13-04-2013, 07:56 PM
Alternative view posted >3 months ago...
Quote:01-12-2013, 02:53 PM
Post: #43
Ray168
Junior Member
RE: Breadtalk
Hi,
I think we should take another view to value BT. BT is a cash generating machine. Its Net Operating cashflow is improving year after year.
If we take 2011 Net Operating Cashflow $43 million and its total market value $193 million (11Jan2013 @ 0.685 / share), the ROI is 4.48X.
Isn't this attractive?
On TA wise, current price may be too high for entry.
(13-04-2013, 03:41 PM)shanrui_91 Wrote:(13-04-2013, 02:07 PM)Ray168 Wrote: Just sharing my view on BT intrinsic value... which I posted on other forum. Which model is right? Your call.
-------------------------////---------------------------
Base on Earning model, the 'intrinsic value' is $1.22
Parameter:
EPS CAGR (10 yrs) of 22%.
Discounted rate: 3%
** Academic study only **. If you are firm believer of value investing, you will appreciate the model.
......................................................
Base on cashflow "intrinsic value" calculation, the intrinsic value of BT is ~ $2.41
Parameter:
Cashflow grow projection = 6.5%. (50% discount of 5 years CAGR 13%)
Dscount rate = 4%
Compare to current price of $1, the margin of safety is ~60%.
Well, please take above as academic discussion.
It does not take into consideration of overall market sentiment and trend.
p.s. please don't ask me for 'intrinsic value' calculation.
For your first model, I suppose that you use historical CAGR to project future growth rate. However, it is very dangerous to do so without understanding what has allowed the company to grow at 22% per annum and is it be able to do so for the next 10 years. 22% CAGR for 10 years is a very optimistic projection and will make many companies look exceptionally cheap.
As company matures and grow, they will have to slow down eventually. For a retailer/franchisee, it will be either coming from new outlets opening or same store sale growth. If it is to open new outlet without adopting franchise model, you will need to invest cashflow into PPE. In addition, profit margin will also be hit with new store gestation. One good thing about breadtalk though is its negative cash conversion cycle. For franchise, that will be how much capital your franchisee have as well as how much profit your franchisee gets to earn. I doubt breadtalk can achieve 22% cagr just by same store sale growth.
As for your cashflow model, did you use free cash flow or did you use operating cash flow? If you foresee expansion, PPE will be higher and this will affect your FCF. Secondly, is your projection to perpetuity? If it is 6.5% might be too high. Not many businesses are able to grow more than 5% for infinite period.
The dangerous thing about all these model is that your assumption is crucial for your valuation. Try to do a sanity check by asking yourself if it possible. Sometimes, the best valuation is just simple metrics like P/E, P/B or P/FCF. It is never about getting the specific intrinsic value but getting a good estimate or gauge of it.