Abbey plc, Aer Lingus, Allied Irish Banks, Aminex, Bank of Ireland, Conroy Gold, Continental Farmers Group, CPL Resources, CRH, Irish shares, Irish Stock Exchange, Irish value investing, stock screener
Time to take a little breather from Catalysts..! I’ve finally got ‘round to beginning a project that’s been top of my to-do list ever since starting this blog:
Yes, I wanted to identify all the listed Irish companies out there, (re)acquaint myself with their business fundamentals and financials, come up with a rough and ready valuation for each stock, and thereby come up with a list of the most potentially under- and over-valued Irish stocks.
So, what’s my definition of an Irish company? I don’t see a need to be too rigid about this. I’m including companies listed on the Irish Stock Exchange, companies who’ve most/all of their business/operations based/HQed in Ireland (not simply registered there), and companies who are led by predominantly Irish directors and/or management. I first input all the ISE listed stocks and then, off the top of my head, I added all the other non-ISE listed Irish stocks I could think of. I will revisit this exercise, but I’m sure I’ll still end up missing a few stocks – so if you notice any missing, please don’t hesitate to comment or email me.
No need to be impressed with the data/formulas etc…it’s all just brute force! I’m not a huge fan of screeners/download tools – I’m wary of a lot of data out there, and even if it’s accurate it’s often unrevealing or misleading. Yeah, they produce an occasional worthwhile idea, but I tend to find plenty of interesting stocks anyway without them. Also, I have this quaint notion I owe each stock at least one perusal of its website and latest annual report. Doing this makes each company/stock seem that much more tangible and memorable. (And that’s also probably why I still mostly buy CDs…though I’m not a complete idiot, I almost never buy CDs in Ireland).
And boy, does this pay off! I reckon half my investing knowledge/experience comes from reading up on new stocks, trying to understand their business/sector and its quirks, and puzzling over how to value them. I’ve also become fairly good at retaining little mental snapshots of great/interesting/obscure companies that were a tad expensive (good company, bad stock) when I first came across them. It’s amazing how often the wheel comes full circle and you get to buy these stocks at a great price (good company, good stock) based on a little neglect or some temporary distress! I often consider patience to be the most important value investing skill…
OK, before I attach the first version of my file, please note I’m nowhere near finished! I’ve got about 70 stocks listed already! Rather than slave away for God knows how long, I thought it far better to start with the first dozen stocks, post them, hopefully get some dialogue/feedback going and then post regular file updates in the next few (?) weeks. Also, here’s my Disclaimer again! Please Do Your Own Research (DYOR) before buying, as they say. These are all rough and ready valuations (unless I utilize a valuation from a blog post) – some turn out to be truly a surprise, even to me! – and I’m not planning an in-depth write-up on most of these stocks. So, feel free to agree, or disagree (violently), with me on any aspect of my valuations..!?!
The Great Irish Share Valuation Project I (xlsx file)
The Great Irish Share Valuation Project I (xls file)
Please focus on the Wexboy sheet – I’ve also included a Disclaimer for reference and I’ll discuss the Template in another post. I think the spreadsheet’s pretty self-explanatory – I’ll run through the more notable stocks to illuminate my approach, and if you’ve any specific questions don’t hesitate to comment or email me. Btw I don’t consider this file a final buy or sell list, it’s more my (personalized and clunky) version of a stock screener to identify the highest priority over/under-valued stocks to research and monitor more closely. These next steps will often prompt me to revise my price target higher or lower, or even revise my valuation approach, on a stock.
If you’re a more occasional investor, perhaps consider this file a good cheat sheet for a hopefully rewarding discussion with your adviser/broker. Perhaps you might discuss whether buying/adding to any of the most under-valued stocks, and/or selling the most over-valued, might be a good idea? Your broker should understand the valuation approach and metrics in each instance, and if he/she disagrees just ask them to explain why, and to review their own valuation with you.
OK, let’s visit with a few of these initial stocks:
Abbey (ABBY:ID): Based on current RoE, and the safety of the B/S, I’ve set the Target Price equal to the Net Asset Value. Abbey’s a great stock (Philip O’Sullivan just put up a good post here), but there are quite a few other property stocks out there (with Net Cash or low LTVs) on similar/lower valuations, so your stock preference will come down to what kind of exposure you’re looking for.
Aer Lingus (AERL:ID): Wow, this valuation caught me by total surprise! I’m not a fan of most airlines, but this is intriguing – and, of course, Aer Lingus has got the almost unique distinction of having significant Net Cash on the B/S. But the numbers stack up: Operating FCF (Operating Cashflow less Capex) (adding back aircraft lease finance charges) comes in at 8.6% of Revenues, so I think a 0.67 P/S Ratio is deserved. This depends on two big assumptions – that Mueller can keep up this performance, and that Capex will be severely limited in the next few years (based on average plane age, that seems reasonable). I’ve then haircut Cash to reduce Debt/Aircraft Leases to sustainable/lower risk levels, and to eliminate half the Pension Deficit (sure, Aer Lingus isn’t on the hook for this, but are you really going to bet that management, the unions & the government won’t shaft the shareholders with some kind of deal/settlement?!)
AIB (ALBK:ID) & B/I (BKIR:ID): Well, no surprise with the AIB over-valuation, who the f*k is buying the shares on a EUR 31 billion valuation?! On the other hand, I was genuinely puzzled at the Fairfax/Ross consortium investment – but perhaps this valuation and Price Target explains it? As you see, I’ve used the latest Equity in both valuations and haircut by my estimated losses on Gross Impaired/Vulnerable/Past Due loans, adjusted to reflect their current B/S Provisions. Of course, this doesn’t provide much protection against new Bad Loans turning up..!?!
Aminex (AEX:LN): With oil/natural resource stocks, I usually ignore earnings and value the business at Cash, less Borrowings if there are any, less 1 Year’s Cash Burn. If a company has Proved & Probable Reserves, I’ll include them at $10 per boe for Proved Reserves, and $5 per boe for Probable Reserves. Yes, it’s tempting to get excited about Indicated/Inferred Resources, but from painful experience it’s just not worth it! After all, have you ever seen a bank lend against Resources? But they can serve as an additional qualitative factor if you’re stuck choosing between a number of oilies. Conroy Gold (CGNR:LN), by the same logic (with no Reserves) is basically worthless.
Continental Farmers (CFGP:LN): Investment banks/brokers, I salute you! How do you sell this stuff?! Nothing wrong with the company, but like pretty much all of its peer group (I wrote about this here) it doesn’t generate any Free Cash Flow, and isn’t likely to in the near-term, so I’m forced to value it based on its land holdings (btw the IPO Cash raised only matches the Debt they currently have outstanding).
CPL Resources (CPL:ID): When I come across a decent (cyclical?) stock, and I’m reasonably confident it will revert to their peak/average Operating Profit Margins, I’ll actually price it at a P/S Ratio that reflects an average of current and peak (or LT average) Margins. I think this is fair, as it’s a Margin the company should be able to reach/exceed in the next couple of years (so think of it as a Target Valuation), and/or it more fairly represents what another company might be prepared to pay in a takeover situation. I’ve used a similar approach with CRH (CRH:ID).
Btw Some stocks are listed on more than one exchange – I’ve opted for the Irish listing unless trading volumes are significantly higher on another exchange.
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Richard Beddard said:
Really great post. I won’t be joining you on the valuation escapade as I’ve got my hands too full with UK stocks but I’m increasingly coming round to your view on screening and your enthusiasm for just picking up an annual report is inspiring.
Thanks, Richard, appreciate the comments!
God, I find more and more people are asking me about stocks at dinner parties, cocktail parties…OK, when I’m drunk down the pub…I’ve discovered that telling them that most nights I read annual reports in bed for fun (this part is no joke, actually) scares away all but the true believers! 🙂
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