Hello @zaidi675
I expect that ARB has current (trailing) earnings power to current market cap (about $1,500m, @ $18.9 per share) of about 3.1% or 3.2% (1). Or said differently, I think ARB is generating a trailing earnings yield of about 3.1% to 3.2%.
If I assign some value to franking credits (2) then I'm willing to say that ARB is currently generating a trailing somewhat grossed up earnings yield of about 3.4% to 3.6%.
With a 5 year view of growth, I expect a prospective earnings yield (similarly grossed up) of somewhere between 4.9% and 6.3% (3).
However, to assign no value to growth beyond year 5, for one of the greatest compounding machines in Australia, would be completely unfair. Without getting into a lot of detail, if I assume that each dollar retained by the company generates about $1.7 dollars of value, then I get that the total prospective return (including growth beyond year 5) is somewhere in the range 6.1% to 7.9%. I think of this as an expected return of about 7.0% (the mid point), with a somewhat pessimistic prospect of only 6.1%.
I don't think that's a terrible prospect, especially when I think about the capital gains tax I will incur when I sell (which I did when I sold a little about 6 weeks ago). But I also don't think it's a particularly enticing prospect.
I think if I could purchase ARB with an expected return of about 9.5% and a somewhat pessimistic return of at least 7.0%, then it would be an attractive prospect. To achieve this, according to my numbers, we would require a share price of about $13. This price would correspond with a trailing earnings yield of about 4.7% (a PE of about 21).
Cheers, Mars
(1): This is based on cash earnings (ie after expensing all R&D), and is based on earnings from sales only (which is how I usually like to think about earnings).
(2): Though not acknowledging the full face value of them. After all, who knows how much longer we will have the benefit of a full tax refund on imputation credits.
(3): This is what I call the present value of earnings, divided by the current market cap (hence a "yield"), with a 5 year view (so ignoring any growth beyond year 5). So it can be thought of as a prospective return which ignores the value of any growth beyond year 5.
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$37.73 |
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Mkt cap ! $3.106B |
Open | High | Low | Value | Volume |
$37.59 | $37.73 | $37.16 | $3.778M | 100.6K |
Buyers (Bids)
No. | Vol. | Price($) |
---|---|---|
1 | 437 | $37.71 |
Sellers (Offers)
Price($) | Vol. | No. |
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$37.75 | 378 | 2 |
View Market Depth
No. | Vol. | Price($) |
---|---|---|
1 | 437 | 37.710 |
2 | 595 | 37.580 |
1 | 434 | 37.540 |
1 | 1117 | 37.530 |
1 | 434 | 37.510 |
Price($) | Vol. | No. |
---|---|---|
37.780 | 434 | 2 |
37.800 | 595 | 2 |
37.810 | 434 | 1 |
37.850 | 434 | 1 |
37.880 | 434 | 1 |
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