Paul wrote to me in December, asking for my valuation of Patties Foods.
“I have finally had a look at PFL. Its value is about 80 cents and while it is expected to rise over the next three years, it still won’t get to the current price. The company is thus overpriced. PFL also raised a lot of money in 2007, evidently to pay down some debt, but today the debt is right back up there again. Not a first class business I am afraid either. Of course none of this is a prediction of the share price, which could halve or double. Valuing a company is not the same as predicting the price”.
He subsequently wrote back with the following question… Roger, can I ask how often do you value companies? Following is my reply.
In general terms, I revalue companies constantly. When a company provides an update to its guidance, when interest rates change, when a company makes an acquisition, raises capital or buys back shares, all these things may affect the value. The intrinsic value for whole the company may change or just on a per share basis. And because I am tracking so many companies, there are valuation changes occurring daily.
What won’t change the intrinsic value of a company is an unknown. The Henry Tax review may result in a significant change to MMS’ business, or it may not. We can only deal with knowns. Because the content of the Henry Tax Review is currently not known, nor whether the government will adopt any of the recommendations that may or may not pertain to MMS, we cannot factor them into the valuation. If however, Woolworths’ recent quarterly announcement results in a change to the full year forecast results, or more importantly if it is likely that the change will sustainably impact the future return on equity, it could change the valuation.
Hope that helps and keep the great questions coming.
Posted by Roger Montgomery, 1 February 2010
