I think the market has got it wrong. Fair value according to the...

I think the market has got it wrong. Fair value according to the analysts is between $7 and $8 so there is between 20% and 40% return here for investors who want it.

See if you can follow the logic here.



Historical + prospective earnings growth based on Linwar Securities figures


(01)5.3 (02) 7.0 (03) 10.1(04) 14.6 (05)19.1 (06) 35.7 (07) 45 (08) 40.8 (09) 46.6 (10) 51.9

Growth Rate based on Linwar Securities figures = 25%

Growth Rates (GR) based on target prices (tp) and earnings (.56) pre profit downgrade

JP Morgan (tp) $12 (PE) 21.4 (GR) 21.4%
Linwar Securties (tp) $11.80 (PE) 21 (GR) 21%
ABN Amro (tp) 11.28 (PE) 20 (GR) 20%
Macquarie (tp) $12.92 (PE) 23 (GR) 23%
Aspect Huntley (tp) $10.45 (PE) 18.6 (GR) 18.6%

Average growth rate implied by the PE pre downgrade was 20.48%


After the profit downgrade (earnings ’08 = .41)

JP Morgan (tp) $7.45 (PE) 18.1 (GR) 18.1%
Linwar Securties (tp) $8 (PE) 19.5 (GR) 19.5%
ABN Amro (tp) $5.89 (PE) 14.36 (GR) 14.4%
Macquarie (tp) $7.15 (PE) 17.43 (GR) 17.4%
Aspect Huntley “under review”

Average growth rate after the downgrade is about 17.4%

Now what is happening in the market?

Price = $5.72
PE = (5.72 / .41) = 14
Implied growth rate = 14%

The market has downgraded growth rates 31% where as the analysts have only downgraded their valuation models 15%

This would indicate that the market has got it wrong and have undervalued the shares.

$7 minimum is fair value. Look at between $7.50 and $8

There is 20% in this one for sure maybe 40%