At wich price would BBAS be a safe investment?
First, I must enphasize that my margin of safety is 50% and my discount rate is 7% (I increased 0,5% because of the political influence in the management).
That said, it's important to choose the initial earnings to start with. I used the last 3 years average, wich is around 10,000 millions (in R$).
The payout is 40%.
The initial growth will be 8% a year (that's the double of what seems to be the speed limit for the brazilian economy at the present rate of savings/GDP. I doubled it because it's expected that the financial sector will increase it's share of GDP, and there's plenty of space for it), for 10 years.
After 10 years the growth will be 2%, because it's the average growth rate of brazilian economy during the bad times of the 80's and the 90's, before the current period of bonanza.
The results: 10,000 millions x 40%, growing 8% for 10 years and 2% thereafter, divided for 2 (margin of safety) equals to .... 65,834 millions, wich dividend by 2.860.729.247 shares equals to R$ 23,01.
BBAS3 closed yesterday at R$ 29,35.
Efeitos no Brasil do cenário financeiro nos EUA
3 weeks ago
4 comments:
Sounds too much conservative to me. You would be buying a major bank, a profitable one, at a P/E less than 5!
As I have posted, BBAS3 has an average ROE for the last 5 years of 19,4% (and I'm excluding the best 4 quarters). This almost match your earnings of 10 billions.
With this figures I'll start (just a little) to buy at an average P/E of 8, wich gives a price of 28 per share and a yield of 5%.
It's a matter of margin of safety. My criteria demands an upside of 100%. For an upside of 50%, It would be possible to pay 30,68 for BBAS3. The stock traded yesterday at R$ 29,35.
When I said conservative I mean that for the long run, according to your model, BBAS would be retaining 60% of its earnings and growing just 2%!
It's not compatible with the ROE. A normal growth would be 60% x 20% = 12%.
You should increase the payout or the growth rate, or both.
Or the ROE will be smaller in the future.
Post a Comment
We encourage your feedback and we will take your comments into serious consideration. However, you must be warned that any comment that does not follow the blog philosophy (Value Investing and Behavioural Finance) will be promptly removed.