Meeting # 35 SDI Valuation

This meeting is due to occur in the future in May 2011 (see calendar above for exact date).

SDI is a company that operates in the research and development, manufacturing and marketing of dental restorative materials. SDI’s products include alloys, etchants, glass ionomers, sealants, cement, equipment, tooth whitening, composites. It operates in Australia, Europe, the United States and Brazil. The Company’s subsidiaries include SDI (North America), Inc, SDI Holdings Pty Ltd, Southern Dental Industries GmbH, SDI Brasil Industria e Comercio Ltda and SDI Dental Limited.

The share price has taken a hammering recently with the high price of silver and high Aussie dollar. At this time of wring the share price is 17 cents.

Discussion points prior to the meeting
In the last valuation we found some descepencies with what comsec claimed the debt levels were against what was in the annual report. For this valuation I did some cross verification and was supprised to see the cash in the annual report to be 875,000 but in comsec it was 3,406,000.

ThenI realized that the 3406 is for the consolidated entity not the company (we'll need to discuss this)


The Meeting
Attendees Paul, Mark, Justin, Tom and analysis was sent from Roy in the UK

Findings
As a value investment it was not good and the inconsistent earnings have made it a difficult company to value. Return on capital is also not good.

Click Here for our Valuations

Meeting # 34 ARB

This meeting was to present our findings on ARB 
Attendees
Thanks to Mark Justin for attending and Roy for sending in analysis (despite not being able to attend as he was in the UK.


Findings
Our analysis varied in values from $3.30 to $17 most of the reason for the difference was around the margin of safety we employed. Both Justin and Paul missed the high level of debt (%35 of total assets) from looking at the figures from commsec. Mark has calculated a more accurate earnings figure by basing his figures on a free cash flow. Mark and Paul got earnings growth at around 35%. Justin was around 8%.

Spreadsheet of our analysis can be found here

Tasks for next meeting
We will all analyse another very interesting company called SDI which is a dental company that has been hammered recently on the share price. Go Forth and Value!


For everyone could we please base our valuations on beating a 12% bank return. Roy asked me to do this so the valuations can be more easily compared

Where did the $9 trillion go?

In the quite amazing videos from May - June 2009 being questioned around the 2009 bailouts and where the money went.

• The Inspector General of the Federal Reserve
• The Chairman of the Federal Reserve
• The Chairman of the Federal Housing Committee

#1 Alan Grayson vs Elizabeth A Coleman  
Inspector General of the Federal Reserve

She is asked where the $9 trillion went that has disappeared in the last 18 months. To put that in context the GDP of the US is about $12 trillion, the yearly US tax income base is about $3 trillion.




#2 Alan Grayson vs Ben Beranke 
The Chairman of the Federal Reserve Bank of America
Ben Bernanke getting very nervous trying to explain a $550billion entry on the balance sheet



#3 Alan Grayson Vs James Lockhart 
Chairman of the Oversight Board of the Federal Housing Finance Agency


James has some very nervous looking body language trying to explain how $1 trillion of derivatives were used to hedge a $200 bad million loans and ultimately resulted in a $100 billion bailout.




Where did the 9trillion dollars go?
Those videos above were made 2 years ago and since then there have been actions that have taken place to start to get to the bottom of the situation

• Nov 2008 Obama Elected
• Feb 2009  Obama signed  American Recovery and Reinvestment Act of 2009 (Economic Stimulus package)
• June 2009 the you tube videos were posted on youtube
• Nov 2009  The Federal Reserve Transparency Act of 2009 (H.R. 1207) was passed

After the passing of Federal Reserve Transparency Act of 2009 (H.R. 1207)

The Federal Reserve was forced to publish where the money went and did so in December 2010

Article source http://money.cnn.com/2010/12/01/news/economy/fed_reserve_data_release/index.htm

[when I find the actual data I will put it here]

Meeting #33

The meeting was to present our further analysis of JBHIFI
It was a very interesting meeting thanks to Roy , Justin and Mark for coming. A few items were discussed that I found very interesting

• How significant the stock options value are
• Margin of Safety
• Using 6 monthly financial reports

Stock options can cost 50% of the Annual Gross profit
If you look at a companies annual share volume and it steadily increases by a small number each year then the directors are probably giving themselves stock options. The value of these options is often significant. In JBHIFI it was worth about 10% of the revenue. The value is often between 10 to 20% of the gross profit.

Margin of Safety (10-17%)
To calculate the return I was looking to calculate  price for JBHIFI I used 10%. This resulted in a price of around $25 for JB. Mark used a figure of 17% which together with a discount for the value of the stock options resulted in a value of around $12.

We also discussed the benefit of using the 6 month data instead of just the 12 months data

Our Analysis of JBHIFI can be found here 


For Next Meeting

• We will tidy up our analysis for JBHIFI  can be found here 
• We will start analysis of a new company 1300 SMILES
• We present our analysis at our next meetup

Meeting # 32

The meeting was to present our valuations of JB HI-FI. 
We also had some good general conversations about JBHIFI as well. I thought it was a very effective meeting and feel we made some good progress.

Attendees  

• Roy 
• Olzhas
• Paul
• Jeffery had also kindly send us some documents that I brought along with some valuations he had got from a variety of sources.

I presented my workings to Roy and Olzhaz and they gave me feedback. My workings got so far as calculating a minimum share price and the earnings per share growth rate. The next step is to use these workings and apply the future predicted share price with a return of 10% per year to back calculate a maximum price which takes into account.


Key Learnings from the meeting

• For the value calculations generally you are better off using EBIT (as it is closer to the actual earning engine of the business - like the free cash flow figure)
• The calculations seemed fairly close to what we should be doing. 

The calculations can be found on this spreadsheet valuation spreadsheet if you are on the mailing list you should have write access to it. This will be the place for all our calculations  we produce about JBHIFI. 

Next Steps

We plan to continue to deep dive into JBHIFI 

• Roy will attempt to finish my calculations
• Olzhas will add some of his own valuation calculations to compare methods
• Paul will put together a financial definition cheat sheet so we can quickly check financial terms etc
• Anyone else Please read the spreadsheet and add anything you want in the blank spreadsheets. And have a go at valuing or adding to the analysis on JBHIFI

Meeting #31

At the meeting today where Jeffery , Roy, Justin and I. Justin had been very busy and had some good tips for us to look into at a later date the companies were
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We all went through the numbers on JB and have decided that our task for the next meeting is to come up with a dollar value for the shares in the company. We will then present this and work through our numbers to the group.

JBHIF 10 year numbers can be found here [when I upload them - next week]

Interest Rates

I spoke to my bank today to find that the interest rates were going up again to 7.5%. This is a big difference to 0.5% in the UK and 0.25% in the US.

Below is a chart of historical interest rates in the UK (In the last 20 years interest rates have been around 6%). You can see that 0.05% is a 20 year Low for the UK and nowhere near the mean value of about 6%. This low rates in the UK and US are just another indicator that both economies are in really bad shape and trying increasingly desperate measures to get the economies moving. I hope not too many people in the UK have bought recently thinking that a 1% mortgage is "normal".

One of the things I hear a lot is "If we get huge inflation then I'll pay off my house in double quick time" well maybe not. Countries can use inflation to pay off the national debt but for the like of you and me we cannot use inflation to easily pay off our house. The reason for this is that what often happens is interest rates can go up to match inflation. There are a few examples on Wikipedia along with more data on interest rates.

Investing in Lithium

This is a bit off topic but I am interested in having some exposure to the likely commodities boom that I see on the horizon. The most interesting for me are phosphorous and lithium. A Chilean company SQM, listed in Santiago and in New York ADRD is a company with huge reserves of both - I would like to keep this as placeholder for further analysis. The price has recently shot up. Maybe its too expensive now. In 2010 an ETF was launch for lithium (I'm not really sure how this works though) - Paul

I found another interesting site on lithium investing here

Cash Reserves of Banks

I went to my bank to get some money the other day. I needed $4000. They told me that officially I needed to give 24 hours notice for cash withdrawl over $2,000 however they had enough today so they could give me my $4000. Now my bank is probably a bit smaller than a big bank like ANZ but I found this quite startling. It got me wondering about how much money banks have in reserve.

A note about Reserve banking . Banks don't need $100 dollars to lend you $100. The US has a requirement that the banks have at least own equity worth 10% of the total loans outstanding. So if Citibank only actually owned $10 then the sum of all the loans they could make could not exceed $100.

So I did a little investigation and what I found (with a quick look on wikipedia) startled me somewhat. I knew that the US had a 10% requirement. I didn't know though that the UK and Australia does not require any reserve whatsoever. So they can make money loaning money they don't have. I wish I could do that! Below is taken from wikipedia

Country	Required reserve (in %)	Note
Australia	None	Statutory Reserve Deposits abolished in 1988, replaced with 1% Non-callable Deposits[5]
Canada	None
Mexico	None
New Zealand	None	1999 [2]
Sweden	None
United Kingdom	None
Czech Republic	2.00	Since 7 October 2009
Eurozone	2.00	Since 1999[6]
South Africa	2.50
Switzerland	2.50
Poland	3.00
Chile	4.50
India	6.00	as per RBI.
Bangladesh	5.50	Raised from 5.00. Effective from 15 May 2010
Lithuania	6.00
Pakistan	5.00	Since 1 November 2008
Taiwan	7.00	[7]
Latvia	8.00
Jordan	8.00
Malawi	15.00
Zambia	8.00
Burundi	8.50
Hungary	2.0
Ghana	9.00
United States	10.00 If anyone believes there is something incorrect or misleading with this article then please add to the comments below or send me an email

Meeting #30

Attendees
Olzhas
Paul
Justin
Roy (briefly by phone)

Short and sweet meeting. At the meeting Justin presented his work on Infomeadia.

Revenue was erratic and dividend behavior seemed out of line with profit. Roy also provided a little insight but we concluded that there financials were to erratic to make continuing evaluation worthwhile.

It was also great to see a new face ,Olzhas, who had some good input on Infomeadia as well as some good discussion about things warren buffet and more general economics.

Next Meeting
Paul Ayling, Roy, Justin , Mandy & Giselle to evaluate JBHIFI. Olzhas to present some analysis on a separate company and also provide a buffetolgy checklist and some information from morningstar. Because Christmas is coming up we made the decision to have another meeting next week to keep momentum.(see calendar)