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

[Noddy]

I note that RM hasn't been a fan of IPL but with low debt 12% ROE and Suncorp Value Model at $5.85 and the need for fertilizer increasing as farmers replant all over Australia, maybe its not that bad.

Hello Bunter

I'm interested in finding out what the Suncorp Valuation Model is.
Can you supply any info on it ?
Thanks.

 

[Bunter221]

Hello Bunter

I'm interested in finding out what the Suncorp Valuation Model is.
Can you supply any info on it ?
Thanks.

As I'm just up to Part 2 of RM's book and don't want to jump ahead - I log onto Suncorp Share Trade and its a facilty offered there called Value Model - not available for every single stock but all majors and many minors.

Of course you don't see the maths behind it but it doesnt use price and takes into account the following: Book V/S $2.22, Discount Rate 11.36%, Div Payout Ratio 43%, 1st year forecast EPS $0.30, 2nd year forecast EPS $0.327, Long Term EPS growth rate 23.7%, Long Term industry average return on Equity 18.5% calculates to $5.85.

Need someone to reverse engineer it!
e=sthere

 

[Bunter221]

I think both ACR and CCP are worthy of further investigation.

Has anyone looked into the SFH? big ROE, little debt. Apart from the general retail slow down, is this good value investment material?

ACR on Suncorp Value Model was $1.33 and CCP was not available - that's the limitations I guess when you can't put any company into the evaluating system.

 

[Noddy]

As I'm just up to Part 2 of RM's book and don't want to jump ahead - I log onto Suncorp Share Trade and its a facilty offered there called Value Model - not available for every single stock but all majors and many minors.

Of course you don't see the maths behind it but it doesnt use price and takes into account the following: Book V/S $2.22, Discount Rate 11.36%, Div Payout Ratio 43%, 1st year forecast EPS $0.30, 2nd year forecast EPS $0.327, Long Term EPS growth rate 23.7%, Long Term industry average return on Equity 18.5% calculates to $5.85.

Need someone to reverse engineer it!
e=sthere

Had a look at the Suncorp website, and they appear to be using data from Aspect Huntly (same as commsec), but with a price (valuation) target that commsec doesn't offer. If interested, you can recieve free use for 1 month of the Aspect Huntly website operating under the name of Morningstar. They even send you a weekly bulletin mailed to your home for the month's trial all at no cost.

Suncorp's trading offer is $2 per buy or sell dearer than commsec. Thought commsec's deal at $19.95 a time was dear enough, but all the other banks appear to be even more expensive. Much cheaper to trade in shares in the U.S.

 

[titus]

Hi all

This thread is great and I thank you for all the help. I need some guidance as to which NPAT figure you use in your IV calcs. Do you use NPAT before abnormals or NPAT after abnormals? In most of the cases they are the same but for some companies I've come across they differ (which as we know, can significantly change the IV result).

Can anyone help? Appreciate if you can.

Titus.

 

[Noddy]

Hi all

This thread is great and I thank you for all the help. I need some guidance as to which NPAT figure you use in your IV calcs. Do you use NPAT before abnormals or NPAT after abnormals? In most of the cases they are the same but for some companies I've come across they differ (which as we know, can significantly change the IV result).

Can anyone help? Appreciate if you can.

Titus.

I always use NPAT before abnormals. I assume most people use that as it gives a clearer picture of the company's trading. Abnormals should only happen once, or they are not abnormal.

 

[Noddy]

Readers of this thread may be interested in a website -
www.moneychimp.com
It gives a number of ways to value shares, including a calculation for Buffet's "secret formula" and lots of other interesting information on valuations etc.

 

[McCoy Pauley]

Looks like Roger has decided to get off the couch and start up a new funds management. He's opened a new funds management caper with a minimum investment level of $1 million. Presumably he'll use the same techniques as he's evangelised about in his book.

 

[titus]

I always use NPAT before abnormals. I assume most people use that as it gives a clearer picture of the company's trading. Abnormals should only happen once, or they are not abnormal.

Cheers Noddy, that's what I thought. It's good to have that reassurance.

 

[MrBoJangles]

Personally, I love RM's whole philosophy and blog site and book, BUT I'm not exactly a fan of the MQRs - A1 to C5 is too broad a range IMO to be really useful - and I think you need something a bit more coarse.
On my web-based Roger's Tool site (Intrinsic Value),
tdserver2.com/cgi-bin/start.cgi/apps/bourse/login1.htm
Login: demo P/W: demo
I have devised a simpler MQR variant which results in a MQR equivalent 0-5

The inputs for this Quality Rating are:
____________________________________________
Quality of the Company Management:
poor 0 1 2 3 4 5 excelent

Amount of Debt:
poor 0 1 2 3 4 5 excelent

Future Prospects:
poor 0 1 2 3 4 5 excelent

Consistent Good Growth:
poor 0 1 2 3 4 5 excelent

Immunity from Competition:
poor 0 1 2 3 4 5 excelent
___________________________________________

Regards,
Mr Bo

The way he grades his companies is a big mystery.
He has stated however that his grades are based solely on their risk of a 'liquidity event' such as a need to raise capital, liquidate, raise debt, inability to pay off interest. But I personally think he is hiding a 'lot' more.

I remember that he also mentioned that the digits 1-5 are based on discount to IV on a video on the sky business channel about a year ago (cant find it anymore unfortunately) where 1 represents the largest discounts to IV and an A symbolises little to no risk of a liquidity event (which can of course change IV), thus an A1 stock is worth the most consideration. But that is definitely contradictory, following his blog you will notice a lot of A1 companies are not trading at large discounts to IV, some might even be at a premium. So I dont really know what to believe anymore.

A1-A2 stocks dont always have the lowest RRs either and its quite hard to find a lot of common ground. I do know that A1-A2 MQR companies usually have shown consistently high financial performance (ROEs of 25% or more), have very little debt or very strong cashflow and have generally sound competitive advantages (not all, for example NCK I dont see a strong competitive advantage). Which quite matches the risk of liquidity event that he mentions. I think its a combination of the above.
Hope that helps.

 

[So_Cynical]

I think there is some scope for someone to build a site offering punters the ability to simply type in a ticker code and select a valuation model from like a drop down or something and bingo...maybe even have user defined inputs from several menus so punters could create custom valuations.

 

[MrBoJangles]

I think there is some scope for someone to build a site offering punters the ability to simply type in a ticker code and select a valuation model from like a drop down or something and bingo...maybe even have user defined inputs from several menus so punters could create custom valuations.

Agreed.

 

[Bunter221]

Personally, I love RM's whole philosophy and blog site and book, BUT I'm not exactly a fan of the MQRs - A1 to C5 is too broad a range IMO to be really useful - and I think you need something a bit more coarse.
On my web-based Roger's Tool site (Intrinsic Value),
tdserver2.com/cgi-bin/start.cgi/apps/bourse/login1.htm
Login: demo P/W: demo
I have devised a simpler MQR variant which results in a MQR equivalent 0-5

The inputs for this Quality Rating are:
____________________________________________
Quality of the Company Management:
poor 0 1 2 3 4 5 excelent

Amount of Debt:
poor 0 1 2 3 4 5 excelent

Future Prospects:
poor 0 1 2 3 4 5 excelent

Consistent Good Growth:
poor 0 1 2 3 4 5 excelent

Immunity from Competition:
poor 0 1 2 3 4 5 excelent
___________________________________________

Regards,
Mr Bo

Hi Mr Bo
Appreciate the excellent work you have done there on the website. Is the idea to input data for a company you are interested in and then this is held on site for others to view and correct if we make a mistake and for our future use or do you correct it we err?

 

[MrBoJangles]

Hi Mr Bo
Appreciate the excellent work you have done there on the website. Is the idea to input data for a company you are interested in and then this is held on site for others to view and correct if we make a mistake and for our future use or do you correct it we err?

Well, I'm no Roger, so I won't be correcting anyone's entries.
The 'Demo' entry is the 'sandbox' for anyone to play in - if you want your own private area, just use the Menu option to the left and I'll set that up for you.

I have thought I may add an option whereby, once in your own private area, you'd have an option to 'copy' one of the stock records you had set up, to the 'public' demo area. But I may just wait for user suggestions before making tweaks and enhancements.

Mr Bo

 

[Bunter221]

Well, I'm no Roger, so I won't be correcting anyone's entries.
The 'Demo' entry is the 'sandbox' for anyone to play in - if you want your own private area, just use the Menu option to the left and I'll set that up for you.

I have thought I may add an option whereby, once in your own private area, you'd have an option to 'copy' one of the stock records you had set up, to the 'public' demo area. But I may just wait for user suggestions before making tweaks and enhancements.

Mr Bo

Thanks Mr Bo created my own space and logged in however that area is missing the titles over the boxes Equity per Share etc Current Price etc. If its not too much trouble!
Also I am happy to be able to send stocks to the general area!

Now advertise on your site with Google and generate some revenue form hits!

 

[verati6]

Hello all,

Since you are all working out the intrinsic value of stocks, and coming up with different values, either through different methods or different inputs, I have been trying to put together an excel spreadsheet that will do this all for me rather than doing it by hand. The problem is I am not 100% sure that it is correct. I just changed the ROE so it was calculated from the average of the BOY Equity and the EOY Equity so thanks for that point ubtheboss.

If any one is interest by all means take a look, run your numbers though to see what you get, any suggestions will also be appreciated.

Not sure if you are still following this thread, Keegan, but if you are, would you mind answering the following about your valuation model:

Why do you use BOY equity (Cell E23) to calculate your Forecast ROE for the second year in the series (Cell E26)? Is this a mistake or is there a reason for using BOY equity as opposed to the Average Equity?

Great model, nevertheless - a clever 'live' integration with the Valuation tables.

 

[Bunter221]

I own RMD and used a valuation from Suncorp that shows $8.04 it has no debt 14.8% ROE but when I do IV I get a really low result of $1.98. This is a big difference and I know they are not same thing but! Have I made an error?

 

[LiL_JaSoN]

How are you guys finding this book?

Iv been following Roger's videos and they seem interesting.

 

[Bunter221]

How are you guys finding this book?

Iv been following Roger's videos and they seem interesting.

Its a very enlightening read - will change the way you think about companies and investing in them.

 

[LiL_JaSoN]

Nice, i might buy the book..

Just looking at others review before i decide if it's worth it