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For a value investing fund, its ROE has been declining over the past 10 years. I used to own it but sold it when I found that it seemed to be resting on its past performance
KWSP is like investing in the index. It is good if you have not learned how to invest. But if you have learned and want to beat the market, you would look beyond the index and KWSP
Calculating intrinsic value is a time consuming process. So I screen for those companies where if I carry out such a calculation, I have a good chance of finding underpriced stocks. I use ROE as the key metric when hunting for stocks to dig deeper. What I share in KL Screener are mainly my screening results. If you want to see the detailed analysis and calculation of the selected companies, you have to go to my blog at https://www.i4value.asia/
I have a different perspective of fundamental analysis. If you are going to dig into a company, I don't see doing this without reading through the past 10 years of annual reports and looking at industry reports, etc. I normally take at least a week on a full time basis to do one analysis and valuation. If you want to see an example of the detail I cover go to https://www.i4value.asia/2023/11/white-horse-is-still-not-value-trap.html#more. My point is that I don't want to go through all this trouble unless I have a good chance that after spending the time, I find a company worth investing. That is why I have a screen to ensure that those that pass my screen will give a fighting chance of being investible. We can debate whether we should use ROE or ROIC. The metric really doesn't matter because I am not investing based on just the screening results.
ROE should not be used as a gauge for an investment fund as they do not have control over the earnings, except maybe to keep cost as low as possible, but the so called earnings are not entirely in their control. It is actually the NAV that should be monitored.
There is only one approach to know whether ICAP is worth holding or not. It is to know the quality of the stocks that it is holding and the discrepancy between the value of the portfolio relative to ICAP's NAV.
I think we should differential between growth (changes in a metric) and the actual number. So if you are looking at Earning Power formula of value = FCFF/Cost of Capital, we are interested in the number and not the growth rate. Then when it comes to growth rate, I tend to look at topline (revenue) growth. If this can be sustainable, it will translate into better profits. We can of course get profit growth from improving efficiencies, but there is a limit to such growth. I avoid looking at changes in shareholders equity when looking at growth because equity can change due to payment of dividends, new capital or some times accounting entries by pass the P&L (earnings) and go directly into equity.
The discussion on earning power here doesnt apply to ICAP as it is not an operating business, but a fund that holds a portfolio of operating businesses. Having said that, we also shouldn't be taking the collection of all the portfolio companies' estimated earning power and assign a value to ICAP based on its % ownership. This is because ICAP has no control over its investees. Using NAV / equity for ICAP's case is the most appropriate because it is reflecting the market value of its holdings
Icap NAV started to grow again in past 2 years plus … if the gap between share price n NAV being narrowed to 10%, it can go up to Rm3.30-3.40 n above..
