NCAV = Current Asset - Total Liabilities - (Preferred Stock + Minority Interest)
NNWC = Cash and short-term investments + (0.75 x accounts receivable) + (0.5 x inventory) - total liabilities
NCAV Calculations:
Current Asset = 989,251
Total Liabilities = 349,018
Preferred Stock = 0
Minority Interest = 3,480
Total Equity = 1,179,392
NOSH = 665,649
NCAV = 989,251 - 349,018 = 640,233
NCAV per share = 636,753 * (1,179,392-3480)/1,179,392 / 665,649 = RM0.954
Notes:
- NCAV is the lowest form of valuation you could possibly do because it ignores everything about the business and just focuses on tangible assets.
NNWC Calculations:
Cash = 271,834 + 50,285 = 322,119
Cash Equivalents = 245,856 + 6,562 = 252,418
Cash and Equivalents = 322,119 + 252,418 = 574,537
Investment Properties = 157,638
Associate Companies = 134,186
Investment 116,092 + 29,980 = 146,072
Total Investment = 157,638 + 134,186 + 146,072 = 437,896
Account Receiveables = 353,465 + 18,023 + 18,580 = 390,068
Inventory = 13,116
Total Liabilities = 349,018
Minority Interest = 3,480
Total Equity = 1,179,392
NOSH = 665,649
NNWC = 100% of Cash and Equivalents + 100% of Total Investment + 75% of Account Receiveables + 50% of Inventory - Total Liabilities
= 574,537 + 437,896 + 0.75* 390,068 + 0.5*13,116 - 349,018 = 962,524
NNWC per share = 962,524 * (1,179,392-3480)/1,179,392/ 665,649 = RM1.44
Notes:
- Cash and the net net values of quoted and unquoted investments owned are taken as 100% of the book value.
- Tax assets, property, plant and equipment, Goodwill and “other assets” are taken as worth nothing.
- The value of its associate companies is taken as the book value of just 134. At the close of RM2.85 on 29th May 2014 and its 36.44% holding in Inari alone is worth 514m compared to the book value of the associate companies of just 134m, or a difference in value of 55 sen per Insas share.
Conclusions:
NCAV per Share = 0.954
NNWC per Share = 1.44
Net Asset per Share = 1.77
NTA per Share = 1.77 - (26,051/665,649) = 1.73
Stock Price on 04/06/2014 = RM1.19
The stock price on 04-June-2014, RM1.19 is 17.36% belowit's NNWC price, 1.44. Insas provide us a safe investment option because balance sheet won't change so abruptly, whereas earnings can change drastically quarter to quarter.
Last but not least, let's review this net net candidate based on Graham principles. Graham suggest to look for a NNWC companies with “Reasonably satisfactory” earnings record and prospects. and “Sound financial condition” Insas has making profit for the last 10 years. It has on average positive free cash flow and a very healthy balance sheet. But, it not able to fullfill graham requirement on
Positive operating cash flow for T4Q and it might be a Perennial net nets.
Why is Insas trading at such a big discount to its Graham NNWC?
- Investors have not much trust in the management in maximizing minority shareholder value.
- No dividends have been declared until recently, although it has been buying back its shares.
Click here if you may interest to see more graham net net candidate which contributed by kcchongnz.
References:-
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