Forum Archive Index - July 2000

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

Yes, but how does a chartist get that figure (in your case, the $4.35)? Some sort of mathematics?

 

From a fundamental point of view, it becomes logical - for example my analysis, as I posted to Egoli, is:

 

Earnings for this company have gone up 48% from 1998 to 1999 (from $19.2m to $28.5m). Their mid year result to December 1999 was up 7% over the same period the previous year. Thus:

I will use base earnings of $28.5m. My required rate of return to compensate for risk is 16%. I estimate earnings growth for this firm over next five years of 15% per annum, then only 5% perannum thereafter (very conservative). The remaining factors in the analysis are then long term liabilities for company equal $6.4m, and total issued ordinary shares of 112,189,500.

These would give a value for one ordinary share in BRZ, based on discounted future earnings, of $4.02. Such fundamental analysis simply give the 'fair value' for the firm, it does not give a minimum value at which it might trade - note that the fair value is best thought of also as a 'range'.

 

My analysis is pretty conservative, but even given this the share would appear very unvalued [currently trading at $2.27] (note your upper value of $6.42, however, would make the share too overvalued, as this would represent a level of earnings growth that I doubt the firm would justify, as good as it is (the only thing that might justify this is that its Gosh Coffee chain, planned for about 200 shops nationwide, is only now just getting off the ground, with the first 30 to 40 stores being opened over the current financial year - I believe this offers further good growth for future).

 

 

Ie, [back to you Tony] based on fundamentals, you can get a 'logical feel' for what a share is worth, based on your expectations for future earnings. The chartist, however, seems to try and use mathematics to discern such fair value from the cumulative past patterns of trading by investors (and therefore, if all of the investors were chartists, surely the share value would not necessarily represent the earnings ability of the company at all).

 

But all interesting all the same. I'm still attempting to use your charty stuff to determine next entry price. (And I just wish I could figure out why this share is becoming so undervalued - I'm beginning to worry that I am missing something in respect of future earnings prospects).

 

 

----- Original Message -----

From: Tony Haddon

To: sharechat@sharechat.co.nz

Sent: 8 July 2000 4:27 PM

Subject: [sharechat] BRZ...Mark

I do'nt know where the Ozzie would have got $6.42 from...I think the most you could reasonably aspire to is the previous high of $4.35 (26 November 99)

 

Tony Haddon