The second presentation from Vienna Value Investing meetup, wee discussed value decomposition, how to estimate asset value and how to predict future earnings of a stock.

1. Vienna Value Investing
Meetup #2
PRESENTED BY MARTIN BODOCKY
SUPPORTED BY

2. Why this meetup?
BUILDING COMMUNITY TO HELP EACH OTHER
WE WANT TO BUILD THE RIGHT TOOL FOR VALUE
INVESTORS
THIS IS AN OPEN DISCUSSION MEETUP, PLEASE ASK
WHENEVER YOU LIKE

3. Who am I?
MARTIN BODOCKY
CEO OF MINT IT
AI AND FINTECH GEEK
WE ARE HIRING!

4. Disclaimer
WE ARE NOT INVESTMENT ADVISORS.
WE DO NOT RECOMMEND TO BUY OR SELL.
ANY DECISION YOU CONCLUDED FROM THIS SESSION
IS YOURS NOT OURS, YOU ARE IN CONTROL.

5. Agenda
1.) FUNDAMENTALS RULES FOR VALUATION
2.) REPRODUCTION MODEL
3.) PRICE EARNINGS MULTIPLE MODEL
4.) DISCOUNTED FREE CASH FLOW MODEL

6. Snap’s IPO

7. Value decomposition
• WHAT THE COMPANY OWNS/OWES
BALANCE SHEET
• HOW THE COMPANY MAKES MONEY
INCOME STATEMENT, CASH FLOW, COMPANY
VALUE DRIVER

9. What the company owns/owes
• WE NEED TO DETERMINE THE NET VALUE OF
COMPANY ASSETS
• CONCLUDE NET ASSETS VALUE PER SHARE
• THE COMPANY’S REPRODUCTION COSTS
• IF YOU SELL ALL WHAT YOU GET
• EXAMPLE IN SPREADSHEET

10. Reproduction company assets 1/3
• CASH & CASH EQUIVALENT IS FULLY REPRODUCIBLE
• SHORT TERM INVESTMENT CAN BE FULLY
REPRODUCIBLE
• RECEIVABLES ARE INVOICES TO BE PAID BY EXTERNAL
ENTITIES
• INVENTORY IS DEPENDABLE ON COMPANY, INDUSTRY
AND INVENTORY. CAREFUL IN ESTIMATION
• PREPAID EXPENSES ARE GOOD ARE PAID FOR SHORT
TERM USAGE

11. Reproduction company assets 2/3
• OTHER CURRENT ASSETS CAN BE SHORT-TERM
INVESTMENTS, USUALLY LESS LIQUID THAT OTHER
CURRENT ASSETS
• PROPERTY/PLANT/EQUIPMENT IS DEPENDABLE ON
COMPANY INDUSTRY, THIS IS POTENTIAL PLACE
FOR VALUE TRAP AS WELL AS HIDDEN VALUE
• GOODWILL IS HOW MUCH VALUE COMPANY HAS
CREATED BY THEIR PRODUCT AND SERVICES. WE
CAN SAY THE BRAND VALUE.

12. Reproduction company assets 3/3
• INTANGIBLE ASSETS ARE PATENTS AND
TRADEMARKS. WE NEED TO ASSESS SIMILAR TO
GOODWILL.
• LONG TERM INVESTMENT IS DEPENDABLE ON
COMPANY VISION, IT CAN BE VENTURE CAPITAL OR
RESEARCH FUNDING.
• DEFERRED TAX ASSETS ARE RETURN TAXES FOR
NEXT YEAR, LIQUIDITY COST IS QUESTIONABLE

13. How the company makes money
• WE NEED TO UNDERSTAND WHAT DRIVES THE
COMPANY VALUE PRODUCTION
• PRICE/EARNINGS MULTIPLE MODEL
• DISCOUNTED FREE CASH FLOW MODEL

14. Margin of safety

15. Company value driver 1/3
• YOUNG GROWTH COMPANIES – REVENUE
GROWTH, TARGET MARGIN, SURVIVAL
PROBABILITY
• GROWTH COMPANIES – SCALING GROWTH,
MARGIN SUSTAINABILITY
• MATURE COMPANIES – OPERATING SLACK,
FINANCIAL SLACK, PROBABILITY OF
MANAGEMENT CHANGE

16. Company value driver 2/3
• DECLINING COMPANIES - GOING CONCERN
VALUE, DEFAULT PROBABILITY, DEFAULT
CONSEQUENCES
• FINANCIAL SERVICE FIRMS – EQUITY RISK,
QUALITY OF GROWTH (RETURN ON EQUITY),
REGULATORY CAPITAL BUFFERS

17. Company value driver 3/3
• COMMODITY AND CYCLICAL COMPANIES –
NORMALIZED EARNINGS, EXCESS RETURNS,
LONG-TERM GROWTH
• INTANGIBLE ASSET COMPANIES – NATURE OF
INTANGIBLE ASSETS, EFFICIENCY OF
INVESTMENTS IN INTANGIBLE ASSETS

18. Price/earnings multiple model
• DETERMINES 5 YEARS PRICE TARGET
• THE MOST STRAIGHTFORWARD MODEL
• USES HISTORICAL PRICE/EARNINGS MULTIPLE
• USES CURRENT EARNINGS PER SHARE
• USES EXPECTED GROWTH RATE

19. Historical price/earning multiple
• THE MODEL IS ESTIMATING VALUE ON PAST
EARNING CAPACITY OF COMPANY
• THIS CAN BE COMPUTED
• EASY ACCESS IN MORNINGSTAR[1] (5Y AVG*)

20. Current earnings per share
• THE MODEL IS INDICATING ON CURRENT EARNING
POWER
• THIS CAN BE COMPUTED
• EASY ACCESS IN YAHOO FINANCE[1] (EPS –TTM)

21. Expected growth rate
• WHAT IS PROJECT GROWTH RATE IN EARNINGS BY
ANALYSTS
• EASY ACCESS IN YAHOO FINANCE[1] (NEXT 5
YEARS PER ANNUM)
• APPLY MARGIN OF SAFETY HERE

22. The P/E multiple model computation
• DISCOUNT RATE = LONG TERM HISTORICAL MARKET
RETURN
•
𝐻𝑖𝑠𝑡𝑜𝑟𝑖𝑐𝐴𝑣𝑒𝑟𝑎𝑔𝑒∗𝐸𝑃𝑆(1+ 𝐺𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 1 −𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑠𝑎𝑓𝑒𝑡𝑦 )5
(1+𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑟𝑎𝑡𝑒)5
• EXAMPLE IN SPREADSHEET

23. Intrinsic value

24. Cash VS Cash
• “CASH” VS “CASH CAN BE TAKEN OUT OF A
BUSINESS”
• “CASH FROM OPERATING ACTIVITIES” VS “FREE
CASH FLOW”
• CAPITAL EXPENDITURES (CAPEX) – COMPANY
RUNNING COSTS
• FREE CASH FLOW(FCF) – WHAT REMAINS IN
COMPANY CAN BE TAKEN OUT

25. Discounted Cash Flow(DCF) model
• ADDS UP ALL THE EXPECTED FUTURE CASH FLOWS
DEDUCT NET VALUE PRICE TO COME THE INTRINSIC
VALUE IN TODAY’S MONEY
• TAKES LAST 12 MONTHS AND PROJECT NEXT 10
YEARS BY MULTIPLYING WITH EXPECTED GROWTH
RATE.

26. DCF data 1/3
• TOTAL CASH FLOW FROM OPERATING ACTIVITIES
• CAPITAL EXPENDITURES
• CASH FLOW STATEMENT
• EASY ACCESS IN YAHOO FINANCE[1]

27. DCF data 2/3
• CASH AND CASH EQUIVALENT
• SHORT TERM INVESTMENT
• LONG TERM DEBT
• BALANCE SHEET
• EASY ACCESS IN YAHOO FINANCE[1]

28. DCF data 3/3
• EXPECTED GROWTH RATE
• EASY ACCESS IN YAHOO FINANCE ANALYSTS[1]
• NUMBER OF SHARES OUTSTANDING
• EASY ACCESS IN YAHOO FINANCE STATISTICS[2]

29. DCF Computation
• MARGIN OF SAFETY
• DISCOUNT RATE
• GROWTH DECLINE RATE
• LAST VALUATION OF FREE CASH FLOW IS MULTIPLE
BY 12
• EXAMPLE IN SPREADSHEET

30. Summary
• REPRODUCTION COSTS
• PRICE/EARNINGS MULTIPLE MODEL
• DISCOUNT FREE CASH FLOW MODEL

31. Next sessions
• VALUE COMPANY IN SPECIFIC STAGE – GROWTH,
MATURITY, DECLINING
• SPECIFIC INDUSTRY SESSIONS(AUTO, BIOTECH,
SOFTWARE)
• PLEASE PARTICIPATE