Forum Archive Index - October 2000

["tennyson@caverock.net.nz" <tennyson@caverock.net.nz>]

> 
> I'll put my.....on the table so to speak and have a go at
> calculating BCH using this method. I'm pretty sure it's wrong but
> I'll never learn if I don't ask. Here goes. Incidentally I've got a
> financial calculator which I'd be lost without because I think I
> missed that particular lesson at school when the told us about
> algebra.
> 
> BCH had (weighted) EPS this year of close enough to 21c. Over the
> past 5 years this figure has been climbing at a rate of 23%
> annually. So lets say we are happy with the qualitative aspects of
> the company and are confident that the company will continue to
> perform at 23% for the next 5 years. The EPS will grow to close to
> 60c. 
>
0.21x 1.25x 1.25x 1.25x 1.25x 1.25= 0.60c
That seems right
>
>Now, and this is the bit I am slightly hazy on Phil, if I
> discount this figure using 15% as my target, I end up with a present
> value of EPS at 30c. 
>
60c/1.15/1.15/1.15/1.15/1.15= 30c
Maths looks OK so far.
>
>Now, do I multiply that by todays PE which I
>think is 55. This will give me a price of about $16.50. But I think
>that the PE is way to high. So if I use a more realistic figure of
>40 I get a price of $12 or at 30 I get $9. Or the average NZSE PE is
>about 16 which will give a price of $4.80.
>
Since P/E is one measure of anticipated growth shouldn't the P/E 
figure that you use be related to the growth rate and the future 
valuation discount rate (one measure of the quality of earnings)  
of 15% that you are using?  This *is* a question BTW, not an 
answer.
> 
>Now folks at this point I'll sit back and ask for my work to be
>assessed. 
> 
Likewise.  SNOOPY

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