spot valuation for cloncurry , page-14

Dave, sorry no it's not an EPS number.
It's just a ballpark valuation, with no other variables taken into consideration.

For instance, I took the cost of setting up the mines as $50mil & spread it over the life of mine (10years), this would have to be payed upfront, maybe with some debt.
The company would also have Depreciation, Amortisation, Debt, tax to pay, etc., before an EPS figure can be found.

Guessing a PE to calculate back for a shareprice is also fraught with danger, a better way, once you have a EPS number, is to compare it to the long term bond rate, to check weather you would be better holding a LT bond with it's security, than an equity with it's inherent risk.

To do this (grab your calculator), say the EPS is 10cps.
Put in .10 divided by 6.25%(long term bond rate, also known as the risk free rate of return), dont push equals, you get 1.6 or $1.60ps.
If the SP is say $2.00 ( and the company is mature with only standard growth), you can see that it is probably overvalued & you would be better off holding the LT bond or another stock, but if it is $1.00 then it may be undervalued & could rise to a higher level.

I find this a super quick way of checking weather a share is overvalued or not.
Remember though, if a company has a very high growth stategy in place, this may already be built into the SP, so it may seem overvalued, when it may not be.
So that is when you need to know the company well before investing, as this calculation is backward looking.


noellyn,

yes it is a simple calculation, but I find it effective for the smaller companys, who have very high rates of growth in their early years.

I could do a Discounted Cash Flow, but the number of variables for a high growth company, can make it very difficult, even for a ballpark figure.

For a DCF I would need to estimate the companys entire free cash flow for the life of the company.
Then try to estimate the initial growth percentage, and for what length of time & then the terminal growth percentage, & then determine the discount rate.

Even doing a DCF for 3-5 years for a small high initial growth company can be highly variable.

I would normally only use DCF for mature companys who have long term figures that can be relied upon.

So anyway glad to hear you were happy enough with the figure, even if it's just a ballpark one ( with quite a few assumptions included).

cheers