Date post: | 20-Mar-2017 |
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Education |
Upload: | martin-bodocky |
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Vienna Value Investing Meetup #2
PRESENTED BY MARTIN BODOCKYSUPPORTED BY
Why this meetup?BUILDING COMMUNITY TO HELP EACH OTHER
WE WANT TO BUILD THE RIGHT TOOL FOR VALUE INVESTORS
THIS IS AN OPEN DISCUSSION MEETUP, PLEASE ASK WHENEVER YOU LIKE
Who am I?
MARTIN BODOCKYCEO OF MINT ITAI AND FINTECH GEEKWE ARE HIRING!
DisclaimerWE ARE NOT INVESTMENT ADVISORS.WE DO NOT RECOMMEND TO BUY OR SELL.ANY DECISION YOU CONCLUDED FROM THIS SESSION IS YOURS NOT OURS, YOU ARE IN CONTROL.
Agenda1.) FUNDAMENTALS RULES FOR VALUATION 2.) REPRODUCTION MODEL3.) PRICE EARNINGS MULTIPLE MODEL4.) DISCOUNTED FREE CASH FLOW MODEL
Snap’s IPO
Value decomposition• WHAT THE COMPANY OWNS/OWES BALANCE SHEET
• HOW THE COMPANY MAKES MONEYINCOME STATEMENT, CASH FLOW, COMPANY VALUE DRIVER
What the company owns/owes• WE NEED TO DETERMINE THE NET VALUE
OF COMPANY ASSETS• CONCLUDE NET ASSETS VALUE PER
SHARE• THE COMPANY’S REPRODUCTION COSTS• IF YOU SELL ALL WHAT YOU GET• EXAMPLE IN SPREADSHEET
Reproduction company assets 1/3• CASH & CASH EQUIVALENT IS FULLY
REPRODUCIBLE• SHORT TERM INVESTMENT CAN BE
FULLY REPRODUCIBLE• RECEIVABLES ARE INVOICES TO BE PAID
BY EXTERNAL ENTITIES• INVENTORY IS DEPENDABLE ON
COMPANY, INDUSTRY AND INVENTORY. CAREFUL IN ESTIMATION
• PREPAID EXPENSES ARE GOOD ARE PAID FOR SHORT TERM USAGE
Reproduction company assets 2/3• OTHER CURRENT ASSETS CAN BE
SHORT-TERM INVESTMENTS, USUALLY LESS LIQUID THAT OTHER CURRENT ASSETS
• PROPERTY/PLANT/EQUIPMENT IS DEPENDABLE ON COMPANY INDUSTRY, THIS IS POTENTIAL PLACE FOR VALUE TRAP AS WELL AS HIDDEN VALUE
• GOODWILL IS HOW MUCH VALUE COMPANY HAS CREATED BY THEIR PRODUCT AND SERVICES. WE CAN SAY THE BRAND VALUE.
Reproduction company assets 3/3• INTANGIBLE ASSETS ARE PATENTS AND
TRADEMARKS. WE NEED TO ASSESS SIMILAR TO GOODWILL.
• LONG TERM INVESTMENT IS DEPENDABLE ON COMPANY VISION, IT CAN BE VENTURE CAPITAL OR RESEARCH FUNDING.
• DEFERRED TAX ASSETS ARE RETURN TAXES FOR NEXT YEAR, LIQUIDITY COST IS QUESTIONABLE
How the company makes money
• WE NEED TO UNDERSTAND WHAT DRIVES THE COMPANY VALUE PRODUCTION
• PRICE/EARNINGS MULTIPLE MODEL• DISCOUNTED FREE CASH FLOW MODEL
Margin of safety
Company value driver 1/3• YOUNG GROWTH COMPANIES –
REVENUE GROWTH, TARGET MARGIN, SURVIVAL PROBABILITY
• GROWTH COMPANIES – SCALING GROWTH, MARGIN SUSTAINABILITY
• MATURE COMPANIES – OPERATING SLACK, FINANCIAL SLACK, PROBABILITY OF MANAGEMENT CHANGE
Company value driver 2/3• DECLINING COMPANIES - GOING
CONCERN VALUE, DEFAULT PROBABILITY, DEFAULT CONSEQUENCES
• FINANCIAL SERVICE FIRMS – EQUITY RISK, QUALITY OF GROWTH (RETURN ON EQUITY), REGULATORY CAPITAL BUFFERS
Company value driver 3/3• COMMODITY AND CYCLICAL
COMPANIES – NORMALIZED EARNINGS, EXCESS RETURNS, LONG-TERM GROWTH
• INTANGIBLE ASSET COMPANIES – NATURE OF INTANGIBLE ASSETS, EFFICIENCY OF INVESTMENTS IN INTANGIBLE ASSETS
Price/earnings multiple model• DETERMINES 5 YEARS PRICE TARGET• THE MOST STRAIGHTFORWARD MODEL• USES HISTORICAL PRICE/EARNINGS
MULTIPLE• USES CURRENT EARNINGS PER SHARE• USES EXPECTED GROWTH RATE
Historical price/earning multiple• THE MODEL IS ESTIMATING VALUE ON
PAST EARNING CAPACITY OF COMPANY• THIS CAN BE COMPUTED• EASY ACCESS IN MORNINGSTAR[1] (5Y
AVG*)
Current earnings per share• THE MODEL IS INDICATING ON CURRENT
EARNING POWER• THIS CAN BE COMPUTED• EASY ACCESS IN YAHOO FINANCE[1]
(EPS –TTM)
Expected growth rate• WHAT IS PROJECT GROWTH RATE IN
EARNINGS BY ANALYSTS• EASY ACCESS IN YAHOO FINANCE[1]
(NEXT 5 YEARS PER ANNUM)• APPLY MARGIN OF SAFETY HERE
The P/E multiple model computation• DISCOUNT RATE = LONG TERM HISTORICAL
MARKET RETURN
• EXAMPLE IN SPREADSHEET
Intrinsic value
Cash VS Cash• “CASH” VS “CASH CAN BE TAKEN OUT OF
A BUSINESS”• “CASH FROM OPERATING ACTIVITIES” VS
“FREE CASH FLOW”• CAPITAL EXPENDITURES (CAPEX) –
COMPANY RUNNING COSTS• FREE CASH FLOW(FCF) – WHAT REMAINS
IN COMPANY CAN BE TAKEN OUT
Discounted Cash Flow(DCF) model• ADDS UP ALL THE EXPECTED FUTURE
CASH FLOWS DEDUCT NET VALUE PRICE TO COME THE INTRINSIC VALUE IN TODAY’S MONEY
• TAKES LAST 12 MONTHS AND PROJECT NEXT 10 YEARS BY MULTIPLYING WITH EXPECTED GROWTH RATE.
DCF data 1/3• TOTAL CASH FLOW FROM OPERATING
ACTIVITIES• CAPITAL EXPENDITURES• CASH FLOW STATEMENT• EASY ACCESS IN YAHOO FINANCE[1]
DCF data 2/3• CASH AND CASH EQUIVALENT• SHORT TERM INVESTMENT• LONG TERM DEBT• BALANCE SHEET• EASY ACCESS IN YAHOO FINANCE[1]
DCF data 3/3• EXPECTED GROWTH RATE• EASY ACCESS IN YAHOO FINANCE
ANALYSTS[1]
• NUMBER OF SHARES OUTSTANDING• EASY ACCESS IN YAHOO FINANCE
STATISTICS[2]
DCF Computation• MARGIN OF SAFETY• DISCOUNT RATE• GROWTH DECLINE RATE• LAST VALUATION OF FREE CASH FLOW IS
MULTIPLE BY 12
• EXAMPLE IN SPREADSHEET
Summary• REPRODUCTION COSTS• PRICE/EARNINGS MULTIPLE MODEL• DISCOUNT FREE CASH FLOW MODEL
Next sessions• VALUE COMPANY IN SPECIFIC STAGE –
GROWTH, MATURITY, DECLINING• SPECIFIC INDUSTRY SESSIONS(AUTO,
BIOTECH, SOFTWARE)• PLEASE PARTICIPATE