myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Thursday, 30 May 2013

Guinness Malaysia is richly valued

Guinness Malaysia

Quarter	Q1 eps	Q2 eps	Q3 eps	Q4 eps	FYE eps
30-Jun-13	18.81	21.90	20.24	0.00	60.95
30/06/2012	18.28	21.79	17.06	11.53	68.66
30/06/2011	12.81	21.40	16.21	9.63	60.05
30/06/2010	8.85	14.50	15.38	11.81	50.54
30/06/2009	15.66	11.48	10.79	9.07	47.00
30-Jun-08	14.27	8.90	12.05	6.45	41.67
30-Jun-07	12.27	8.08	11.23	5.68	37.26
30-Jun-06	12.03	9.90	6.93	13.58	42.44
30-Jun-05	9.70	9.48	7.19	9.37	35.74
30-Jun-04	7.00	11.32	5.89	8.38	32.59

				Sum	476.90
				DPO	101.3%

EPSGR from 2004 to 2012 (Period 8 years) was about 10% (actual is 9.8%).

Historical PE of Guinness (most recent quarters data at the top.)

Quarter	High Pr	Low Pr	ttm-eps	High PE	Low PE
3	20.88	20.50	72.48	28.81	28.28
2	18.88	16.46	69.30	27.24	23.75
1	16.88	16.00	69.19	24.40	23.12
4	16.00	15.10	68.66	23.30	21.99
3	13.62	12.70	66.76	20.40	19.02
2	13.80	12.80	65.91	20.94	19.42
1	13.50	11.56	65.52	20.60	17.64
4	10.20	9.40	60.05	16.99	15.65
3	10.66	9.95	62.23	17.13	15.99
2	9.84	9.44	61.40	16.03	15.37
1	10.16	9.10	54.50	18.64	16.70
4	8.39	8.05	50.54	16.60	15.93
3	7.78	7.12	47.80	16.28	14.90
2	7.05	6.80	43.21	16.32	15.74
1	7.12	6.78	40.19	17.72	16.87
4	7.00	6.50	47.00	14.89	13.83
3	6.15	5.90	44.38	13.86	13.29
2	5.65	5.35	45.64	12.38	11.72
1	5.20	4.96	43.06	12.08	11.52
4	5.45	5.05	41.67	13.08	12.12
3	5.45	5.20	40.90	13.33	12.71
2	5.55	5.20	40.08	13.85	12.97
1	5.80	5.35	39.26	14.77	13.63
4	6.10	5.25	37.26	16.37	14.09
3	5.90	5.10	45.16	13.06	11.29
2	6.45	5.80	40.86	15.79	14.19
1	6.60	5.90	42.68	15.46	13.82
4	6.30	5.80	42.44	14.84	13.67
3	5.85	5.45	38.23	15.30	14.26
2	5.85	5.40	38.49	15.20	14.03
1	5.95	5.50	38.07	15.63	14.45
4	5.90	5.50	35.74	16.51	15.39
3	5.85	5.35	34.75	16.83	15.40
2	5.60	5.30	33.45	16.74	15.84
1	5.55	5.10	35.29	15.73	14.45
4	5.30	5.05	32.59	16.26	15.50
3	5.05	4.74	30.59	16.51	15.50

On 29.8.2013, it is priced at $20.80 per share.

This is at a P/E of 28.81 times.

Over the last 8 quarters (2 years):

ttm-EPS has grown from 62.23 sen to 72.48 sen (+16.5%)

P/E has expanded from average of 16.56 times to the average of 28.55 (+72.4%)

Market Price of Share = EPS x PE

The share price of Guinness has risen over the last 2 years "enriching" its business owners.

This share price increase is partly due to improving EPS and mainly due to the very generous P/E expansion during this period.

Has the market price risen ahead of the value based on the fundamentals of this stock?

In any event, the upside return/downside risk ratio is less enticing and also, the potential return based on the current price is less attractive.

5 comments:

Newbie said...: What should GAB investor do since it is overvalued and upside is limited?

Sell or Wait?

Regards.; Thursday, May 30, 2013 8:18:00 am
investbullbear said...: What returns can one expect from Guinness Malaysia in the next 10 years?

Let's do some mental calculation.

30.5.2013
LFY EPS 68.66 sen
Its lowest historical PE was 13.

Assumption in calculating future returns:

1. EPS growth rate continues to grow at 9.8% per year.

2. As Guinness DPO ratio exceeds 100% historically, we assume that all earnings for the year will be distributed as dividends.

3. At the 10th year (2013), we will use the P/E of 13 to derive its share (market price).

Calculations:

2012 EPS 68.66 sen

2013 EPS = 68.66*(1+9.8%)^10 = 174.87 sen

Total Dividend received from 2012 to 2013 (10 yrs) = 0.5 x 10 x (68.66 + 174.87 ) = $12.18

Share price in 2013 = 13 x 174.87 sen = $22.73

Initial investment = $20.80 (2012)

Final value of investment in 2013 = $22.73 + $12.18 = $34.91.

This translates into a compound annual return of 5.31%.

Assuming the dividends received remained stagnant at 68.66 for the next 10 yrs, (an unlikely scenario for Guinness), the total dividends received in the next 10 years will be = 10 X 68.66 sen = $ 6.87.

The final value of the initial investment will be = $22.73 + $6.87 = $ 29.60.

This translates into a compound annual return of 3.59%.

[It is probable that the price rise of Guinness will pause to allow its fundamentals to catch up in the future.]; Thursday, May 30, 2013 10:21:00 am
investbullbear said...: What should you do if you find that the price or P/E is significantly above or below the historically fair price or fair P/E mark?

http://myinvestingnotes.blogspot.com/2012/06/what-should-you-do-if-you-find-that.html; Thursday, May 30, 2013 1:03:00 pm
Newbie said...: Thank you for your kind reply.

I think you meant to say 2023 EPS instead of 2013 EPS.

Also, don't forget that GAB has a debt of 200 million so dividend payout will most likely be impacted.

Regards.; Thursday, May 30, 2013 7:05:00 pm
Newbie said...: Thanks for your kind reply.

I think you meant to say 2023 EPS instead of 2013 EPS.

Also don't forget that GAB has a debt of 200 million so dividend payout will most likely be impacted.; Thursday, May 30, 2013 7:06:00 pm

My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Thursday, 30 May 2013

Guinness Malaysia is richly valued

5 comments:

All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

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