fact that ACR paid a special dividend of $100 million in the financial year just completed, which is well in excess of ACR's actual NPAT and which had a big effect on the ACR's equity. Flat-chat at work and just can't find the time to work through the ramifications of whether to strip out the special dividend (and hence have a dividend payout ratio of 0%) or to account for it in some other way.

That's an one-off milestone payment from their partner. It's not recurring. You will overvalue them by several orders of magnitude if you include that figure.

 

[Rau]

Sonic Healthcare (SHL)

Hello all - my first post!

Has anyone done an intrinsic value calc for SHL?

My 2012 values are coming out surprisingly low, and wondering if I've stuffed something? I've used 2011 actuals plus Forecast Data from a Commonwealth Private broker report:

2012 Equity/Share: $6.63
2012 EPS / DPS: $0.794 / 0.618
2011 Equity/Share: $6.47
Required Return: 10%

[I note consensus EPS/DPS figures are a little higher, but doesn't change result much.]

So, Forecast ROE is 12% giving an intrinsic value of $8.46. [Note that I'm using the underlying formulae to evaluate Roger's tables 11.1 and 11.2 rather than table lookup - but using the tables gets similarly lower IVs]

Brokers typically have SHL as Hold or Buy and it currently trades over $11.

Only explanation I can think of is our high exchange rate. SHL has significant overseas earnings which are depressed on translation to A$. Is that an explanation for the low value? If/when the $A falls, earnings will rise and value would go up with it. Does that sound reasonable?

 

[notting]

Are we going to see a Roger Montgomery A1 stock collapse after the MCE tradgedy today?

 

[notting]

Are we going to see a Roger Montgomery A1 stock collapse after the MCE tradgedy today?

I should have remained suspicious after he went around saying his hard back book was going to be a one off print not to be repeated.
As soon as he sold all the copies that he asked people to pre-order, the paperback edition was announced!!

 

[ROE]

You can't blame him.

He's out to make money like anyone else and if he has to spruik a few stocks to sell a few books he will

I dont think he did anything wrong, it's the people who chose to listen to him and not doing proper home work.

Like I said many times before he's good at selling old ideas and make it fashionable.

If there is such a formula to make money well would he be spruiking his book?
his best formular ever was to sell the books ...that a 100% guarantee return on investment

If you want to know a bit about his personality, read up on CCP debacle ...he spruik it on the way to glory
but on the way down he blame management for misleading him .... nothing sticks .... I take credit for stuff going up...I blame someone else for it when stocks fall ....

 

[notting]

You can pretty much come away from any managemnts presentation thinking you have found a cracker of a stock. If Roger can't read between the lines then he shouldn't be doing what he's doing!
Unless he doesn't care about ruining peoples lives which would make him a low life.
Personally it's hardly an issue I made money on MCE going up and will again, there's plenty of work around and it should get another contract after it has finished tanking.
My concern is that this spuiker has walked onto the scene, putting incredably low valuations on things compared to other consensus valuations to then call out a few exceptions to make them look like absolute boomers to the unsuspecting.
You are supposed to think, 'Wow this guy is smart, super conservative, when he calls an undervalied stock it has to a cracker!'
When he called Lynas at $8 or what ever it was that was : to say the least.
Spotlights on you Roger!

 

[drlog]

You can pretty much come away from any managemnts presentation thinking you have found a cracker of a stock. If Roger can't read between the lines then he shouldn't be doing what he's doing!
Unless he doesn't care about ruining peoples lives which would make him a low life.
Personally it's hardly an issue I made money on MCE going up and will again, there's plenty of work around and it should get another contract after it has finished tanking.
My concern is that this spuiker has walked onto the scene, putting incredably low valuations on things compared to other consensus valuations to then call out a few exceptions to make them look like absolute boomers to the unsuspecting.
When he called Lynas at $8 or what ever it was that was : to say the least.
Spotlights on you Roger!

That price on Lynas has many caveats. They must ramp up their LAMP plant in Malaysia (which has a few question marks around it) and the price of rare earths must stay high. Roger made it clear that the $8 IV will only happen if everything goes to plan. Therein lies the risk (and hence why the share price hasn't gone up). I think LYC will succeed but not in the time frame they provide. I don't base this on much to be honest. I just know how difficult chemical processes like that can be. Once LAMP starts, I doubt it will be instant lollipops and red wine (or perhaps I should say ipods and hybrid cars?).

As for MCE, I think there is a buying opportunity right now. However, my holding is already large enough.

Disclaimer: I hold both MCE and LYC.

 

[notting]

If you are prepared to blatantly and publicly bullsh!t people to sell a book it's a red light about integrety. You'll not find that characteristic in people like Buffet and Jim Rogers. They have more vision, depth and consequent endurance - character!
Pretty important when it comes to trusting someone with your life savings, you'd think

 

[waimate01]

Re: Sonic Healthcare (SHL)

Hello all - my first post!

Has anyone done an intrinsic value calc for SHL?

My 2012 values are coming out surprisingly low, and wondering if I've stuffed something? I've used 2011 actuals plus Forecast Data from a Commonwealth Private broker report:

2012 Equity/Share: $6.63
2012 EPS / DPS: $0.794 / 0.618
2011 Equity/Share: $6.47
Required Return: 10%

[I note consensus EPS/DPS figures are a little higher, but doesn't change result much.]

So, Forecast ROE is 12% giving an intrinsic value of $8.46. [Note that I'm using the underlying formulae to evaluate Roger's tables 11.1 and 11.2 rather than table lookup - but using the tables gets similarly lower IVs]

Brokers typically have SHL as Hold or Buy and it currently trades over $11.

Only explanation I can think of is our high exchange rate. SHL has significant overseas earnings which are depressed on translation to A$. Is that an explanation for the low value? If/when the $A falls, earnings will rise and value would go up with it. Does that sound reasonable?

Using the underlying formulas, but with a couple of differences (TTM figures rather than prospective), I come up with a similarly low 'valuation'. The formulas used in Roger's book frequently come up with wildly offbeat results (try CSR, WOW, WPL, CPB or a host of others). They're overly simplistic and I think their goal is just to whet your appetite and drive you over to MyClime.

However, you *can* take the notions espoused in Roger's book (which, to be clear, were not originated by him) and apply your own methods based on similar principles. For example, I apply a growth factor to dividends based on the minimum of recent history and future projections, discount that for an assumed inflation rate, apply a NPV and assume they will peter out after a certain number of years. That gives me the current value of future dividend flows. I also take the Book Value and grow it based on minimum of past and prospective EPS Growth, apply a discount factor and add that. Same key idea as Roger's formulas, just a bit more fancy. Anyway, after applying my 'secret sauce', I get a SHL valuation of $14.23, which is just under the high end of the broker recommendations.

 

[Intrinsic Value]

He does have to take some responsibility for the heavy spruiking of MCE especially when it was very high like around 8 dollars and he was still lauding its praises everywhere.

With all the spruiking he then says that his fund only held 1 percent in MCE.

It only had a couple of years of results so people should have been cautious of it from the beginning and RM should have been a bit more restrained in his enthusiasm for this stock.

I bought in at 4 dollars and would have sold but was waiting for the year so I didnt have to pay so much tax...ouch

Hopefully they will win some more contracts soon otherwise the share price might really tank.

 

[McLovin]

I wonder if he will postpone launching his rating tool. In light of the MCE result, how could you have any faith in a black box system that calls something an A2 one week and then next week "cannot currently be valued as a going concern any more confidently than I can a speculative exploration company".

 

[skc]

Everyone makes bad calls but the bad ones stick around longer that's for sure.

I am not that familiar with Roger's calls but the recent duds I know of are MCE, FGE, DCG, ZGL.

Are there other duds?

What about the good calls?

VOC? Others?

 

[Intrinsic Value]

Everyone makes bad calls but the bad ones stick around longer that's for sure.

I am not that familiar with Roger's calls but the recent duds I know of are MCE, FGE, DCG, ZGL.

Are there other duds?

What about the good calls?

VOC? Others?

ZGL is in there but FGE and MCE if you had of sold when they were high and bought when he first spruiked them you would have done pretty well. FGE is still good i reckon but I bought in at 2 dollars and 3 dollars sold some but still holding quite a few.

 

[grug]

I wonder if he will postpone launching his rating tool. In light of the MCE result, how could you have any faith in a black box system that calls something an A2 one week and then next week "cannot currently be valued as a going concern any more confidently than I can a speculative exploration company".

To be fair, the A1-C2 rating system has, and never has had, anything to do with the value of the SP of the company. It's a system that RM devised for defining the risk associated with something 'catastrophic' happening to the company itself - not the company's SP.

Yes, MCE has moved from an 'A1' to an 'A2' as of the last AR, although RM seems to be at pains to emphasise that this is still a relatively high rating. He states this in exactly the same place he writes "cannot currently be valued as a going concern any more confidently than I can a speculative exploration company", again distinguishing between the rating system and the value of the SP (or lack thereof). (I also think RM made a bit of a typo here as his sentence doesn't actually make sense!)

He's also been pretty clear about not investing in MCE even in light of the recent SP falls, and has also revealed only 1% of his capital is actually invested. These aren't new facts, they've been up there for months. I knew it before I invested this week - still struggling to figure why knowing this I still didn't do more of my own research!

I think his initial 'spruiking' of the company back in 2010/early 2011 became something that was perpetuated by RM followers. RM may have continued to talk about this as an 'A1' company, even recently, but has been - in my opinion - pretty clear about value or potential lack thereof here.

And just to confuse it even more - my understanding is that RM's 'A1 service' gives you both the A1-C3 rating of a company and the calculated IV of the company. It certainly will be interesting to see if the launch is still this month.

 

[Intrinsic Value]

To be fair, the A1-C2 rating system has, and never has had, anything to do with the value of the SP of the company. It's a system that RM devised for defining the risk associated with something 'catastrophic' happening to the company itself - not the company's SP.

Yes, MCE has moved from an 'A1' to an 'A2' as of the last AR, although RM seems to be at pains to emphasise that this is still a relatively high rating. He states this in exactly the same place he writes "cannot currently be valued as a going concern any more confidently than I can a speculative exploration company", again distinguishing between the rating system and the value of the SP (or lack thereof). (I also think RM made a bit of a typo here as his sentence doesn't actually make sense!)

He's also been pretty clear about not investing in MCE even in light of the recent SP falls, and has also revealed only 1% of his capital is actually invested. These aren't new facts, they've been up there for months. I knew it before I invested this week - still struggling to figure why knowing this I still didn't do more of my own research!

I think his initial 'spruiking' of the company back in 2010/early 2011 became something that was perpetuated by RM followers. RM may have continued to talk about this as an 'A1' company, even recently, but has been - in my opinion - pretty clear about value or potential lack thereof here.

And just to confuse it even more - my understanding is that RM's 'A1 service' gives you both the A1-C3 rating of a company and the calculated IV of the company. It certainly will be interesting to see if the launch is still this month.

I have defended RM on this blog before but in regards to MCE I really think he has to bear some responsibility for the hype he created around this stock.

He didn't put enough emphasis on the risk associated with this company , the lack of historical data for the company, and although he may have mentioned he only put a minuscule amount of his portfolio in it that too was not significantly reported.

 

[McLovin]

To be fair, the A1-C2 rating system has, and never has had, anything to do with the value of the SP of the company. It's a system that RM devised for defining the risk associated with something 'catastrophic' happening to the company itself - not the company's SP.

I thought the number rating gave some indication as to future prospects. Or is it just a simple ratio analysis that generates the rating? Either way I'm not sure that a lumpy contracting business in the mining sector could ever be considered the least at risk of a "catastrophic" event, just by the nature of the business.

Yes, MCE has moved from an 'A1' to an 'A2' as of the last AR, although RM seems to be at pains to emphasise that this is still a relatively high rating. He states this in exactly the same place he writes "cannot currently be valued as a going concern any more confidently than I can a speculative exploration company", again distinguishing between the rating system and the value of the SP (or lack thereof). (I also think RM made a bit of a typo here as his sentence doesn't actually make sense!)

Again it comes back to the same issue, how can you rate a company as the least riskiest, but consider its earnings visibility to be the same as a 2c explorer? I'm not questioning the actual valuation, I'm questioning the wisdom in placing the top rating on a contracting business in a volatile industry. It's almost like he is giving a credit rating, which is marginally useful when taking equity risk, IMO.