ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

Roller coaster ride on BT for last couple days.
OCBC analyst use Profit margin as valuation...which translate to EPS and thus PER. Is his method appropiate for BT?


8Apr2013
STI down further as investors reap gains
Selling spree attributed to bird flu scare in China, N. Korean tensions

.... "The correction in BreadTalk's share price... has helped to temper the sudden spike from late March, and we take this opportunity to caution investors against getting too carried away," said a note by OCBC Investment Research. "In our view, a takeover by Minor International is remote at this juncture."

OCBC added that BreadTalk has shown impressive yearly double-digit revenue growth but has yet to translate the success to its operating margins. "Although its ongoing expansion plans are partly to blame, the pace of the margin declines does create some concerns over its operational efficiencies in the long run," said OCBC.
It said BreadTalk is "expensive at current price levels", urging investors to take profit. It values the counter at 77 cents.

(06-04-2013, 11:28 AM)Ray168 Wrote: [ -> ]Hi RBM, thanks for the article.

Indeed, Mr. market is unpredictable.

Let the market serve us, and not commnd us.

What this means is, the stock market and individual share prices can sometimes move without logical reasons and an investor should ignore that and focus on the business’s fundamentals to appraise its intrinsic value. And in the case of Breadtalk, its investors should forget about Minor International and the market’s reaction to it and instead focus on what’s Foolishly important – how well the business is doing.

Still vested.

Punters who know the price of everything but the value of nothing.

The Straits Times
www.straitstimes.com
Published on Apr 13, 2013
INVEST
Punters rake in the dough on BreadTalk price surge
But stock has lost steam since hitting $1.165 record high on takeover talk

By Yasmine Yahya Play of the Week

PUNTERS were raking in the dough from BreadTalk shares this week, taking profit after the firm's stock hit a record high earlier this month.

The bakery chain began a yeasty rally late last month after Thai food and beverage player Minor International (Mint) lifted its stake in the firm to 8.85 per cent on March 22, spurring speculation that a privatisation bid was in the offing.

The talk intensified when Mint further raised its stake to 10 per cent on April 3.

Maybank Kim Eng noted in a research report on Thursday: "In a world of record low interest rates against a backdrop of macro uncertainties, acquirers are taking charge of their own fate by buying out good assets."

From March 22, BreadTalk shares surged 37 per cent over seven sessions to reach a record high of $1.165 on April 3.

Since then, however, the stock has lost steam. By Monday, it had fallen 17.5 per cent to 96 cents.

It regained some ground over the next couple of days, rising to $1.02 by Wednesday, but has since slipped back to 98.5 cents yesterday.

At least part of the share's slip and slide can be attributed to a "sell" call issued by OCBC Investment Research analyst Lim Siyi, who said in a report on Monday that "a takeover at this juncture is an unlikely scenario".

He added that the stake acquisition was likely just a strategic move by Mint to enlarge its portfolio. "In addition, BreadTalk had previously expressed interest in expanding into Thailand, so this stake acquisition may possibly open up strategic tie-ups in Thailand," he noted.

Also, BreadTalk chairman George Quek, along with his wife, holds about 53 per cent of the firm, and this is a stumbling block for any general offer, he added.

"In addition, BreadTalk is far from being a polished product so any acquisition will encompass significant risks."

For instance, Mr Lim noted, the company's operating margins have narrowed owing to ongoing expansion, and there are some concerns over future margin stability when BreadTalk does approach a steady state.

"From our review of its operations, BreadTalk is still at least five years away from its stated goals," Mr Lim added.

"Its management also has to show that it is able to deliver healthier growth to its bottom line beyond just impressive double-digit revenue growth."

Failure to do so will lead to a perception that BreadTalk is operationally deficient, and this will dilute its appeal to suitors or result in an unfavourable valuation.

The share price has run ahead of fundamentals, Mr Lim said, adding that the firm would be fairly valued at 77 cents a share.

yasminey@sph.com.sg

I attach an Investor Central video piece which brings out a) the stark difference between the views of OCBC Investment Research's analyst and May Bank Kim Eng's analyst and b) the perceived lofty valuations which BreadTalk's share price currently trades on. Ignore the 20 second advertisement at the begining.

http://video.xin.msn.com/watch/video/bre...t/pfjrtpto

I find it surprising that none of the commentators place any focus on the fact that Primacy/MINT have paid S$ 0.95 per share for at least a significant chunk of their 10% stake in BreadTalk. So whatever the various views are regarding the value of BreadTalk, a highly successful company operating in the same business space with in-depth knowledge of the restaurant business, has put its money where its mouth is at the S$ 0.95 level.

To add a bit of extra flavour to the debate, I recall that in mid August last year OCBC Investment Research (yes, the same one) downgraded Breadtalk to 'SELL' from 'HOLD' and cut their target price to S$0.49 (reference the attached link below). To use Musicwhiz's term, the "punters" who followed OCBC's advice at that stage will have foregone a near doubling of the market value of their BreadTalk shares.

http://forum.channelnewsasia.com/showthr...lk-to-sell

Vested

do you know what is the track record of mint's past acquisitions? are they known to overpay?

(13-04-2013, 10:58 AM)RBM Wrote: [ -> ]I attach an Investor Central video piece which brings out a) the stark difference between the views of OCBC Investment Research's analyst and May Bank Kim Eng's analyst and b) the perceived lofty valuations which BreadTalk's share price currently trades on. Ignore the 20 second advertisement at the begining.

http://video.xin.msn.com/watch/video/bre...t/pfjrtpto

I find it surprising that none of the commentators place any focus on the fact that Primacy/MINT have paid S$ 0.95 per share for at least a significant chunk of their 10% stake in BreadTalk. So whatever the various views are regarding the value of BreadTalk, a highly successful company operating in the same business space with in-depth knowledge of the restaurant business, has put its money where its mouth is at the S$ 0.95 level.

To add a bit of extra flavour to the debate, I recall that in mid August last year OCBC Investment Research (yes, the same one) downgraded Breadtalk to 'SELL' from 'HOLD' and cut their target price to S$0.49 (reference the attached link below). To use Musicwhiz's term, the "punters" who followed OCBC's advice at that stage will have foregone a near doubling of the market value of their BreadTalk shares.

http://forum.channelnewsasia.com/showthr...lk-to-sell

Vested

Hi RBM,

I feel that even if a substantial shareholder with (supposed) intimate knowledge of a business purchases at a high price, it is still our job as investors to do our objective assessment of the business in order to see if valuations are compelling.

This is because the SSH may have deep pockets or they, being human, may also be wrong.

I cannot comment directly on Bread Talk as I have not looked closely at the business, just making a general comment on SSH.

Just sharing my view on BT intrinsic value... which I posted on other forum. Which model is right? Your call.

-------------------------////---------------------------

Base on Earning model, the 'intrinsic value' is $1.22
Parameter:
EPS CAGR (10 yrs) of 22%.
Discounted rate: 3%

** Academic study only **. If you are firm believer of value investing, you will appreciate the model.

......................................................

Base on cashflow "intrinsic value" calculation, the intrinsic value of BT is ~ $2.41

Parameter:
Cashflow grow projection = 6.5%. (50% discount of 5 years CAGR 13%)
Dscount rate = 4%

Compare to current price of $1, the margin of safety is ~60%.

Well, please take above as academic discussion.
It does not take into consideration of overall market sentiment and trend.

p.s. please don't ask me for 'intrinsic value' calculation.

(13-04-2013, 11:22 AM)wozhaodaole Wrote: [ -> ]do you know what is the track record of mint's past acquisitions? are they known to overpay?

Thank you for your question wozhaodaole. Good one - the answer to your question is one of the reasons I have convinced myself to hang onto my BreadTalk shares - I realise I may be wrong.

MINT seems to be a successfull company, certainly in the eyes of its shareholders. Net profit margins exceed 10% and its ROE is ~ 20%. Share price up 77% over the last 12 months (listed on the Bangkok Exchange). Its acquisition business model has clearly lead to high debt levels (e.g. D/E is ~ 1.25) but its operating metrics seem darned good. Its P/E of ~ 25 is actually higher than BreadTalk's P/E based on its last done but it seems to be delivering profitable growth year-on-year - e.g. its dividend has grown 20% p.a. over recent years. About half of MINT's revenue currently emanates from their hotels business, about 40% from their Restaurant business. They have > 80 hotels & resorts, ~ 1,300 restaurants and ~ 200 retail trading outlets. Useless titbit: one of their most substantial shareholders is the Thai King.

During the video I included in my earlier posting, Landi of Investor Central stresses BreadTalk's P/B of > 3. What he did not mention or did not know is that MINT's P/B is >4.5 ......... I wonder about the relevance of the measure in a business such as MINT's/BreadTalk's.

Buying a non-controlling small equity stake in a company doesn't seem to fit with MINT's normal approach. And as MINT's current market cap is ~ S$ 3.8 Bln, about 14 times the current market cap of BreadTalk, I am betting that George Quek may yet receive an offer that he and his better half find compelling. As I said, I may be totally wrong.

(13-04-2013, 11:32 AM)Musicwhiz Wrote: [ -> ]Hi RBM,

I feel that even if a substantial shareholder with (supposed) intimate knowledge of a business purchases at a high price, it is still our job as investors to do our objective assessment of the business in order to see if valuations are compelling.

This is because the SSH may have deep pockets or they, being human, may also be wrong.

I cannot comment directly on Bread Talk as I have not looked closely at the business, just making a general comment on SSH.

Thank you Musicwhiz,- no disagreement with what you state but you may want to reflect how your opening one-liner to your posting of 8.27 a.m. this morning could be perceived by those currently vested in BreadTalk. Like a few others, I made my investment into BreadTalk more than a year ago (Q3 2011 in my case). I'm holding on because I believe in the long term growth story of BreadTalk and because I learned a salutory lesson with Harry's Holdings - we all tend to underestimate the value that some acquirers are prepared to place on businesses with a significant customer base.

Vested

(13-04-2013, 02:07 PM)Ray168 Wrote: [ -> ]Just sharing my view on BT intrinsic value... which I posted on other forum. Which model is right? Your call.

-------------------------////---------------------------

Base on Earning model, the 'intrinsic value' is $1.22
Parameter:
EPS CAGR (10 yrs) of 22%.
Discounted rate: 3%

** Academic study only **. If you are firm believer of value investing, you will appreciate the model.

......................................................

Base on cashflow "intrinsic value" calculation, the intrinsic value of BT is ~ $2.41

Parameter:
Cashflow grow projection = 6.5%. (50% discount of 5 years CAGR 13%)
Dscount rate = 4%

Compare to current price of $1, the margin of safety is ~60%.

Well, please take above as academic discussion.
It does not take into consideration of overall market sentiment and trend.

p.s. please don't ask me for 'intrinsic value' calculation.

The problem with using cash flow valuation is that your intrinsic value will be very different if your growth rate or discount is off by just 1%. My own opinion of a firm believer of investing, is to look at whether current earnings is sustainable or a 5 years ave is needed, instead of projecting future cash flow. Lastly to buy the company at a low p/e with a combination of strong b/s. Without factoring growth in my valuation, it will be a bonus if the company managed to grow, even if growth is stagnant I will do okay since I bought at a low p/e and a strong b/s company.

hi rbm,

i am not vested in breadtalk. but out of curiosity, bt seems rather overvalued n way out its fundamental support. if u have vested in it at a low price of 30-50c, why wldn't u take money off the table now?
t/o might not happen anyway n its anyone's guess but what's sure is that paper gains can be converted to real gains and put to work in another undervalued stock.
just my thoughts.
no offence rbm.

Hi RBM,

Note that my comment was made in relation to punters. Since you are an investor, the comment does not relate to you at all!

Punters are defined by myself as people who speculate on the price of a security without regard for economic fundamentals. Their motivation is simply to know the price of everything while being ignorant of its true value.