So now I know that after the fund managers have spent millions of Rands on analyzing these companies, they consider them to be sound. What I do not know is at what price the managers bought these shares and if they still offer VALUE at the current price!
Now there are many ways to determine the current value of a company and this is why there are always willing Buyers (they believe the share is Undervalued), and willing Sellers (they believe the share is Overvalued).
As I indicated in Lesson 2, there are a couple of things I look at to help me decide, and looking at the list again, I will explain my thought process:
| Price | F P/E | D/Y | 1 yr | 30day | |
| Anglo American | 264 | 15 | 2.89% | -3.60% | 18.00% |
| Sasol | 530 | 10 | 3.57% | 36.70% | 2.80% |
| BHP | 322 | 13 | 3.49% | 6.10% | 0.50% |
| SAB | 491 | 20 | 2.00% | 9.80% | -8.00% |
| BAT | 527 | 16 | 3.62% | 16.30% | -5.10% |
| Standard | 115 | 11 | 4.11% | -2.60% | -9.40% |
| Richemont | 106 | 51 | 1.04% | 46.70% | 4.70% |
| Old Mutual | 32 | 12 | 3.29% | 21.60% | -4.90% |
| Investec | 75 | 14 | 3.72% | 10.60% | -1.10% |
| MTN | 199 | 15 | 4.35% | 13.30% | -5.40% |
| Naspers | 1138 | 45 | 0.34% | 87.80% | 3.40% |
| 52 High | 52 Low | Median | Fall | ||
| Anglo American | 281 | 185 | 233 | -13% | |
| Sasol | 558 | 369 | 464 | -14% | |
| BHP | 338 | 247 | 293 | -10% | |
| SAB | 550 | 430 | 490 | 0% | |
| BAT | 571 | 454 | 513 | -3% | |
| Standard | 130 | 105 | 118 | 2% | |
| Richemont | 108 | 67 | 88 | -21% | |
| Old Mutual | 35 | 27 | 31 | -4% | |
| Investec | 78 | 60 | 69 | -8% | |
| MTN | 217 | 158 | 188 | -6% | |
| Naspers | 1178 | 556 | 867 | -31% |
The one important thing to remember is that the price you pay today will play a big part in the success of your investment over time. It will always be the best thing to pay less for the share than you think is fair value, but even paying a fair price for a good company is better than paying a great good price for a fair company.
If you follow the investment style of Warren Buffett (and you should!!!), you will see that he always pay more for a share that he likes than the price it trades at the day before he buys it. We call it "paying a premium" for the share. He does this because he believes the share is worth more than it trades at and he wants to make sure it is attractive for the seller to sell.
Returning to our list, based on the current Price of the share and the historic price range, I would put STANDARD BANK as my top choice and NASPERS as my last.
Why Standard Bank: At R115 per share it has a Forward Price Earnings ratio of 11 times, fair for a banking share. It means that you pay today for the next 11 years' worth of current earnings. So if the company can generate the same earnings it is generating today, your investment will be "paid off" in 11 years' time. The next important thing is that the company will pay me a dividend of 4.11% while I wait for the price to go up. In a money market I might get 5% so I almost get what I would get if I invested the money in the bank, PLUS I get the upside potential of the price going up! The price of the share has also gone down over the last year and last 30 days so it got "cheaper". Lastly it is almost halfway between its lowest and highest price over the last 52 weeks. If it was closer to its highest, the fall in price if something should go wrong over the short term would have been worse.
The big NEGATIVE is that banking shares do not like interest rate hikes. We saw the first of a potential wave of interest rate hikes recently and that might keep Standard Bank at the current levels or even lower. For the longer term though, I see good potential. The other silent advantage is that Standard Bank is strong in Africa and that is the future growth market.
Why not Naspers: Because every good point for Standard Bank is a weak point for Naspers. The thing that we have to admit is that Naspers is an exceptional company and will remain so. It is also known as a Growth company, thus the lower dividend and higher PE. So comparing Standard Bank with Naspers is NOT fair! But, just based of which company offer better value going forward I stand by Standard Bank.
The other companies can be analyzed in the same way, you will see that Richemont is also very expensive and Anglo better value.
The next very important thing to master, and that is where TIME and EXPERIENCE play a huge role, is to get a FEEL for where a share should trade. To get this experience you have to get interested! The best way to get and stay interested is to put your money on the table and to buy a share or two! You might lose some money in the short term but we all have to pay school fees! So that is why you start small.
Next time I will look at some of the other shares on the top ten list (but not shared by more than one fund manager) and also discuss some of the other determining factors when creating a "Watch List" for future purchases.
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