Hi extralite,That's why there are a range of valuation...

Hi extralite,

That's why there are a range of valuation techniques out there, to complement, replace, or improve upon p/e ratios (etc).

Personally, I'm not a big fan of p/e ratios, but they do serve a purpose in providing some information particularly when comparing similar (and profitable) companies across a sector.

When dealing with investing companies during the development phase of their business, some (such as Buffet and others) look at the concept of Owner's Equity.

Others, like myself, also look at effective investing capital.

That is, the proportional effort that has gone into growing /developing a business, as opposed to maintaining a business.

That is why, in the case of DFT, I am concerned with the growing proportional impact of communication costs on a PCP basis (up from ~41% of operating revenue in 1H-FY03, to ~49% of OPREV in 1H-FY04). To me, that's cause for further investigation, to determine whether the increase (ie: in proportional impact) is due to DFT "investing in the business", as opposed to "maintaining the business".

A similar argument to this applies to HTA's "3" business, locally, and to HWT's "3" business, globally.

With SKG, a similar argument would also seem to apply, although I would have thought that interested observers should really take the time to read SKG's recent prospectus, as well as the prospectus for Unwired.

As for valuation techniques, there is no hard or fast answer, but there is an edge that can be secured, depending upon what matters most to people. If one only ever used p/e to rate a business, then none of the small cap sector and most other new or emergent companies (ie: over the last 10-15 years) would have survived.

As it is, what you and I generally disagree about is whether or not a growth premium has already been factored into the share price. Sometimes, it has been. In other instances, it hasn't been.

With DFT, I think that it is fairly valued in the 2c range, but would be over-valued @4c.

With SWT, I consider that the PTL acquisition is over-priced, meaning that PTL's effective entry price into SWT is lower than it should be (ie: nearer to 9.5c, if memory serves corrrectly), whilst SWT's contribution to the equation is under-valued.

With UEC, I think that it is over-valued @33c, and commercially speaking, should be valued in the 22-26c range. But operationally, a 24-28c share price makes sense.

With Telstra, I think that it is now under-valued relative to the prospective benefits of $800M in OPEX reductions which will soon become evident through the Sigma 6 program, meaning that a 12 month price target of $5.20 is now likely.

With HTA, I think that they are under-valued relative to my knowledge of 3G networks, but fairly valued relative to the current state of their operational business. They key to HTA's future, however, will be either spinning off the Orange business, exiting from the Orange business, or securing a network sharing arrangement.

With TEL, I think that they are under-valued relative to the dividend machine that they are now becoming, and compared with the way in which they have now turned around their AAPT business.

Similarly, with SGT, the price there will go higher, given that SGT is a direct proxy into Asia.

So, for all of these examples (and there are more of them), no one valuation technique can apply. What, however, is common to all of them is:
1)
research;
2)
due diligence;
3)
testing of assumptions; and
4)
interrogation of outcomes.

That's what I try to do in all of my investment activities.