Phil Oakley EPV calculation

[valuehunter2]

Hello, apologies In advance if there is an obvious answer to this question! As per the link below, once the equity figure
has been reached the final step is to divide the equity by the number of shares on issue to give a value per share.

In the examples below and in Oakley's book it seems the figure needs to be multipled by 100 to get the correct answer used in the examples.

If someone can clarify that would be great.

*ShareScope earning power value

[monabri]

Hello, apologies In advance if there is an obvious answer to this question! As per the link below, once the equity figure
has been reached the final step is to divide the equity by the number of shares on issue to give a value per share.

In the examples below and in Oakley's book it seems the figure needs to be multipled by 100 to get the correct answer used in the examples.

If someone can clarify that would be great.

*ShareScope earning power value

You left this post missing a few details

Using the following as a source. ( which I think illustrates the question).

https://www.sharescope.co.uk/philoakley_article37.jsp



I think what you may be referring to is the x100 step here..

A Equity Value = £6789.6 m
B Shares =152.9 m

A/B =£44.16

But, The shareprice (7930p) is given in pence, so convert £ to pence by x100 for comparison.

Or A/B= 4416 pence.

[moorfield]

I actually think that EPV calculation is one of the least unreliable of methods from Oakley's book - the choice of interest rate (B) above is a fudge basically, and you should play with a range of rates here to see how volatile EPV can be. I also feel that "snapshot" calculations, ie. at one point in time, are meaningless - one should look at the trend of the same calculation over previous years to get a better feel (I normally go back 5) - but unfortunately that involves a lot of legwork which most people lose interest in doing pretty quickly. FWIW, I wouldn't waste too much time on EPV, I think the better numbers to look at are "CROCI" and "Cash Profits". Oakley's book is already out of date btw, he devotes a lot to "lease adjusted" calculations (trying to factor in "off balance sheet" liabilities), but accounting rules have changed again now, for the better, such that these are no longer needed. But it's still a great book.

[simoan]

Of course, the real question is why you want calculate such a meaningless metric? The idea of only buying a share when it’s at a discount to EPV is nonsense.

I had a 3 month sub to Sharepad five years ago and one of the charts showed the share price against EPV. Just about all the decent quality shares I looked at were at a significant premium to EPV so it would have stopped you buying just about any decent company. I wonder if Terry Smith uses it?

All the best, Si

[simoan]

Of course, the real question is why you want calculate such a meaningless metric? The idea of only buying a share when it’s at a discount to EPV is nonsense.

I had a 3 month sub to Sharepad five years ago and one of the charts showed the share price against EPV. Just about all the decent quality shares I looked at were at a significant premium to EPV so it would have stopped you buying just about any decent company. I wonder if Terry Smith uses it?

All the best, Si

BTW I should have mentioned why the concept of EPV is so fatally flawed for completeness. Its main input at the top is EBITDA. Charlie Munger once famously said to the attendees of the Berkshire AGM (I think in 2003) that whenever you see or hear EBITDA you should mentally replace it with "BS Earnings" (where the B stands for Bull and the S...). In fact, I go a bit further and studiously avoid, wherever possible, companies who present their profitability using EBITDA. In that case, more often than not, the company are trying to hide the truth from you.

All the best, Si

[monabri]

I wonder if Terry Smith uses it?

Rhetorical question

[simoan]

I wonder if Terry Smith uses it?

Rhetorical question

Yes, very. I wonder if his team have ever had the courage to suggest he use EBITDA as part of his investment process? I guess not, as they'd likely be working somewhere else by now!

[monabri]

But, The shareprice (7930p) is given in pence, so convert £ to pence by x100 for comparison.

Divide £ by 100


It was early !

[valuehunter2]

You left this post missing a few details

Using the following as a source. ( which I think illustrates the

I think what you may be referring to is the x100 step here..

A Equity Value = £6789.6 m
B Shares =152.9 m

A/B =£44.16

But, The shareprice (7930p) is given in pence, so convert £ to pence by x100 for comparison.

Or A/B= 4416 pence.

Thanks. Don't know why I didn't pick that up!

[valuehunter2]

Of course, the real question is why you want calculate such a meaningless metric? The idea of only buying a share when it’s at a discount to EPV is nonsense.

I had a 3 month sub to Sharepad five years ago and one of the charts showed the share price against EPV. Just about all the decent quality shares I looked at were at a significant premium to EPV so it would have stopped you buying just about any decent company. I wonder if Terry Smith uses it?

All the best, Si

I certainly wouldn't buy just based on an EPV metric. However, I feel it is still useful in determining a rational price to pay for something.

[simoan]

Of course, the real question is why you want calculate such a meaningless metric? The idea of only buying a share when it’s at a discount to EPV is nonsense.

I had a 3 month sub to Sharepad five years ago and one of the charts showed the share price against EPV. Just about all the decent quality shares I looked at were at a significant premium to EPV so it would have stopped you buying just about any decent company. I wonder if Terry Smith uses it?

All the best, Si

I certainly wouldn't buy just based on an EPV metric. However, I feel it is still useful in determining a rational price to pay for something.

But any calculation that uses EBITDA as an input, assumes a fixed tax rate and then that earnings are constant into the future, is irrational to start with. How can a rational number result from so many silly assumptions? Things change constantly in a company’s expenditure and performance. As someone else mentioned, the section on EPV detracts from what is otherwise an interesting book.