Walrus wrote:TheMotorcycleBoy wrote:Ok, I had another think about this.....i.e. contributions or otherwise of Next's "Receivables" (i.e. the portion representing regular cash inflows due to online customer purchases made on NextPay), and I'm now of the view that this figure is part of the existing Revenue, and hence EBIT calculations, as published by Next themselves in their reports. From Note 1. of Next's January 2018 report:
and hence they should not be understood in the same way as a valuation of another firm, which in addition to having, for example, strong "earnings power", also has a considerable sum of ready cash in the bank.
So I'm now of the opinion that in the light of my initial simple EPV attempt, ignorant of the "quick" receivables on tap, of £42/share implies that NXT currently at £54 is somewhat overvalued......in particular by reference to only this valuation technique.
All opinions on the above, or for that matter on a NXT valuation welcome.
Matt
I happened up this post by accident, but I will give you my layman view FWIW.
Is your calculation not highly sensitive to both your discount rate and your assumption of zero growth? It may be worth plotting how those variables change your valuation, and then you can assess what conviction you have on those assumptions and what your upside looks like?
Correct.
All of this type of thing is indeed very sensitive, in particular to the discount rate, so any such "figures" derived from mathematical models must be taken with a big pinch of salt.
However, that aside, I'm a newbie in equity buying and of the view that the some of the shares I purchased earlier on this year were perhaps bought a little too pricey. Now whilst I have heard of, and understand, "dollar cost-averaging", I would also be very interested in for my own benefit in finding any ball park pointers as to appropriate measures of value before I press the buy button.
The topic of selection of discount rate, is very interesting, and I have many times contemplated it's fundamental meaning - and indeed invited others on LF to do likewise - if they so wish. Regardless, however of it's relevance/applicability it's hard to escape the fact that it (the DR) is a key ingredient used by many well esteemed investors, the likes of Buffett and Graham, in more recently for many successful fund managers, e.g.
https://uk.reuters.com/article/us-brita ... HZ20151223(I just plugged Kevin A-L since I recently read one of his valuation books)
Finally, zero growth. Two things: the EPV model deliberately either ignores/eliminates growth from it's model. So as I briefly exemplified in
my original post I showed the sales figures for NXT over the past 5 years or so, and since looks like there's little sales growth, I deliberately did not attempt to adjust away any previous growth expenditure in the model.
By comparison, if you have the time, take a look my
EPV for Marshalls Plc. So here we can and do see evidence of strong sales growth, so later on in the model, we attempt to remove it.
By the way, in case you are wondering the EPV model deliberately ignores growth, based on the view that growth
forecasts being very hard/impossible to make. That's why, I, in my naive view, favour EPV based model than DCF or DDM since those latter methods expect the individual to take a pot shot at estimate future earnings/flows......where as EPV (which is fundamentally present day "distributable cash profits"), only relies on a "guess" of the discount rate...
anyway, many thanks for your interest
Matt