Forum Archive Index - November 1999

["Mark Hubbard" <mhubbard@es.co.nz>]

(Please see my immediately preceding post)

Assumptions:

Earnings growth next five years: 15%
Earnings growth years 5 to 10:    12%
Earnings growth thereafter:           5%

Actual Earnngs: 1998:  $8.1 million
Est. Earnings: 1999:  $12.6 million (per analysts - Datex)
Est. Earnings: 2000:   $14   million (per analysts - Datex)

Base earnings used for valuation: 12 million

Disount factor used, 5% base rate, plus a 10% premium for risk = 15% for
first 20 Years. Discount rate of 15% thereafter (perpetuity). (In simple
terms, what price to I want to pay to earn a 15% return pa from this share,
given its above income stream). Note that level of the discount factor is
very subjective, so you may not agree.

Valuation:

The above assumptions would give the share a valuation between $2.00 and
$2.10.
Share currently trading at $1.30.  This would give, therefore, about a 38%
discount to my calculated valuation.

Well, what do you think. I would be interested in other peoples valuations.
I purchased shares yesterday $1.30. As David McEwen said, this is only one
way to value a share so I may be wrong. But it is the only way I am
comfortable with when buying shares on a long term basis, for value (based
on what that company earns).


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