Integrax 6.7.09
http://spreadsheets.google.com/ccc?key=0AuRRzs61sKqRclllX1NCY1poWDZmVUNVX1pMV2Nfenc&hl=en
http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ric=IERX.KL
Monday, 6 July 2009
Risk - the most difficult to quantify element (II)
If you reflect on Buffett's approach, you realize that the risk isn't inherent in the stock's price, but rather on the clarity and consistency of a company's future prospects.
The more unpredictable (hard to understand) the company and its future, the greater the risk.
There is no way to easily quantify this kind of risk.
Generally, business risks are accounted for in the discount rate by making a conservative assumptions - a high discount, or hurdle, rate - to provide a margin of safety.
The more unpredictable (hard to understand) the company and its future, the greater the risk.
There is no way to easily quantify this kind of risk.
Generally, business risks are accounted for in the discount rate by making a conservative assumptions - a high discount, or hurdle, rate - to provide a margin of safety.
Risk - the most difficult to quantify element (I)
Risk is perhaps the most debated, theoretical, difficult to quantify element of all. There are many types of risk in the business and investing world.
Investment books mention high beta stocks are riskier and low beta stocks are safer. However, beta is relatively meaningless for value investors. Why?
Investment books mention high beta stocks are riskier and low beta stocks are safer. However, beta is relatively meaningless for value investors. Why?
- Because it measures the fluctuation of stock prices.
- As a value investor, you aren't concerned with stock price fluctuation, only whether the stock price is a bargain compared to long-term value.
- Value investors ignore the type of risk measured by beta.
- They're more interested in how the company performs, not how the stock performs relative to other stocks.
Beta is useful only in the sense that higher price volatility for an issue may reflect underlying uncertainty in the company itself, such as with many of the higher flying tech stocks in 2000 and 2001. But the risks associated with these stocks become apparent long before you examine beta.
Who is Mr. Market?
Who is Mr. Market?
Mr. Market is the character Benjamin Graham uses to explain illogical mindset of traders . The story goes something like this:
Imagine that you own 50% of a business, which you purchased for RM3,600 mil. Mr. Market approaches everyday to tell you what he thinks the business is worth based on latest news. And everyday, he offers to either buy your business for a price which he forms in his head, or, to sell you his share of the business for that price.
Each day, however, he quotes you a different price from the day before. Sometimes the price he quotes sounds about fair. Sometimes it’s high. Sometimes it’s low.
Let’s say the whole business is producing on average, RM 1,200 mil free cash flow with net profit of RM 600 mil. What is the value of the business to you?
By owning 50% of the business, you own RM 600 mil FCF and net profit of RM 300 mil per annum.You paid around RM 3,600 mil for this business a year ago. Hence, you bought this business for 6 times its FCF and 12 x earnings.Let’s say the nature of the business is stable and you anticipate the FCF and net profit will increase over time,you might not want to sell it unless Mr. Market offers you a ridiculously high price.
One day, Mr. Market offers you an additional 40% extra of what you paid a year ago. He offers RM 5,040 mil to for your holdings.Most of us will let go after making 40% profit per annum.
But if you are a sensible businessperson, you won’t let Mr. Market’s daily communication determine your view of the value of 50% interest in the business. He is a sweet talker and convince you with various economic prediction,charts,information and etc to create doubt and fear in you.
Most of us will be swayed by Mr Market ’s offer.
But as a sensible business owner, you may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position.
Remember, fluctuations in the market price for a given business don’t really affect the fundamental value of that business. If you own a share in a company, the value of each share is a function of the business ’s profitability/cash flow/management/branding and not a related to the price quoted in Bursa M’sia.
So, as long you understand the business you’re buying, today’s market price is totally irrelevant.
Ref:
Who is Mr. Market?
http://boyboycute.wordpress.com/2009/03/29/who-is-mr-market/
Mr. Market is the character Benjamin Graham uses to explain illogical mindset of traders . The story goes something like this:
Imagine that you own 50% of a business, which you purchased for RM3,600 mil. Mr. Market approaches everyday to tell you what he thinks the business is worth based on latest news. And everyday, he offers to either buy your business for a price which he forms in his head, or, to sell you his share of the business for that price.
Each day, however, he quotes you a different price from the day before. Sometimes the price he quotes sounds about fair. Sometimes it’s high. Sometimes it’s low.
Let’s say the whole business is producing on average, RM 1,200 mil free cash flow with net profit of RM 600 mil. What is the value of the business to you?
By owning 50% of the business, you own RM 600 mil FCF and net profit of RM 300 mil per annum.You paid around RM 3,600 mil for this business a year ago. Hence, you bought this business for 6 times its FCF and 12 x earnings.Let’s say the nature of the business is stable and you anticipate the FCF and net profit will increase over time,you might not want to sell it unless Mr. Market offers you a ridiculously high price.
One day, Mr. Market offers you an additional 40% extra of what you paid a year ago. He offers RM 5,040 mil to for your holdings.Most of us will let go after making 40% profit per annum.
But if you are a sensible businessperson, you won’t let Mr. Market’s daily communication determine your view of the value of 50% interest in the business. He is a sweet talker and convince you with various economic prediction,charts,information and etc to create doubt and fear in you.
Most of us will be swayed by Mr Market ’s offer.
But as a sensible business owner, you may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position.
Remember, fluctuations in the market price for a given business don’t really affect the fundamental value of that business. If you own a share in a company, the value of each share is a function of the business ’s profitability/cash flow/management/branding and not a related to the price quoted in Bursa M’sia.
So, as long you understand the business you’re buying, today’s market price is totally irrelevant.
Ref:
Who is Mr. Market?
http://boyboycute.wordpress.com/2009/03/29/who-is-mr-market/
Sunday, 5 July 2009
How to use PEG
Company Simpson:
Recent PE 17.6 based on:
- a share price of $33 and
- TTM earnings of 1.87.
Earnings yields would thus be 1/17.6, or 5.7%.
What is the significance?
This investment could be compared to a long-term Treasury security as a prospective investment.
Treasury security: today yielding about 4.5%.
Which investment is better?
An investment in Simpson returns more, and, although riskier, it affords the opportunity for gain through growth.
The difference in earnings yield illustrates the basic risk/return tradeoff between investing in corporate equities versus safe fixed-income Treasuries.
----
You still don't know whether Simpson's PE ratio of 17.6 is attractive or compelling.
Long-time tech high-flyer Cisco Systems is at PE ratio to 27.4.
While banking stalwart Bank of America is at PE ratio of 10.
Why the difference?
The primary reason is growth.
Investors pay higher PEs for companies with greater growth prospects.
Greater prospects mean greater earnings and greater earnings yields sooner.
So when comparing businesses, one popular way to "normalize" PEs is to compare them to their respective company's growth rate.
From this comparison, you get a ratio known as PE to growth, or PEG:
Price/Earnings to growth (PEG) = (PE)/(EPSGR)
If the earnings growth rate of :
- Cisco is 25%, while
- Simpson's is 10% and
- Bank of America's is 5%,
- 27.4/25 or 1.1 for Cisco,
- 17.6/10 or 1.76 for Simpson, and
- 10/5 or 2 for Bank of America.
----
So, the lower the PEG, the better.
But if the low PEG is driven by high growth rates, you'd better be confident in the growth rate assumption.
Nothing falls faster than a growth stock that suddenly stops growing.
For years, Starbucks had been a high PE and high growth story, with PE ratios exceeding 30 and growth rates exceeding 20%. When the growth rate slowed just a bit in early 2007, the stock lost a third of its value.
----
Projecting growth rates can be tricky, and for that reason, value investors tend to shy away from stocks where growth appears temporary or hard to justify long term.
What rate should you use?
What the company has already achieved?
What the analysts project it to do?
Over what period?
When will the growth rate run into the law-of-large numbers-wall?
What growth rate did those Krispy Kreme Investors use in the 2000 - 2004 period?
Most of them ended up with a sticky mess.
The big question , of course, in picking Cisco as the "best investment," is the sustainability of the growth rate.
Simpson, while trailing a bit, may be a safer and better long-term investment.
Summary: It is okay to assume a high growth rate, so long as it is sustainable growth, based on sustainable business and marketplace fundamentals.
The Right Valuation Ratios
The market decouples price from the value of the business.
As Warren Buffett says, price is what you pay, and value is what you get. If the markets were perfect, price and value would go hand in hand, but as we all know, markets aren't perfect.
Once you appraise the business value, look at price and use valuation ratios to connect the price to the business.
PE: This is where most investors start, but it doesn't tell the whole story.
EY: Value investors look at present and future earnings yield (1/PE).
PEG: Price earnings to growth relates PE to growth rates and tells you something about that earnings yield future.
P/S, Profit Margin, P/B, and ROE: The relationships between price and these are also important.
For example:
FD interest rate = 3%.
PE of FD = 33.3.
So a PE of 25 or less is good given today's alternative earnings yields, but it doesn't mean that much without looking at the other numbers.
As Warren Buffett says, price is what you pay, and value is what you get. If the markets were perfect, price and value would go hand in hand, but as we all know, markets aren't perfect.
Once you appraise the business value, look at price and use valuation ratios to connect the price to the business.
PE: This is where most investors start, but it doesn't tell the whole story.
EY: Value investors look at present and future earnings yield (1/PE).
PEG: Price earnings to growth relates PE to growth rates and tells you something about that earnings yield future.
P/S, Profit Margin, P/B, and ROE: The relationships between price and these are also important.
For example:
FD interest rate = 3%.
PE of FD = 33.3.
So a PE of 25 or less is good given today's alternative earnings yields, but it doesn't mean that much without looking at the other numbers.
----
These valuation ratios are good signs (of value) for growing companies:- a PEG of 2 or less,
- a P/S of 3 or less, and
- a P/B of 5 or less.
Lower figures of these valuation ratios can be expected for steady or transitioning companies.
----
Good Business, but Stock is too Expensive
Generalising is hard, but PE, PEG, P/S, and P/B well in excess of market or industry averages spell trouble in making the numbers, as does overdependence on abnormal margins.
These valuation ratios are signs of overcooked prices and raise questions of vulnerability and (un-)value:
PE: Look at PE compared to the market and the industry. A PE over 40 is hard to justify in any case. PE over 25 is hard to justify unless the growth story is there and intact.
EY: EY below 2.5%
PEG: PEG greater than 3
P/S: P/S greater than 3
P/B: greater than 10
Sam using PE
Samgoss said...
2 steed, i stated there nett asset,my nett asset is actually nett current asset which equal 2 current asset minus current liabilities.
What caused negative asset ? tak lain tak bukan is bcos of borrowing , come 2 NTA, NTA is nett tangible asset , tangible means something u can count n touch, what about goodwill ? all these depends on what type of biz they r involving.
WHen I said Low PE , u shouldnt just rely on its last year eps, u must look at its latest eps oso, that giving u a guide to know how she is doing now !?
That's y I always stressed there d importance of " past earning track records ".
Uncle sam using PE , do u know how 2 relate PE with others ? not just Low PE , from PE ..past , current n future eps + track records, all these r essential elements 4 u 2 forecast its future eps as well as PE.
as i said, it looks simple , u understand it doesnt mean u know how 2 apply it , it is just like financial crisis, some will take it as disaster but some may take it as opportunity , it depends on how well u understand on PE.
Yes, I am a PE man , but i can tell u, from PE , i can link lots of cause n effect into my PE.
One more thing , different industry has different PE , u cant compare PE of resorts with PE of Rcecap or Kfima , cos one is bluechip n d other one is penny stock. hence.. u must know what is d average PE 4 that industry !
Avg PE 4 banking is ard 15 to 20 , avg PE 4 penny stock is ard 12+- , hence when PBBor MBB dropped to PE ard 10+- , it is time to sailang , but u cant apply this to penny stock, cos it is not very cheap 4 penny stocks @ PE ard 10+_.
but one thing 4 sure , stock that traded with PE > 20 is no longer cheap !
D above is like telling u yr mom is a female , but i can assure that not many of them know how 2 apply it on shares invst, like what i always said , y d length of our fingers r not d same ^_-
July 3, 2009 7:26 PM
https://www.blogger.com/comment.g?blogID=2900671137131972978&postID=269801610029410286
2 steed, i stated there nett asset,my nett asset is actually nett current asset which equal 2 current asset minus current liabilities.
What caused negative asset ? tak lain tak bukan is bcos of borrowing , come 2 NTA, NTA is nett tangible asset , tangible means something u can count n touch, what about goodwill ? all these depends on what type of biz they r involving.
WHen I said Low PE , u shouldnt just rely on its last year eps, u must look at its latest eps oso, that giving u a guide to know how she is doing now !?
That's y I always stressed there d importance of " past earning track records ".
Uncle sam using PE , do u know how 2 relate PE with others ? not just Low PE , from PE ..past , current n future eps + track records, all these r essential elements 4 u 2 forecast its future eps as well as PE.
as i said, it looks simple , u understand it doesnt mean u know how 2 apply it , it is just like financial crisis, some will take it as disaster but some may take it as opportunity , it depends on how well u understand on PE.
Yes, I am a PE man , but i can tell u, from PE , i can link lots of cause n effect into my PE.
One more thing , different industry has different PE , u cant compare PE of resorts with PE of Rcecap or Kfima , cos one is bluechip n d other one is penny stock. hence.. u must know what is d average PE 4 that industry !
Avg PE 4 banking is ard 15 to 20 , avg PE 4 penny stock is ard 12+- , hence when PBBor MBB dropped to PE ard 10+- , it is time to sailang , but u cant apply this to penny stock, cos it is not very cheap 4 penny stocks @ PE ard 10+_.
but one thing 4 sure , stock that traded with PE > 20 is no longer cheap !
D above is like telling u yr mom is a female , but i can assure that not many of them know how 2 apply it on shares invst, like what i always said , y d length of our fingers r not d same ^_-
July 3, 2009 7:26 PM
https://www.blogger.com/comment.g?blogID=2900671137131972978&postID=269801610029410286
How Value Investors View the Markets and Market Performance
Value investors really don't care. Do value investors have an attitude problem?
The point is that value investors aren't that concerned about markets, trading processes, and trading behaviour.
The market is simply a place to buy a portion of a business - and perhaps not sell it for a long, long time. Value investors care little about whether an order is executed on the bid or ask price, nor do they care what regional market, ECN, or execution system was used.
The transaction is an investment, a long-term investment. The market simply provides a place to acquire the investment.
So, value investors generally don't talk much about markets. And if you're really a value investor (or want to become one), you yourself don't care about markets... except when they undervalue businesses.
Despite the academic rumblings of the "efficient market theory" (which holds that with good information and a sufficient number of players, markets will find the right price for a business), markets are not perfect. They are always bargains.
Stocks may be undervalued because of:
So, in this sense, value investors love the markets. The markets, through their imperfections, provide value investors their opportunity.
As Warren Buffett says, if markets were perfect, he'd be "standing on the corner holding a tin cup."
The point is that value investors aren't that concerned about markets, trading processes, and trading behaviour.
The market is simply a place to buy a portion of a business - and perhaps not sell it for a long, long time. Value investors care little about whether an order is executed on the bid or ask price, nor do they care what regional market, ECN, or execution system was used.
The transaction is an investment, a long-term investment. The market simply provides a place to acquire the investment.
So, value investors generally don't talk much about markets. And if you're really a value investor (or want to become one), you yourself don't care about markets... except when they undervalue businesses.
Despite the academic rumblings of the "efficient market theory" (which holds that with good information and a sufficient number of players, markets will find the right price for a business), markets are not perfect. They are always bargains.
Stocks may be undervalued because of:
- lack of knowledge or
- lack of visibility, or
- perhaps they're part of a group that's out of favour altogether.
So, in this sense, value investors love the markets. The markets, through their imperfections, provide value investors their opportunity.
As Warren Buffett says, if markets were perfect, he'd be "standing on the corner holding a tin cup."
Long-term Stock Market Growth and GDP
A stock market represents the sum total of the public's perception of the business value of the companies trading in that market.
True business value, is the sum total of productive assets and, in particular, what those assets produce in the form of current and future earnings.
As long as companies produce more, it makes sense that their values rise.
And as long as the public perception matches true value, the stock value rises in lockstep.
GDP
You can and should expect, in aggregate, that the total value of all businesses would rise roughly in line with the increase in the size of the economy, as represented by gross domestic product (GDP). This is true.
Business value grows further through increases in productivity.
The value of market traded businesses could rise still more if the businesses grew their share of the total economy - as Borders Group and Barnes and Noble have grown their share of the total bookselling business.
Long-term stock market growth (by most measures of return, 10-11% annually) can be explained by adding together the following:
GDP growth of 3 to 5%
Productivity growth of 1 to 2%
Long-term inflation in the 3 to 6% range
In the short-term, depending on the value of alternative investments, such as bonds, real estate, and so on, market value may actually rise faster or slower than business value. And inflation also tampers with market valuations.
So can markets grow at 20% per year?
Not for long. It isn't impossible for the markets to rise 20% in a given year or two, but such growth year after year is hard to fathom if the economy at large is growing at only 3 to 5% annually.
But for a particular stock?
Sure, it's possible. If the company is building a new busines or is taking market share from existing businesses, 20% growth can be quite realistic.
But forever?
Doubtful. Some call this "reversion to the mean" - sooner or later, gravitational forces will take hold and a company will cease to grow at above-average rates. As an investor, you must realistically appraise when this will happen.
True business value, is the sum total of productive assets and, in particular, what those assets produce in the form of current and future earnings.
As long as companies produce more, it makes sense that their values rise.
And as long as the public perception matches true value, the stock value rises in lockstep.
GDP
You can and should expect, in aggregate, that the total value of all businesses would rise roughly in line with the increase in the size of the economy, as represented by gross domestic product (GDP). This is true.
Business value grows further through increases in productivity.
The value of market traded businesses could rise still more if the businesses grew their share of the total economy - as Borders Group and Barnes and Noble have grown their share of the total bookselling business.
Long-term stock market growth (by most measures of return, 10-11% annually) can be explained by adding together the following:
GDP growth of 3 to 5%
Productivity growth of 1 to 2%
Long-term inflation in the 3 to 6% range
In the short-term, depending on the value of alternative investments, such as bonds, real estate, and so on, market value may actually rise faster or slower than business value. And inflation also tampers with market valuations.
So can markets grow at 20% per year?
Not for long. It isn't impossible for the markets to rise 20% in a given year or two, but such growth year after year is hard to fathom if the economy at large is growing at only 3 to 5% annually.
But for a particular stock?
Sure, it's possible. If the company is building a new busines or is taking market share from existing businesses, 20% growth can be quite realistic.
But forever?
Doubtful. Some call this "reversion to the mean" - sooner or later, gravitational forces will take hold and a company will cease to grow at above-average rates. As an investor, you must realistically appraise when this will happen.
Intrinsic Value = (2g+8.5) x EPS
Dissecting Graham's Intrinsic Value Formula
Graham's formula:
V = (2g+8.5) E x 4.4/Y
where,
V= intrinsic value
g= growth rate of earnings
E= current EPS
Y= current interest rate (average rate of high grade corporate bonds)
V = (2g+8.5) x (4.4/Y) x E
V = (Multiple) x E
Therefore the Multiple of E is a multiple of 2 components as illustrated
Multiple = (2g+8.5) x (4.4/Y)
(I) If Y is equal to 4.4
(4.4/Y) = 1
Multiple = (2g + 8.5)
(II) If Y is less than 4.4
(4.4/Y) > 1
Multiple > (2g + 8.5)
(III) If Y is greater than 4.4
(4.4/Y) < 1
Multiple < (2g + 8.5)
As we are presently in a low interest environment, let us assume that Y is equal or less than 4.4. Therefore, the multiple should be equal or more than (2g + 8.5), as in (I) and (II) above.
To be on the conservative side, we can use (2g + 8.5) as the multiple of EPS as a simple quick test to check on the stock's price and true value (intrinsic value).
Simplified Graham's formula:
V = (2g + 8.5) x EPS
EPS can be derived by multiplying [(1/PE) x Price of stock], both are readily available in the local paper.
Reminder: You shouldn't go out and buy or sell stock based on this formula alone, of course, but it's a great "quick" test of a stock's price and true value.
Graham's formula:
V = (2g+8.5) E x 4.4/Y
where,
V= intrinsic value
g= growth rate of earnings
E= current EPS
Y= current interest rate (average rate of high grade corporate bonds)
V = (2g+8.5) x (4.4/Y) x E
V = (Multiple) x E
Therefore the Multiple of E is a multiple of 2 components as illustrated
Multiple = (2g+8.5) x (4.4/Y)
(I) If Y is equal to 4.4
(4.4/Y) = 1
Multiple = (2g + 8.5)
(II) If Y is less than 4.4
(4.4/Y) > 1
Multiple > (2g + 8.5)
(III) If Y is greater than 4.4
(4.4/Y) < 1
Multiple < (2g + 8.5)
As we are presently in a low interest environment, let us assume that Y is equal or less than 4.4. Therefore, the multiple should be equal or more than (2g + 8.5), as in (I) and (II) above.
To be on the conservative side, we can use (2g + 8.5) as the multiple of EPS as a simple quick test to check on the stock's price and true value (intrinsic value).
Simplified Graham's formula:
V = (2g + 8.5) x EPS
EPS can be derived by multiplying [(1/PE) x Price of stock], both are readily available in the local paper.
Reminder: You shouldn't go out and buy or sell stock based on this formula alone, of course, but it's a great "quick" test of a stock's price and true value.
Graham's Intrinsic Value Formula
Graham did create a very useful and easy-to-use intrinsic value formula.
Graham's formula: You take a current earnings, apply a base P/E ratio, add a growth factor if there is a growth, and adjust according to current bond yield. The result is an intrinsic value that the stock can be expected to achieve in the real world if growth targets are met.
Formula: Intrinsic value = E x (2g + 8.5) x 4.4/Y
E = current annual earnings per share
g = annual earnings growth rate. (Graham would have suggested using a conservative number for growth.)
8.5 = base P/E ratio for a stock with no growth
Y = current interest rate, represented as the average rate on high-grade corporate bonds. (Note that lower bond rates make the intrinsic value higher, as future earnings streams are worth more in a lower interest rate environment.)
Take Hewlett Packard as an example. With current earnings (trailing 12 months) of $2.30 per share, a growth rate of 10%, and a corporate bond interest rate of 6%, the intrinsic value is
= $2.30 x [(2 x 10) + 8.5] x (4.4/6)
= $48.07 per share
This value almost exactly matches the price at the time that these calculations were made. That suggests little potential price appreciation in the stock - unless per share earnings growth accelerates or bond yields dip.
Acceleration in the business would increase the earnings growth rate, and share repurchases would increase the earnings per share. Both changes, especially taken together, would stimulate growth in intrinsic value.
You shouldn't go out and buy or sell stock based on this formula alone, of course, but it's a great "quick" test of a stock's price and true value.
Graham's formula: You take a current earnings, apply a base P/E ratio, add a growth factor if there is a growth, and adjust according to current bond yield. The result is an intrinsic value that the stock can be expected to achieve in the real world if growth targets are met.
Formula: Intrinsic value = E x (2g + 8.5) x 4.4/Y
E = current annual earnings per share
g = annual earnings growth rate. (Graham would have suggested using a conservative number for growth.)
8.5 = base P/E ratio for a stock with no growth
Y = current interest rate, represented as the average rate on high-grade corporate bonds. (Note that lower bond rates make the intrinsic value higher, as future earnings streams are worth more in a lower interest rate environment.)
Take Hewlett Packard as an example. With current earnings (trailing 12 months) of $2.30 per share, a growth rate of 10%, and a corporate bond interest rate of 6%, the intrinsic value is
= $2.30 x [(2 x 10) + 8.5] x (4.4/6)
= $48.07 per share
This value almost exactly matches the price at the time that these calculations were made. That suggests little potential price appreciation in the stock - unless per share earnings growth accelerates or bond yields dip.
Acceleration in the business would increase the earnings growth rate, and share repurchases would increase the earnings per share. Both changes, especially taken together, would stimulate growth in intrinsic value.
You shouldn't go out and buy or sell stock based on this formula alone, of course, but it's a great "quick" test of a stock's price and true value.
Malaysian REITs
Malaysian REITs are:
- KPJ Reit
- Boustead Reit
- Amfirst Reit
- Axis Reit
- Hektar Reit
- Starhill Reit
and
- AHP
- AHP2,
- ARREIT,
- ATRIUM REIT
- QCAPITA REIT
- TWRREIT
- UOAREIT
Financial Year 2008
KPJ Reit
EPS: 7.4c
DPS: 7.7c
NAB/Share: 1.03
D/E Ratio: 0.53
Rental Income to Property Assets: 0.07
Nett Rental Margin: 94.52%
ROE 9.93%
DY range: 9.8% - 7.8%
Price range: 0.83 - 0.93
PE ratio range: 10.5 - 13.2
Financial Year 2008
Boustead Reit
EPS: 11.0
DPS: 10.9c
NAB/Share: 1.26
D/E Ratio: 0.14
Rental Income to Property Assets: 0.08
Nett Rental Margin: 97.77%
ROE 27.13%
DY range: 11.0% - 6.8%
Price range: 0.99 - 1.60
PE ratio range: 9.0 - 14.6
Financial Year 2008
AMFIRST Reit
EPS: 7.3c
DPS: 8.0c
NAB/Share: 1.03
D/E Ratio: 0.89
Rental Income to Property Assets: 0.07
Nett Rental Margin: 70.25%%
ROE 7.07%
DY range: 10.8% - 8.4%
Price range: 0.74 - 0.95
PE ratio range: 10.1 - 13
Financial Year 2008
AXIS Reit
EPS: 15.2c P
DPS: 14.9c
NAB/Share: 1.75
D/E Ratio: 0.07
Rental Income to Property Assets: 0.09
Nett Rental Margin: 84.41%
ROE 14.17%
DY range: 15% - 7.5%
Price range: 1.00 - 2.00
PE ratio range: 6.5 - 13.3
Financial Year 2008
HEXTAR Reit
EPS: 11.3c
DPS: 10.7c
NAB/Share: 1.26
D/E Ratio: 0.75
Rental Income to Property Assets: 0.12
Nett Rental Margin: 62.69%
ROE 15.01%
DY range: 14.7% - 7%
Price range: 0.73 - 1.54
PE ratio range: 6.4 - 13.4
Financial Year 2008
STARHILL Reit
EPS: 6.9c
DPS: 6.9c
NAB/Share: 0.97
D/E Ratio: 0.16
Rental Income to Property Assets: 0.08
Nett Rental Margin: 83.73%
ROE 7.09%
DY range: 9.8% - 7.5%
Price range: 0.70 - 0.93
PE ratio range: 10.2 - 13.4
Also read:
REITs - Selecting REITs
REITs - Selecting REITs
Choosing a good REIT is like choosing any other value investment.
Assets = Real Estate
Debt = Debt
Returns = Rents + other payments received on the portfolio.
An investor must analyze and compare a REIT's:
Assets = Real Estate
Debt = Debt
Returns = Rents + other payments received on the portfolio.
An investor must analyze and compare a REIT's:
- management quality,
- real and anticipated returns,
- yields, growth,
- reserves, and
- asset values.
Many of the techniques for common stock can be put to work here.
PE and price to FFO (funds from operations) ratios are examined as they would be for other businesses.
- Compare the PE and price to FFO for the different REITs.
- Relate these PE and price to FFO to their growth rates.
Also important is the price to book, or P/B ratio.
- A REIT trading below its per-share book value is essentially trading at a discount.
Remember also that REITs are not immune to :
- asset quality problems,
- bad management and management decisions,
- declining markets, or
- poor expense management.
Do the due diligence.
Malaysian REITs are:
- KPJ Reit
- Boustead Reit
- Amfirst Reit
- Axis Reit
- Hektar Reit
- Starhill Reit
and
- AHP
- AHP2
- ARREIT
- ATRIUM REIT
- QCAPITA REIT
- TWRREIT
- UOAREIT
Saturday, 4 July 2009
REITs - Property Portfolio
REIT investors should check out the property portfolio. This isn't easy, but it's easier than it used to be with online resources, usually provided by the REIT company itself.
Because real estate is not traded regularly, the ability to ascertain values is limited to:
Because real estate is not traded regularly, the ability to ascertain values is limited to:
- appraisals,
- replacement values, and,
- for income-producing properties, discounted cash flow analysis.
Appraisals are difficult to find.
Looking at the properties, and their locations, and assessing commonly reported local real estate price trends, occupancy rates, and economic trends, and whether the book value of a property is sustainable, is probably best.
If the REIT you choose is diversified with a number of different types of properties in different geographic regions, you will experience less volatility if an industry or locale experiences hard times.
If you are more concentrated, be sure that the type of property or the geographic area continues to be economically viable into the foreseeable future.
Occupancy rates for past and current years are available for most major and some smaller cities in the US from commercial real estate Web sites, and you may even wish to contact a local real estate professional.
REIT appraisal is difficult, but there is another way: REIT mutual and closed-ended funds, and there are even a few REIT ETFs. Many mutual fund families have funds built around REIT investments. REIT mutual funds are an easy way to get exposure to REITs without spending volumes of time researching the valuations of underlying holdings, vacancy rates, economic vibrancy, and so on. One way to find these funds is to enter "REIT mutual fund" in your search engine.
REITs - Debts and Leverage
Good REIT managers will typically hold debt levels to 35% or less of the total capitalization of the trust.
Some managers have long tenure and have weathered many storms.
The lower the level of debt, the more conservative management tends to be.
Also, look for managers investing their own funds in the REIT.
Some managers have long tenure and have weathered many storms.
The lower the level of debt, the more conservative management tends to be.
Also, look for managers investing their own funds in the REIT.
REITs - what and why
REITS are technically investment trusts that works like closed-ended funds holding real estate instead of stocks or bonds.
REITS pool investor money to allow average individual investors to invest in a portfolio of
Certain REIT characteristics make them attractive to the value investor.
REITS pool investor money to allow average individual investors to invest in a portfolio of
- commercial,
- residential, or
- specialized real estate properties.
Certain REIT characteristics make them attractive to the value investor.
- Like closed-ended funds, REITS trade on the exchanges, often at a discount to NAV.
- It is possible to focus on certain types of real estate or certain regions of the country.
- And, typically, they pay healthy yields, often in excess of 5%, while providing some downside protection.
In the US, there are about 190 publicly traded REITs with some $400 billion of assets.
- REITs performed very well during the 2000-2002 market correction, and continued to perform well as real estate prices boomed in the middle of the decade, with a gain of 35% as a group in 2006.
- But as the real estate market soured in 2007, REITs and particularly those in the mortgage business or with highly leveraged portfolios, tended to suffer.
Investors like REITs for:
- their yield,
- their ownership with hard physical assets,
- their stability, and
- for their long-term performance, estimated at over 13% annually during 1975-2005, which is better than most stock investments.
Many investors pick REITs for their negative correlation with stocks - when stocks are doing poorly, REITs are doing well or are holding their own.
Value Investing: Provide a Margin of Safety
The idea of buying a company at a bargain price to achieve a margin of safety, provides a buffer if business events don't turn out exactly as predicted (and they won't).
The value investing style calls for building in margins of safety by buying at a reasonable price.
The style also suggests finding margins of safety within the business itself, for instance:
The value investing style calls for building in margins of safety by buying at a reasonable price.
The style also suggests finding margins of safety within the business itself, for instance:
- so called "moats" or competitive advantages that differentiate the business from its competitors
- a large cash hoard, or,
- the absence of debt.
Value Investing: Focus on Intangibles
Today's value investors are as intently focussed on business intangibles, like brand and customer loyalty, as on the "hard" financials.
It is all about looking at what's behind the numbers, and moreover, what will create tangible value in the future.
So a look at the market or markets in which the company operates is important.
Therefore, it is so important to look at:
It is all about looking at what's behind the numbers, and moreover, what will create tangible value in the future.
So a look at the market or markets in which the company operates is important.
Therefore, it is so important to look at:
- products,
- market position,
- brand,
- public perception,
- customers and customer perception,
- supply chain,
- leadership,
- opinions, and
- a host of others factor.
Value investing: It's not about diversification
Is diversification the key to investing success?
Diversification provides safety in numbers and avoids the eggs-in-one-basket syndrome, so it protects the value of a portfolio.
But the masters of value investing have shown that diversification only serves to dilute returns.
If you are doing the value investing thing right, you are picking the right companies at the right prices, so there's no need to provide this extra insurance.
In fact, over-diversification only serves to dilute returns.
That said, perhaps diversification isn't a bad idea until you prove yourself a good value investor.
The point is that, somewhat counter to the conservative image, diversification per se is not a value investing technique.
Diversification provides safety in numbers and avoids the eggs-in-one-basket syndrome, so it protects the value of a portfolio.
But the masters of value investing have shown that diversification only serves to dilute returns.
If you are doing the value investing thing right, you are picking the right companies at the right prices, so there's no need to provide this extra insurance.
In fact, over-diversification only serves to dilute returns.
That said, perhaps diversification isn't a bad idea until you prove yourself a good value investor.
The point is that, somewhat counter to the conservative image, diversification per se is not a value investing technique.
Value investing: No magic formulas
Some people look for a magic formula in investing that guarantees success.
Value investing isn't quite that simple.
There are so many elements and nuances that go into a company's business that you can't know them all, let alone figure out how to weigh them in your model.
So rather than a recipe for success, you will instead have a list of ingredients that should be in every dish. But the art of cooking it up into a suitable vlue invstment is up to you.
Like all othe investing approaches, value investing is both art and science. It is more scientific and methodical than some approaches, but it is by no means completely formulaic.
Value investing isn't quite that simple.
There are so many elements and nuances that go into a company's business that you can't know them all, let alone figure out how to weigh them in your model.
So rather than a recipe for success, you will instead have a list of ingredients that should be in every dish. But the art of cooking it up into a suitable vlue invstment is up to you.
Like all othe investing approaches, value investing is both art and science. It is more scientific and methodical than some approaches, but it is by no means completely formulaic.
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