Forum Archive Index - July 2000

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

Thanks for reply Rini. Regarding how I do my calculations, they are simply discounted cashflow calculations that I have made up on a spreadsheet (quite a large one due to the information it works off). If the private email address showing for yourself when you post to this forum is your correct address, I can send you the spreadsheet if you like (although, I'll tidy it up a bit first)? Of course, the calculations are the easy part - as they all derive from future earnings, it is the researching of same that is the difficult bit :)

 

 

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

From: Rini H

To: sharechat@sharechat.co.nz

Sent: 8 July 2000 10:32 PM

Subject: Re: [sharechat] BRZ...Mark

Hi Mark,

It was interesting to follow your fundamental reading, I believe that BRZ is a gem, so I have included BRZ in my watch list for you.

I'm impressed of your fundamental analysis. How did you arrive to the calculation of future earnings per share of $4.02?

 

Friday's price moved down to zero line in my chart. Stay with me Mark, I'll let you know when it goes back up again signaling an uptrend.

BRZ were in uptrend up to Nov'99 and reached the highest peak of $4.35 (this is what Tony was referring to) and reversing downward since then (until now).

Even a kid can see what you called the tea leaves, whether price are moving uptrend or down tend. Chartist never buy stock when it is trending down.

We are patient enough to stay on the side line and jump in when it signals the uptrend. We made money when price move upward!!

BRZ seemed to have 2 false upward breakouts in April and June, but not strong enough to stop the down trend, so price continue falling.

What worries me is the daily volume is in the 100 to 200 000 only, while other popular ASX stocks could reach over 500 000 in volume per day. 

 

Price is the equilibrium between buyers and sellers. Your BRZ price becomes so undervalued because there are more sellers than buyers, pushing the price down.

I could give you an example, such as when I bought Sky City Instalment Receipts, the fundamental business was in profit, yet price were sliding down until the time to pay the final instalment. This is a prove that price do not always move in favour of the fundamental basic. Again, price is the equilibrium agreed between buyers and sellers.The chart only showed the picture of what is happening in the BRZ market, currently still trending down.

Stay on the sideline Mark, I'll keep you posted.

 

Rini 

 

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

From: Mark Hubbard

To: sharechat@sharechat.co.nz

Sent: Saturday, 8 July 2000 17:16

Subject: Re: [sharechat] BRZ...Mark

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