MFG Fair Value, page-120

anybody a fan of intrinsic value equations?
well, here is roughly the Roger Montgomery method.
Basically what you do is apply this equation to come up with a multiple ie Return on equity / expected rate of return x book value to work out dividends and then you square it to work out capital growth.
using this data from Morning Star
so if the MFG pays out all it earnings as dividends maximum it can be worth is $21.07
average return on equity = 47%
expected rate of return = 12%
Book value = $5.38
.47 x .12= 3.92
3.92 x $5.38 = $21.07
For the growth of the company via reinvested earnings you simple square the multiple.
so 3.92 ^ 2 = 15.37
15.37 x book value ie $5.38 = $82.67
so the maximum MFG can be worth if it reinvests all it's earnings is $82.67
thing is MFG pays out about 80% of its earnings as dividends and only reinvests 20% of it's earnings.
to calculate the value of dividends you multiple the dividend amount by 80% and the reinvested amount by 20% so here is what you get....
dividend value is ...
$21.07 x .80 = $16.86
reinvested earnings is ....
$82.67 x .20 = $16.53
add them together and you $33.09
so intrinsic value for MFG is $33.09
However you need to incorporate a margin of safety
I usually make it 25%
so .75 x $33.09 = $24.82
Fair value for MFG then is $24.82
Probably a bit of a wank but that is how Roger Montgomery might do it.
In fact , Roger ... f you are out there let is us know what you think MFG is worth
thanks