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Posted: 5 June 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

altaltThe mighty 900m-user social mammoth Facebook, after listing at $38, has felt a bit of gravity since. Naysayers have been crowing, but remember that even at $1 per share, the CEO of Facebook has done unusually well for himself.

 

Where do things stand now?

 

At some $64 per user, and $26.90 per share, it appears that the share may be close to the current value of all its future discounted cashflows - as long as:-

 

- It can grow from its current revenue level at 35% annually for the next 7 years.  That implies that it's total revenues will be at the $30bn mark by 2018. Astonishing growth, but remind yourself that Google already brought in $38bn in revenue last year!

 

- Its profitability (pre-tax) can remain at the 35% level. This is a high margin, but also lets the company's cost base shoot up to $19.7bn by that same year - encouraging for workers and suppliers...

 

- Its fixed asset amount on the balance sheet does not exceed 40% of revenue. For a "bright guy and flash-stick" operation like this, that seems easy, but if they will keep paying $bns for the likes of Instagram they may find that about right.

 

- it doesn't need more than the current 5.6% of sales in working capital.

 

- it can persist indefinitely thereafter at 3% growth, servicing its cost of capital,

 

- It finds a clear way of translating the new-fangled accounting which Ernst & Young are developing to try and represent the virtual business initiatives (Farmville etc) into value the wider market can see, believe and want

 

Here is the summary DCF, showing how rapidly the valuation shifts if you shift the growth or margin assumptions.:-

 

alt

 

So am I a buyer yet?

 

Not quite, because

 

- I expect its next numbers will surprise on the upside - I really think the reported taxed profit of 1,000 billion was a manipulated figure, and I think its total labour costs may be reported as lower now thanks to the lower stock price.

 

- I find the financials in the IPO document unconvincing, and certainly while it has a lot of headspace in web advertising (refer Google turnover figure above), I am of the "don't tell me, show me" school. I will watch with interest, though.

 

- I think that the rapid growth of its user base will generate more people wanting to replicate that explosive growth, and some will succeed. It took Facebook 10 months to hit a million signups, and Path.com - a (more sensible?) social app that limits you to 150 friends, hit a million in only 2.5 months. The 150 is a very astute limit - sociologists will tell you that humans have never ever had viable circles of greater than that in terms of real friendship. Acquaintances are different, of course.

 

- I expect that any technical organism which has grown this fast, might just die as fast. I am sure its dollar dimensions will move fast now, but I certainly am unable to construct a scenario of perpetual growth at 3% for this company. Let me know if you can.

 

- I have plenty of choice, with companies I can understand, can see the cash, and can value to current prices using a higher discount rate. And the discount rate is the implied return from your holding, if you get in at the valuation and stay in.

 

Cheers

Stuart

 

 

 


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Posted: 13 June 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

 Just seen on twitter:-

 

"FSB Regutory exam passed first time. Boom.  Will it protect an SA citizen from cost indulgence/malfeasance/worse?"

 

Comments welcome, on whether such exams and regulatory frameworks function more effectively as:-

 

a pivotal guardian service for the public's coin, or

a subtle, complex barrier to entry into a (privileged) guild

 

Cheers

Stuart

 

(see also from NYU professor Aswath Damodaran:-

 "With easy access to data and screening tools, anyone can screen for cheap stocks. So, what's your competitive moat? http://t.co/oiutVlE9 "

 

 


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Posted: 21 June 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Market news

Money is weird. 

 

It doesn't really help, if you think about, without faith by the current holder that he will be able to get value (goods/services) for it at some future time. Its an option, on the probability that the wheels will not come off. And money is hard to make, and easy to lose. That is despite the supposed rigour of double-entry bookkeeping, which suggests that value and the price paid ought always to match up.

 

And if you need fresh new money to fund a business, especially a small and brave one, it often seems to you that people with money only want to run the other way. Which is even weirder, given that the total funds on this planet are essentially infinite - recently estimated by a consulting group as an amount (US dollars) in the quadrillions.

 

Anyway, thats how it is - if all the world's money was divided among the rich people, there wouldn't be enough to go round!

 

So I was interested to see (after knowing of some others using social media to "crowdsource" capital), that the Windhoek microbrewer Camelthorn is offering a novel form of participation in its fledgling growth path.

 

I post this link with no expressed nor implied opinion, to be clear:-   Camelthorn Craft Beer fund

 

 

Cheers

Stuart

 

 

 


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Average(Out of 5): 0
Posted: 27 June 2012 - 0 comment(s) [ Comment ] - 0 trackback(s) [ Trackback ]
Category: Research

 ABSA was bought out control-wise by Barclays in 2005. Its a funny old world, when you re-read some of the news from that time, and think who runs which show.

 

8 May 2005 – "AbsaBarclays deal approved | Fin24 | Companies | Finance Minister Trevor Manuel has approved the much anticipated deal where Barclays plc ..."


Anyway, now ABSA has brought out a profit warning - so one might wonder if Barclays' knickers are or should be in a twist.

 

This picture does show the price knock since the profit warning (red), but it also shows the dividends paid in green (most now goes to London, to Barclays, with the bold arrow indicating the deal date).

 

alt

 

So yes, there has been a shareprice impact of around 8%, but the dividends paid out have trebled in the 7 years since the deal was struck. So, if one thinks  fundamentally, should Barclays panic as much the shareprice might suggest?

 

Cheers

Stuart 

 


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