I receive an query email from a reader. I think I need to explain myself. When I write, I am thinking aloud and I do not proof read that many times.
So I might be confusing at times, or it could be due to my command of the language. ( I am better at Chinese than English)
The query go like this:
Actually, i have a quesiton regarding your analysis out of interest sake. I am an investor myself. You calculated SGX intrinsic value to be $4.2 and the current price is $7 (6.8 now) and yet you call for a Buy. Why would you buy when intrinsic value is below market price?
Of which this is my reply:
Oh no, am I so misleading?
In short, what I am trying to say:
1) intrinsic value of 4.2 is based in very conservative assumption of 9% discount rate and 3% growth.
2) but working backwards for SPH, for its price to hover around $4. It is a trading at discount rate of 6% and 3% growth.
3) if I use such lofty assumption for SGX too, intrinsic value then is $8.4 and applying 20% margin of safety, we get 6.8. So perhaps we have now a fair value of SGX.
4) I question if indeed monopoly business is worth so much, or so high a valuation.
5) in short, I think it might to worth accumulating if SGX start trading between 4.2 and 6.8, especially if market correction allow a good sale, say $6 or less.
Hope that's clarified.
In short, I dun have a buy call for SGX. I do think it is worthy to take a close look if the price continue to head south.
Personally, I will be very interested to buy if it get closer to $6. I am willing to pay fair price, if it goes lower than that, I accumulate.
Anyone, feel free to pop questions or point out any errors/ or confusing parts in my blog by leaving a comment.
I am no guru, but I give honest answers. If I made an mistake, I will admit it.
I thanks the reader for pointing out the possible misleading part.
Have a good start to the Horse Year, may your shares price gallop north