@saintexdon’t have the time to put it all out there but:1....

@saintex
don’t have the time to put it all out there but:

1. problem with ROE/NPAT is very dependent on gearing rate. Ie metrics can look significantly better by taking on more risk, which often doesn’t play out over years

Valuation is therefore very tricky. My personal opinion is that the proper way to value this is:
a. Work out ROE over the cycle
b. Work out underlying growth rate- I believe the best method is using the CAGR for the book value/NTA (this controls for a lot of other factors)
c. Apply appropriate valuation methodology using the NPAT

in terms of buying with a margin of safety- I have historically used price:NTA ratio- the closer it is to one, the safer the valuation is.

One of the biggest risks in this business is the inventory build over a lot of time- in essence the capitalized profits, as FCF generation is a little bit weak. If new developments are actually inappropriately capitalized, there is a risk of write-downs- so you have to know the specifics of the developments which have and haven’t been written down and whether there is residual unaccounted for value in the locations (profit upside) or whether the estimates of realisable value are overly generous. The best methodology to do this is to individually evaluate decisions taken over time (there is a very long listed history) to see the hit rate on their developments. The only things written down to date are mainly regional WA...