Discount to NAV / Analyst TP

In an earlier post on REITs, one screening criterion I mentioned was that of discount to NAV, akin to the notion of paying less than what something is actually worth. Recently, while reading through some analyst reports, another idea struck me, that of discount to analyst target price.

From what I can gather, most if not all of these analyst houses use some sort of discounted cash flow (DCF) method to arrive at their forward target prices (TP). Simply put, NAV is like the current valuation of a house (less the purchase loan), and a DCF TP is like what the house is worth based on the future rental income (forecasted) that it can fetch.

Below is a summary of the target prices gathered from 9 institutions for S-REITs.
Those highlighted in green are those with current discounts of >10% to both NAV and TP.
Those highlighted in red are those with current discount of >10% to NAV.
Those highlighted in yellow are those with current discount of >10% to TP.

Of the highlighted REITs, one in particular has caught my eye: CDLHT. It does not have the highest discount to the average TP at 14%, but shifting our attention to the other column, we see that it does have the highest premium to NAV of not just the highlighted selections, but of all the S-REITs, at 28%.

Evidently, the analysts must be seeing something that the market perhaps does not. Upon closer inspection of the analyst reports on CDLHT, I have picked out two main factors for the apparent optimism.

1. Strong balance sheet, especially after the recent placement exercise, points to probable acquisitions which would act as price catalysts
2. Singapore tourism boom with the improving global economy and further boosted by the opening of the two IRs

In my opinion, these seem sufficiently justified.

Normally, people pick stocks either as growth counters (for capital appreciation) or as defensive counters (for dividends). However, where possible, I would like to have a bit of both. Previously, I would choose a REIT primarily for its dividend yield, and then for its price appreciation as a secondary objective. Barring a double dip recession, which looks increasingly unlikely to me, the STI might just fluctuate within a range. In such a case, buying a REIT such as CDLHT would be first for price appreciation since the yield might not reach interesting enough levels for me when the market goes down. And if I manage to catch the CD period then even better, although that would only be at year end since CDLHT has a semi-annual policy and the first half dividends had been brought forward due to the placement exercise.

In the meantime, my rough guideline for entry into CDLHT would be the placement price of $1.71 plus minus, to be refined further with TA. Cheers!

AUD Update July 2010

Reserve Bank of Australia (RBA) media release statement on monetary policy decision found below:

At its meeting today, the Board decided to leave the cash rate unchanged at 4.5 per cent.

The global economy has continued to expand over recent months, consistent with a trend pace of growth. The expansion remains uneven, with the major advanced countries recording only modest growth overall, but growth in Asia and Latin America, to date, very strong. There are indications that growth in China is now starting to moderate to a more sustainable rate. In Europe, while output in some key countries has been improving recently, prospects for next year are more uncertain given the budgetary constraints governments face and the pressure on euro area banks. US growth has looked stronger in the first half of 2010 but the pace of labour market improvement is slow.

Caution in financial markets has been evident in the past couple of months, driven principally by concerns about European sovereigns and banks but also by some uncertainty about the pace of future global growth. Financial prices have been more volatile and equity prices and government bond yields in major countries have declined. Some tightness in funding markets is evident, though not on the scale seen in late 2008. Commodity prices are off their peaks but those most important for Australia remain at very high levels, and the terms of trade are approaching their peak of two years ago.

With the high level of the terms of trade expected to add to incomes and demand, output growth in Australia over the year ahead is likely to be about trend, even though the effects of earlier expansionary policy measures will be diminishing. Consumption spending is recording a modest increase at present, with households displaying a degree of caution, but most indicators suggest business investment will increase over the coming year. Business credit appears to have stabilised, though credit conditions for some sectors remain difficult. Credit outstanding for housing has continued to expand at a solid pace, but dwelling prices are rising more slowly than earlier in the year.

The labour market has continued to firm gradually, and after the significant decline last year, growth in wages has picked up a little, as had been expected. Underlying inflation appears likely to be in the upper half of the target zone over the next year. The rate of CPI increase is likely to be a little above 3 per cent in the near term, due to the effects of increases in tobacco taxes announced earlier in the year and significant increases in prices for utilities.

The current setting of monetary policy is resulting in interest rates to borrowers around their average levels of the past decade. Pending further information about international and local conditions for demand and prices, the Board views this setting of monetary policy as appropriate.

Germany lost!!

:(( So Yogi won the bet.. Screw him!

Round of 16: England out (Ber)
Quarter finals: Argentina out (mInG)
Semi Finals: Germany out (KKS)
Finals: Holland out? (Yogi)

Can this pattern hold true? What will the prophet Paul predict next? Find out in the next episode of World cup Paul prediction..

Therefore, Spain is the winner. *rushes to Sgpools to bet..

KKS

Not Everyday is a Sunday..

But.. Today is a Sunday... I guess this is what they mean by 情场失意，赌场得意...

KKS