Presentation is loading. Please wait.

Presentation is loading. Please wait.

Shaun van den Berg Head of Client Education at PSG Online Fundamentals to Value Investing Webinar Wednesday, 20 February 2013.

Similar presentations


Presentation on theme: "Shaun van den Berg Head of Client Education at PSG Online Fundamentals to Value Investing Webinar Wednesday, 20 February 2013."— Presentation transcript:

1 Shaun van den Berg Head of Client Education at PSG Online Fundamentals to Value Investing Webinar Wednesday, 20 February 2013

2 Macro Fundamentals Financial Ratios Value Investing “The Investor” newsletter Summary ConclusionAgenda Presenter: Shaun van den Berg

3 Macro Fundamentals (Economic Analysis) Presenter: Shaun van den Berg

4 GDP (Above 4% or below?) Inflation (Relative to Reserve Bank Target?) Interest Rates (Going up or down?) Foreign Interest Rates (Going up or down?) Exchange Rate (Weakening or strengthening?) General Economic Influences Presenter: Shaun van den Berg

5 Gross Domestic Product (GDP) Average 4% Expansion Contraction 2010: 3.1% 2011: 3.5% 2012 Q2: 3.4% 2012 Q3: 1.2% GDP Data Source: Q1: 2.7%

6 Fiscal Policies Tax Cuts Additional Taxes DiscourageSpendingEncourageSpending Presenter: Shaun van den Berg

7 Government spending Government spending Increases or decreases in government spending Influences the business environment Government spending has a strong “Multiplier Effect” Companies that rely on government spending Defence, Social grants, Education or Infrastructure Influence the General Economy Budget Priorities

8 Multiplier Effect Road Building Earthmoving Equipment Suppliers Construction Workers Concrete Materials Consumer Goods Eqstra Barworld Bell Wearne PPC M&R Holdings WBHO Aveng Afrimat Retailers

9 Monetary Policy Restrictive Monetary Policy Reduces expansion of Businesses More expensive to finance home loans Increases borrowing costs Reduces Growth Rate of Money Supply Reduces supply of funds for working capital Reduces demand for Durable goods Affects all segments of economy & Relationship with other economies Presenter: Shaun van den Berg

10 Inflation Government, industry & consumer over spending. Printing too much money to finance luxuries. By-product of too low interest rates promoting too much growth too quickly. Presenter: Shaun van den Berg Headline CPI annual inflation rate in January 2013 was 5.4%. This rate was 0.3% than the 5.7% in December On average, prices increased by 0.3% between December 2012 & January 2013.

11 Inflation (Continued) Inflation causes differences between real & nominal interest rates Inhibits growth & innovation Influence the trade balance & exchange rate Beyond domestic economy - differential inflation & interest rates Changes in spending & savings behaviour Unexpected changes in Inflation – difficult to plan Presenter: Shaun van den Berg

12 Interest rates rise Negative for profits Money is diverted to interest- bearing securities Market anticipates this & peaks before interest rates Lower share prices & lower company valuations Consumers spend less - Lower profits Demand for money increases increases Interest Rate Cycles Presenter: Shaun van den Berg

13 Repo Rate 5.0% - 7.0%

14 R157 Bond Bullish Bearish

15 U.S. T-Bond 30 Bearish Bullish

16 Competitive? ZAR vs USD & EUR Competitive? Resistance Support Weaker

17 USD vs EUR vs GBP/ JPY vs USD Weaker Stronger Weaker

18 GDP Inflation Interest Rates Foreign Interest Rates Exchange Rates Quick Summary Presenter: Shaun van den Berg

19 Financial Ratios Presenter: Shaun van den Berg

20 Turnover Growth Operating Profit Growth Operating Margin Interest Cover Earnings before Tax (EBIT) Growth Effective Tax Rate Profit Attributable to Ordinary Shareholders Growth Dividend Cover Retention Rate Earnings per Share (EPS) Growth Ratio Analysis Headline EPS Growth Net Asset Value (NAV) growth Return on Equity (ROE) Return on Tangible Assets Return on Capital (ROC) Debt/ Equity (Gearing) Share Price (Cents per share) Price/ Earnings (P/E) Dividend Yield (DY) Price/ Net Asset Value (P/NAV) Cash Flow / EPS Presenter: Shaun van den Berg

21 Fundamental Analysis Checklist Undervalued Risk Management Profitable P/E < 16 PEG < 75% PRICE/NAV < 2 ROE % > 15% Interest Cover > 3 times

22 Earnings Number of shares in Issue Profit Profit = Earnings Dividends Retained Earnings = Earnings Per Share (E.P.S.) E.PS. = R E.P.S. = 8c Investor or Earnings Ratios

23 Earnings Per Share (E.P.S.) x 100% Current Share Price Investor or Earnings Ratios = Earnings Yield (%) (E.Y.) E.Y. = 8 cents per share x 100% 100 cents per share E.Y. = 8 cents per share x 100% 100 cents per share E.Y. = 8% Dividends Per Share (D.P.S.) x 100% Current Share Price = Dividend Yield (%) (D.Y) = Dividend Yield (%) (D.Y) D.Y. = 3 cents per share x 100% 100 cents per share D.Y. = 3% You want a high earnings yield You want a high dividend yield

24 Investor or Earnings Ratios Current Share Price Earnings Per Share (E.P.S.) = Price / Earnings Ratio (P/E) P/E = 100 cents per share 8 cents per share P/E = 12.5 times You want a low P/E multiple Presenter: Shaun van den Berg

25 Valuation: PEG Ratio Presenter: Shaun van den Berg

26 PEG = P/E Ratio / Forecast average growth over next 5 years Select companies with not only low P/E ratios as such, but those companies with P/E ratios low relatively to their EPS growth Trying to target the better companies trading on low P/E’s Earnings growth rate must be higher than the P/E ratio at time of investing PEG Valuation Presenter: Shaun van den Berg

27 Although both shares are trading at a P/E of 15 our forecast growth rate is 30% for stock 1 versus 10% for stock 2. PEG Valuation This means Stock 1 trades at a PEG of 50% (15/30),which is considered very cheap; Stock 2 at 150% (15/10) is expensive. On average the sector is on a PEG of 75% (15/20), and, therefore, indicating value.

28 Valuation: Net Asset Value (NAV) Valuation: Net Asset Value (NAV) Presenter: Shaun van den Berg

29 Net Asset Value (NAV) is the Ordinary Shareholders' Funds divided by total number of shares issued. In theory if the company sells all of its assets at recorded prices & pays off all debt, the net amount will then be available for distribution to shareholders..Share prices should rarely trade below this value. Valuation: Net Asset Value (NAV) NAV = Ordinary Shareholder’s Funds Total number of shares issued NAV = R = 32.4 cps Presenter: Shaun van den Berg

30 Price/Net Asset Value (P/NAV) together with return on equity (ROE) is one of the most powerful valuation tools, but is seldom used correctly. The calculation is simply the current share price divided by the NAV. Price / Net Asset Value (P/NAV) P/NAV = Current share price Net Asset Value (NAV) NAV = 100 cps 32.4 cps P/NAV = 3.1 times P/NAV = Current share price Net Asset Value (NAV) P/NAV = 100 cps 32.4 cps P/NAV = 3.1 times Presenter: Shaun van den Berg

31 Profitability Ratios (ROE) ROE = Profits attributable to ordinary shareholders Ordinary shareholder’s funds ROE = R x 100% ROE = 23.91% ROE = Headline EPS Opening Net Asset Value (NAV) ROE = 7.4 cents x 100% 28.8 cents ROE = 7.4 cents x 100% 28.8 cents ROE = 25.69%

32 Debt / Equity Ratios Debt / Equity = (LT + ST interest bearing debt) - (Cash + Bank) Total Shareholder’s funds Debt / Equity = (R R ) - R R Debt / Equity = R R R Debt / Equity = R R Debt / Equity = 50

33 Interest Cover Interest Cover = Earnings before interest & tax (EBIT) Net interest paid = R R = 5.75 times One of the most important ratios to consider financial risk A three times cover means sufficient profits to pay the current interest charge three times - manageable A three times cover means sufficient profits to pay the current interest charge three times - manageable This is normally the minimum cover required - below this level, we would rarely contemplate an investment! This is normally the minimum cover required - below this level, we would rarely contemplate an investment!

34 Strategy: Value Investing

35 Regarded as the “father” of Value investing. Warren Buffett’s mentor. From 1936 – 1956, remarkable record as a share picker Over 20-years, mutual fund had a compound average return of at least 14.7%, compared to 12% for the overall market –$ invested would have earned roughly $ more than the average. He looked for shares trading below their calculated value –Instead of buying NAV (Assets – Liabilities) –Net current asset value (NCAV) approach –Wanted to know what the company would be worth if liquidated –Only include current assets (cash, stock & debtors), ignore long term assets, such as buildings & subtract long & short term liabilities –Find companies trading at two-thirds or less of their NCAV (P/NCAV < 0.40) Ben Graham insisted on a heavy discount Need Margin of Safety … “a price so low that you can make money even if some part of your analysis turns out to be wrong” –A true value investor would buy companies that the rest of the market think are lousy. Successful Investor: Benjamin Graham Presenter: Shaun van den Berg

36 Successful Investor: Warren Buffet “Price is what you pay, value is what you get” Warren Buffet

37 If you had invested $ at inception into Berkshire Hathaway in 1965 … your nest egg would be worth more than $50-million.Berkshire Hathaway Warren Buffet is a patient & cautious investor. He ignored the tech-bubble entirely & still does not hold a single technology or internet stock. He likes shares he can “see” & “understand” “It is much easier to predict the relative strength that Coke will have in the soft drink world than Microsoft will in the software world” Buffet likes to know the companies intimately. Holds onto them for the long term, or as long as they pass his growth tests without becoming over-priced. Advice: The key to success is to think of yourself as part-owner of the business. Successful Investor: Warren Buffet Presenter: Shaun van den Berg

38 Strategy of selecting shares trading for less than their intrinsic values. Seek shares of companies that they believe the market has undervalued. The market overreacts to good & bad news, resulting in share price movements that do not correspond with the company's long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated. Typically, value investors select shares with lower-than- average price-to-NAV or price-to-earnings (PE) ratios and/or high dividend yields. Value Investing Presenter: Shaun van den Berg

39 The big problem for value investing is estimating intrinsic value. –There is no "correct" intrinsic value. –Two investors can be given the exact same information & place a different value on a company. –For this reason, another central concept to value investing is that of "margin of safety". –This just means that you buy at a big enough discount to allow some room for error in your estimation of value. The very definition of value investing is subjective. –Some value investors only look at present assets/earnings & do not place any value on future growth. –Other value investors base strategies completely around the estimation of future growth & cash flows. Despite the different methodologies, it all comes back to trying to buy something for less than it is worth. Problems: Value Investing

40 Compared to charting, value investors have tons of financial documents to read. It is very labour intensive. The value investor is often subject to management buy outs or "going private" phenomenon. You have to wait for market forces to realise that the company is undervalued to move it up. You need loads of patience. Problems: Value Investing Please refer to Tutorial #6: Developing an Investment Strategy for more information for more information

41 Wide Moat –An understandable & competitive business model (Barriers to entry) Strong Management –Excellent management team Margin of Safety –Favourable long-term fundamentals. Investment Principles (3M’s) PSG Asset Management’s Investment Philosophy: Consistent, Conservative & Contrarian

42 Company Analysis Presenter: Shaun van den Berg

43 Research: Company Analysis

44 Company Analysis Undervalued Undervalued Undervalued ManageableFinancialRisk Profitable

45 Value Filter on PSG Online Presenter: Shaun van den Berg

46 Research Tools: Value Filter SelectFilters SelectSector

47 Research Tools: Value Search SelectDefault SelectSearch

48 Watch Lists

49 “Rank” Watch List as Investor

50 Use the Research Tools –Value Filter (Sectors/ Comparison) –Value Search (Opportunities) –Company Analysis (Be informed) –Watch Lists (Potential Winners) “It is far better to buy a fine company at a fair price, than a fair company at a fine price.” – Warren Buffet Summary & Conclusion: Investing Presenter: Shaun van den Berg

51 Fundamentals & Long-term Share picks The Investor Presenter: Shaun van den Berg

52 The Investor Bi-monthly newsletter One Share Spot Long-term equity investor Positives & Negatives Technical View Recommendation Equity Account 3-year view

53 Sasol (SOL)

54 Bowcalf (BCF)

55 Sunint (SUI)

56 Hudaco (HDC)

57 Sasol (SOL) Bowcalf (BCF) Sunint (SUI) Hudaco (HDC) The Investor - Share Picks to be added to The Investor mailing Open DateStockEntry P&L %P&L % SOL % BCF % SUI % HDC %

58 Big Picture –Economy (GDP growth) –Inflation & Interest Rates Company Analysis: –Turnover Growth > 10% –HEPS Growth > 10% –Valuation: Price/NAV < 2 PEG > 35 < 75 (Undervalued) –Profitable: ROE > 15% –Manageable Financial Risk: Interest Cover > 3 times –Cash Flow: Cash /HEPS > 0.75 Online Tutorials Summary: Webinar Presenter: Shaun van den Berg

59 Links to PowerPoint presentation will be sent. Next Webinars: –Short-term trading … what makes the market tick Lunch (13h00–14h00): Wednesday, 13 March 2013 –Advanced Technical Analysis (Candlesticks) Lunch (13h00–14h00): Wednesday, 20 March 2013 Next Traders Forum –PTA: Tuesday, 26 February 2013 (18h00 – 20h00) –JHB: Tuesday, 12 March 2013 (18h00 – 20h00) –DBN: Wednesday, 17 April 2013 (18h00 – 20h00) Good Luck Happy Trading! Conclusion: Webinar Presenter: Shaun van den Berg

60 Contact us Travis Robson (011) Shaun van den Berg (011) Presenter: Shaun van den Berg


Download ppt "Shaun van den Berg Head of Client Education at PSG Online Fundamentals to Value Investing Webinar Wednesday, 20 February 2013."

Similar presentations


Ads by Google