Valuing MEGB

Earlier this year I valued MEGB using acquisition techniques. My assumptions include that there are no changes in business and financial risk. The figures are plugged from the 2013 annual report.

1) Book value plus model 

	(RM)`000
Total value of net assets	567 933
Less: Intangibles	(42 286)
Non-current liabilities	(47 546)
Net value of equity	478 101

Total number of shares = Book value of share capital / Par value of share

                                      = 81 981/0.2

                                      = 409 905

Value per share = Net value of equity / total number of shares

                          = 478 101/409 905 

                          = 1.17

Therefore, using the book value plus model, MEGB should be valued at RM 1.17 per share. 

2) Economic Value Added (EVA)

Weighted average cost of capital (WACC) calculation:

(i) Cost of equity = Dividends per share/ Share price
(Note: I`ll assume the share price used for this calculation is the market value today, which is RM0.40.)
                            = 0.08/ 0.40

                            = 0.2

                            = 20%

(ii) Cost of debt

Long term borrowing costs is 4.45% (after adjustments) in the notes to the financial statement. 

(iii) WACC = [ 0.2(81 981) + 0.045(68 262)] / 68262 + 81 918
                    = 0.1296
WACC is rounded up to 13% for simplicity.

EVA = NOPAT - (WACC x Book value of capital employed)

         = 36 847 - 0.13(81 981)

         = 26 198.47

Value per share = 26 198.47 / 409 905

                          = 0.0639 

EVA shows RM 0.06 per share, the lowest value as the fundamental basis for the valuation is economic profits.


3) Market Value Added (MVA) 

MVA = Market value of (debt + equity) - Book value of (debt + equity)
(Note: The market value of debt is derived after the effect of amortization)

          = (422 405 + 68 265) + (81 918 +198 566)
          = 210 123

Value per share = 210 123/ 409 905
                          = 0.5126

MVA at RM 0.51 per share is the nearest to the closing price of this counter today (RM 0.40).

I`ve not traded this week

I have a confession, the lack of charts this is a dead giveaway.

I have not traded this week. I was occupied with other areas that had higher priority. My main focus at the moment is getting my dating and digital marketing businesses up and running. I`ve been involved with some writing this week.

US final GDP at 4.6%

The dollar is still on a rampage, with the final second quarter GDP meeting estimates of 4.6%. The advanced and preliminary GDP were 4.0% and 4.2% respectively.

US new home sales at a 6 year high

US new home sales reached a 6 year high.

German business confidence falls for the fifth month

The German Ifo business climate has been falling for five months in a row now. The Ifo survey, which is a composite index of manufacturers, builders, wholesalers and retailers declined to 104.7. It was estimated to be at 105.9 and the previous month showed a figure of 106.3.

Earlier on facebook, I shared a link on Business Insider predicting that EUR/USD will soon reach 1.00 by 2017. The analysis was done by Goldman Sachs.

New Zealand`s trade balance deficit narrows

The trade balance, which is the difference between the imports and exports posted a deficit of $472 m. This beats the estimates of -$1125 m by a considerable margin.

The rise in exports were led by live animals and dairy according to the report. Other highlights include:
- Exports rise 6.9%
- Imports fall 12%
- Trade deficit in August
- Seasonally adjusted exports rise 15%
- Seasonally adjusted imports fall 2.8%
- Exchange rate movements

The narrowing of the deficit echos the solid GDP figures last week.

MEGB`s Siva Kumar acquires 8.5m shares

Siva Kumar, the man behind MEGB has purchased 8 556 700 shares at a consideration of RM 0.355 today.

This is a sign that the counter should rise in the near future. It has been trading at a huge discount and Siva Kumar`s acquisition is a potential trigger for an upwards spike.

Occupy Wall Street causes Bursa to close red

The occupy Wall Street movement yesterday has caused markets to close red today. Bursa Malaysia closed 5.86 points lower. 

Eurozone manufacturing contracts

The French manufacturing PMI was a meager 48.8 although it did beat the forecast of 47.1 and last month`s 46.9

Germany did show a slight expansion half an hour later at 50.3. It missed estimates of 51.3 and last month`s 51.4.

In line with what ECB President Draghi mentioned earlier, the Eurozone is facing a slowdown and he certainly has a challenging time ahead.

Manufacturing industry expands in China

The HSBC flash manufacturing PMI registered a figure of 50.5, beating estimates of 50 and last month`s 50.2.

The manufacturing PMI is a primary indicator of how the industry is doing and a figure 50 indicates an expansion.

Since Australia is a proxy economy for China, the AUD/USD pair pre-data rose around 40+ pips before falling. As seen in the M15 chart above, a double top was formed and presented an opportunity to short. In other words, the pair failed to break resistance at the second test and as buyers lost interest, the price started to tumble.

ECB to supervise banks in November

The European Central Bank (ECB) has announced that it will supervise banks in the Euro area, including 120 large banks.

The ECB President, Mario Draghi has once again highlighted that the economic recovery is losing momentum and "no indication that the sharp decline (industrial production and manufacturing) registered in August will stop." High unemployment, weak credit growth and the risk of deflation are the regular themes of his speeches.

He adds "that the success of our measures critically depends on a number of factors outside the realm of monetary policy."

Nevertheless, Draghi continues to not address the fundamental flaw of all of this- the lack of a central treasury in Europe. Coordination between different banks would be daunting challenge.

The full content of his speech can be read from the ECB`s website.

I have maintained a short call for EUR/USD since May and everytime Draghi speaks, this pair falls further.

Intrinsic yen value

In my earlier post on the continued easing by the BoJ, I shall compute the intrinsic value of the GBP/USD and GBP/JPY pairs taking into account the effect of the additional monetary base.

This shall include a number of assumptions, at which the starting figure is based on their values on September 4th and that the total monetary base used shall be the average amount outstanding.

Japan`s monetary base can be obtained from BoJ`s website.

It can be seen above that the average amounts outstanding as at August 2014 is 2 431 161 x 100 million.

The additional yen pumped into the system annually, 50 billion shall be compared in terms of a percentage to the monetary base. This gives approximately 2.057%.
[ (5 x 10^10 / 2.431161 x 10^17) x 100%]

One yen spot contract now should be worth 97.943% of the original contract prior to the BoJ announcement.

The new intrinsic quotes for USD/JPY and GBP/JPY should be 107.169 and 176.107.

These values do not include the external influence of the strengths of the dollar and pound nor the fundamental weakness in the yen but it is a good start to see where the direction of the yen is heading.

Unemployment claims in the US drops yet again

The weekly unemployment claims is at a two month low of 280 000. Economists were expecting 312 000 claims, a four thousand reduction from last week.

BNM monetary policy statement

The central bank of Malaysia released its monetary policy statement earlier today. The Overnight Policy Rate (OPR) was decided to be kept unchanged at 3.25% by the Monetary Policy Committee. 

Other than that, the statement was rather generic. Full statement here. 

UK retail sales grows by 0.4%

Bloomberg accounts the demand of new vacuum cleaners to be a major contributor of this growth. This is in line with the expectations of a 0.4% growth after a stagnant prior month.

With the Scotland referendum biased towards no independence, this continues the bull run for GBP pairs.

MEGB has been buying back its shares

Since yesterday, MEGB has been involved with a share buy-back exercise.

10 000 shares were purchased at RM 0.365 on Wednesday and a whooping 23 300 000 units today at RM 0.34 to RM 0.35 per share. The total consideration paid in these two days was RM 8.02 million.

Historically in corporate Malaysia, when a company buys back its shares, it is when the share is trading at a discount. In a previous post, I mentioned that the intrinsic value of this counter is way over RM 0.50.

If MEGB was to be stripped for cash, shareholders would make a tidy gain.

The counter closed at RM 0.34 today, with a net buying volume of 495 000. (550 700 buyers versus 56 700 sellers)

New Zealand GDP growth highest in 7 years

A solid services industry has helped the New Zealand economy to expand at 0.7% this quarter, while economists were predicting the growth in the June quarter GDP to be 0.6%

The GDP growth for the year ended June 2014 was at a staggering 3.5%, the highest annual growth since September 2007.

FOMC is reducing its holding

The Federal Open Market Committee (FOMC) trims its holding of mortgage backed securities and treasury securities by $ 5 billion a month. Mortgage backed securities will continue to be added at a pace of $ 5 billion a month while the longer term treasury securities are to be added at $ 10 billion a month.

"The Committee's sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee's dual mandate."

Other highlights include:
- Labour market conditions improved slightly.
- Unemployment rate is little changed and there remains significant underutilisation of labour resources. 
- Moderate rising of household spending.
- Increase in business fixed investment. 
- Housing sector recovery remains slow. 
- Fiscal policy is restraining economic growth. 

The full statement can be obtained from the Federal Reserve. 

UK jobs data the best in 6 years, no change in MPC votes

The unemployment rate is at a six year low in the UK. The number of people claiming unemployment benefits dropped by 37 200 claims, beating what economists predicted. The previous month showed 37 400 less claims.

The Monetary Policy Committee asset purchase facility and bank rate votes remained unchanged.

GBP/JPY remained bullish after the data.

GBP/USD started to climb after a long bear run since the advanced Q2 US GDP.

Chart and technical analysis provided by fxstreet. My broker`s webtrader is still down.

New Zealand current account deficit widens

According to Jason Attewell, "the value of goods exports fell over a range of commodities, with dairy the most significant contributor this quarter'.

The current account was -$1.07 billion, missing estimates of -$1.04 billion. The previous quarter registered a surplus of $1.47 billion.

I do not hold any NZD exposure in my portfolio at this moment.

UK Consumer Price Inflation drops to 1.5%

According to Bloomberg, the inflation rate dropped to the lowest in five years.

I closed my GBP/JPY short position around an hour ago at 173.424, netting in around 50 pips from Friday night. The resistance at 173.517 broke and upside is expected short term wise. In addition, there are a number of high importance economic data out tomorrow, including the FMC asset purchase votes and official bank rate votes.

I wanted to upload a screenshot of the chart but my webtrader is not working for the time being.

Financial markets are slow

There were no high impact data today and it is a bank holiday for Japan. Bursa Malaysia is expected to be bearish with the Malaysian Day tomorrow and the Scottish referendum. Also on Thursday, Janet Yellen and Mario Draghi are set to speak.

I did not add or close any positions today. A break from trading is a good opportunity to focus on business.

RBNZ monetary policy statement

The Reserve Bank of New Zealand left the Official Cash Rate (OCR) unchanged at 3.5%.

"The exchange rate has yet to adjust materially to the lower commodity prices. Its current level remains unjustified and unsustainable. We expect a further significant depreciation, which should be reinforced as monetary policy in the US begins to normalise." A key indicator in the statement, the NZD should weaken against other currencies especially depreciating against the USD on a medium to long term basis. 

The summary of the statement can be found here and the complete one if necessary.  

Less jobs were created in US

While the unemployment rate met the forecast of 6.1%, the non-farm employment change went down to 142k jobs. The forecast was 226k after 212k jobs were created last month.

 With the non-farm employment miss, the USD is in line with the expectations to weaken against the common currency pairs.

Asset purchase facility and minimum bid rate unchanged

The asset purchase facility and minimum bid rate remained unchanged.

The GBP/USD pair went up for the first 15 minutes or so then came down. The later part was affected by the US data.

As for GBP/JPY as seen in the previous post, it was pretty much sideways at the time these two data were out.

BOJ continues easing

The Bank of Japan will continue increasing its monetary base at an annual pace of 50 billion Yen.

The monetary policy statement can be obtained here.

In line with the increase in easing, the Yen continues to weaken sending USD/JPY to test record highs.

GBP/JPY initially dropped during the release of the statement before falling further after 7.15 pm.

Australian trade deficit narrows

The trade balance deficit narrowed to -$1.3 billion, beating estimates of -$1.77 billion and a pleasant improvement from last month`s -$1.56 billion.

The report in depth is available here.

Retail sales met estimates at 0.4%, dropping from 0.6% last month.

Overall this has set a bullish tone for the AUD/USD pair. The additional upwards jump now is due to the weak US data.

Services PMI in UK grows

Services PMI hit 60.5, showing a strong growth in the services sector. It was forecast that the PMI would be 58.6 and recorded a figure of 59.1 last month. 

The GBP/USD pair was relatively bullish prior to the data, and had a significant climb for the next few hours.

On the other hand, GBP/JPY was pretty much uncertain and actually dropped a few minutes after the PMI figures were out. 

Shorting USD/JPY at short term resistance

I shorted USD/JPY at 105.05 which represented my short term resistance level.

In addition, under the currency strength meter, the Yen is the second strongest currency today.

The cabinet reshuffle in Japan today is helping out with the strength of the Yen. Another Yen pair, GBP/JPY fell significantly and was a good short entry.

Australian GDP grows slower than the previous quarter

The second quarter GDP in Australia was 0.5%, beating estimates of a 0.4% growth. This shows signs of slowing growth after the previous quarter ended with a 1.1% growth.

The AUD/USD pair actually dropped initially till around 9.51 am before it climbed at a slow pace.

China non-manufacturing PMI fuels growth

The non-manufacturing PMI was 54.4, higher than the previous period. This was not enough to bring the AUD/USD pair up.

Pound gets beaten while construction growth reaches a 7 month high

The construction PMI rose to 64, bettering estimates of 61.5 and last month`s figure of 62.4.

Surprisingly things have not been kind to the pound. GBP/USD has been seeing a downtrend all day as seen in the M1 chart above.

GBP/JPY started the day with a bullish tone but lost momentum in the afternoon. There was only one green candle as the data was made public and then downwards momentum continued.

I did not maximize my returns from the GBP/USD short I entered. I closed too early before the data not wanting to risk my unrealized gains.

RBA rate statement and cash rate

The cash rate set by the RBA remained at 2.5%, in line with the forecast rate. There is nothing new in the RBA statement, which explains why the AUD/USD pair did not move much. The press statement can be found here.

"An overvalued currency is hampering investments in the country" remarked Mark Barton from Bloomberg. The Australian dollar has been the strongest performing G10 currency so far this year.

 AUD/USD M1 chart above.

AUD/USD M15 chart above.

Generally this pair has been facing a downtrend until 12.06 pm. In the M1 chart, this pair went on to climb slightly till 12.30.

UK manufacturing PMI at a 14 month low

The manufacturing growth in the UK slowed to 52.5, a major miss from the target of 55.1 and last month`s 54.8. Bloomberg states that the key reasons for this contraction is due to the geopolitical risks and weakening demand.

A figure above 50 shows that there is growth in the economy. In this case, the growth momentum is slowing down.

To capitalize on the weakness of the pound, I shorted GBP/USD. This pair should take a few days to give good returns as the USD is not very bullish today. Weirdly, GBP/JPY dropped pre data and then rose in spite of the current economic conditions. The Yen`s weakness is prominent today, with USD/JPY rising not taking into account that it is a bank holiday for US and Canada today.

China manufacturing PMI and HSBC final manufacturing PMI

Both manufacturing PMI and HSBC final manufacturing PMI indicated growth in the economy but highlights an expansion that is slowing down.

The manufacturing PMI at 51.1 fell short of estimates and last month`s figure of 51.7. In addition, the HSBC final manufacturing PMI dropped to 50.2 in comparison to estimates and last month`s figure of 50.3.

Australia is a proxy economy to China and PMI figures would affect its capital markets. The AUD pairs today however did not show its usual volatility.

I entered a short at 0.93339 given how the economy did not expand as much as it should in China.

The M1 graph shows subtle movements.

Here is a close up shot of the M15 graph and price action. The two green candles show an upwards push for this pair. The spinning top like shape shows the opening price starting out low but closing higher, indicating buying interest. 

The red doji hints at uncertainty for a short while before churning up a green candle.