MFG Fair Value, page-148

Hi value investor fans,
here is another popular valuation method I found in a book by Timothy Vick's called "How to pick stocks like Warren Buffett"
it's based on getting 15% return on your investments ie 15% to compensate you for brokerage, taxes (30% outside of super), inflation and the opportunity cost of getting a return from bonds
Thing is when that book was written the bond rate was about 5%. it is now about 2%
so lets change the expected rate of return to 12%
what you also need for this calculation then is ...
1. an historic earnings growth rate that is likely to continue on into the future. To do that I used Morning Star's figures click here for the data
So I started at 6/'15 $1.01 and ended up with the 6/'21 figure $2.28 but discounted by 20% for lose of FUM this year so $1.82
this gave me a growth rate of 10.3%
2. next you need a PE
Vick suggests the average PE which for MGF is about 21 - a bit optimistic. I therefore chose the lowest in the last 8 years - 15
3. you then have to work out the dividends for 10 years going forward.
I estimate a payout ratio of 80% so ....
earnings divis
22' $1.82. 1.46
23' $2.01. 1.61
24' $2.21. 1.77
25' $2.44 1.95
26' $2.70. 2.16
27' $2.97 2.38
28' 3.28 2.62
29' 3.62. 2.90
30' 3.99 3.19
31' 4.85. 3.34
TOTAL $23.38

share Price in years
PE x earnings (10 yrs) = share price in 10 yrs
ie 15 x $4.85 = $72.75

Divis + share price in 10 years
$23.38 + $72.75 = $96.13

now you have to work out what price you would pay to get the expected rate of return ie 12%
you do this by discounting back 10 year at 12%
which is $26.77
the price is now $21.40
ok what if you wanted to get 13%
you would pay anything below $23.88
a return of 14%
$21.27
so if you wanted 14% and the price was $21.40 you wouldn't buy.
What you would do is wait for it to drop below $21.27