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scorpioncapital,

 

I see that you follow LUK. If possible, could you please share your thoughts on LUK’s IV? The way I see valuing LUK is via summing the IV of the individual investments. Mining companies are no where near my circle of competence, so I took a short cut in terms of estimating IV of individual investments at 1.5X-2X of the price paid by LUK for mining interests and using Book Value/Earnings multiple for others.  Taking YE 2008 BV of $11 per share and adjusting in this manner I get IV in the $30-35 range.

 

Any thoughts on valuing Fortescue Equity and royalty note would be most welcome.

 

Thanks

 

Vinod

 

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As a quick aside, it is a good bet that the Fortescue royalty will turn out to be undervalued in LUK's accounting. The undervaluation could be as much as $4/share. To some extent valuation starts with tangible book value at year-end and adjustments made for various investments & options. Taxes - every company pays them and in the world we are moving into, taxes could go higher as governments must do something to prevent very high inflation due to deficits. Also crack-down on offshore tax havens has been in the news lately.  LUK's tax benefit could be another $4/share. So far, we are at about $20/share. Jefferies contributes about $1/share more to LUK than at year end. ACF about $0.50/share. FMG shares another $0.75/share, Inmet shares another $0.75, total say $3/share. So far we are at $23/share. To some extent, the company's future value hinges on a better economic environment than the disaster of last year. Overall, I'd say its trading at a fair price with some additional upside to these values going forward, but in no case is IV $8/share as predicted by the calculator (which probably extrapolated the one time $11/share loss in 2008) into the future. Likewise, the management of the company probably has another 10 good years left in which to further add on to these numbers. There are quite a few other options in Leucadia: several energy projects that could increase value in the billion dollar range, a new business that is buying car dealerships across the country, and some medical products that could do the same. If they all turn out to be a Zero, there may be some wind-up cost but no big deal.

 

 

Leucadia has many problems, management has made many mistakes recently and there are great unknowns about the future. A deflationary environment would be a disaster leading to further losses to investors.

 

Disclosure: LUK accounts for over 50% of my net worth, I hope this doesn't cause me to be too biased. I am neither happy or unhappy about the investment, but there is a reasonable chance of an acceptable outcome.

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checking out Valuecruncher right now. I don't know about this. Some of it's valuations are really out there, especially if you compare it to Morningstar's evaluations, for example. Valuecruncher says CIEN is valued at $641 a share. Morningstar values the company at $11 a share.  ;D

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