Value in the eye of beholder : Is DBS really worth $16.06 ?


We often look at things by setting our own standards and base on our own yardsticks and same apply to company’s valuation. Everyone may have their biases when come to valuation and value is more than just a number.

All Valuation are Biased !!

According to Aswath Damodaran ( a Professor of Finance at NYU’s Stern School of Business ) in his book “ The Little Book of Valuation “ try to warn us that “all valuation are subjected to biased “.

“ You almost never start valuing a company or stock with a blank slate. All too often , you view on a company or stock are formed before you start inputting the numbers into the model and metrics that you use and not surprisingly , your conclusions tend to reflect your biases. The bias in the process starts with the companies you choose to value. 

These choice are not random, it may be that you have read something in the press ( good or bad ) about the company or heard from a talking head that a particular company was under or overvalued. It continues when you collect the information you need to value the company. The annual report and other financial statements include not only the accounting numbers but also management discussion of performance, often putting the best possible spin on the number. “ explained Prof Aswath Damodaran in his book .

There is myriad of methods in valuation , when you search in google by keying in “ how to value a company” , you will find thousands of message in explaining different methods of valuing a firm.

Valuation Methods

If I buy a company, I buy its stock (equity) and assume its debt (bonds and loans). Buying a company's equity means that I actually gain ownership of the company - if I buy 50% of a company's equity, I own 50% of the company. Assuming a company's debt means that I promise to pay the company's lenders the amount owed by the previous owner.
The value of debt is easy to calculate: the market value of debt is equal to the book value of debt. (If in the books it says that a company owes its bondholders $1 million, that's how much that debt is worth in the market.) Figuring out the market value of equity is trickier, and that's where valuation techniques come into play.
The four most commonly used techniques are:
§  Discounted cash flow (DCF) analysis
§  Comparable transactions method
§  Multiples method
§  Market valuation

Discounted Cash Flow Analysis
The DCF analysis is the most thorough way to value a company. There are two ways to value a company using the DCF approach: the Adjusted Present Value (APV) method and the Weighted Average Cost of Capital (WACC) Method. Both methods require calculation of the free cash flows (FCF) of a company and the net present value (NPV) of these FCFs.
Comparable Transaction Method
With this technique of valuing a company for a merger or acquisition, you look at transactions that have taken place in the industry that are similar to the transaction under consideration. With the comparable transactions method, you are looking for a key valuation parameter.
That is, are the companies in those transactions being valued as a multiple of EBIT, EBITDA, revenue, or some other parameter? If you figure out what the key valuation parameter is, you can examine at what multiples of those parameters the companies are being valued in a series of transactions. You can then value the company similarly.
Multiples method
Quite often, there is not enough information to be able to determine the valuation using the comparable transactions method. In these cases, you can value a company based on market valuation multiples. Examples of these valuation multiples include price/earning multiples (also known as P/E ratios, this method, which compares a company's market capitalization to its annual income, is the most commonly used multiple) EBITDA multiples, and others. When using this method, you look at what multiples are used for other companies in the industry.

Market Valuation
The origin of the market approach of business valuation is established in the economic rationale of competition. It states that in case of a free market, the demand and supply effects direct the value of business properties to a particular balance. The purchasers are not ready to pay higher amounts for the business and the vendors are not ready to receive any amount, which is lower in comparison to the value of a corresponding commercial entity.
The market approach of business valuation ascertains the value of a firm by performing a comparison between the firms concerned with organizations in the similar location, of equal volume or operating in the similar sector. It has a large number of resemblances with the comparable sales technique, which is generally utilized in case of real estate estimation. The market value of shares of companies that are traded publicly and are involved in identical commercial activities may be a logical signal of the value of commercial operation. In this case the company shares are bought and sold in an open and free market. This process allows purposeful comparison of the market value of shares.

One need to take note that a small change in criteria or parameter in any valuation methods will have big impact on the result , e.g a small change in “ r ( cost of capital ) or g ( growth rate ) in DDM ( Dividend Discounted Model) will get  much different result in final valuation.

Is DBS really worth $16.06 ?

6 stock analysts from different brokerage house will give you a very much different valuation of DBS , ranging from $14.55 - $18.99 ( a different of $4.43 ) , base on their criteria and yardsticks .

The different in value is about 27% ( +/- ) swing from current price . You may wonder why there is such huge different if everyone is using and accessing to same accounting data and info of the company.

Narrative and Number

I really look forward to this new book by Prof Aswath Damodaran which I have pre-order :

“Through a range of case studies, Narrative and Numbers describes how storytellers can better incorporate and narrate numbers and how number-crunchers can calculate more imaginative models that withstand scrutiny. 

Damodaran considers Uber's debut and how narrative is key to understanding different valuations. He investigates why Twitter and Facebook were valued in the billions of dollars at their public offerings, and why one (Twitter) has stagnated while the other (Facebook) has grown. 

Damodaran also looks at more established business models such as Apple and Amazon to demonstrate how a company's history can both enrich and constrain its narrative. 

And through Vale, a global Brazil-based mining company, he shows the influence of external narrative, and how country, commodity, and currency can shape a company's story. Narrative and Numbers reveals the benefits, challenges, and pitfalls of weaving narratives around numbers and how one can best test a story's plausibility.

In our local financial blogosphere , we can find few very good bloggers who can really explain the figures behind the financial statement instead of  punching in few parameters in determine and getting the result of company’s valuation.

Allow me to show you some link on this :

  Article from on how to analyse a REIT

Company analysis from SG Thumbtack Investor

Another good blogs on company analysis from “ B “ : A Path to Forever Financial Freedom

There are many different ways to value stocks. The key is to take each approach into account while formulating an overall opinion of the stock. If the valuation of a company is lower or higher than other similar stocks, then the next step would be to determine the reasons.

Don’t just simply take the figure given by analyst for granted and look and the “narrative “ of the number .

Cheers !

“Stock valuation is not a prediction but a convention, which serves to facilitate investment and ensure that stocks are liquid, despite being underpinned by an illiquid business and its illiquid investments, such as factories.” By John Maynard Keynes


  1. ha ha. I am not a big fan of valuation. Large businesses with many subsidiaries how to value them?

  2. Hi Uncle CW8888,
    Yah ! always need to take the figures with a pinch of salt ! :-)
    Cheers !

  3. All valuations are subjective. I use valuations as guide, to get a sense of the margin of safety, when to buy/sell.

    Back to the title qn, I value DBS more than $16, n I am vested in DBS.

  4. Hi ThinkNotLeft,
    Yah ! All Valuation are subjective and is better to have margin of safety in buying stocks.
    Cheers !! :-)

  5. Hi STE
    Great post once again, and thanks for the mention.

    Can I ask if you have all these books that you have mentioned in all your posts?
    I have a private book collection at home, it's more of a hobby than anything. Some of them are in pristine condition and (heh) unread.
    If you do have all these books (hardcopy), I think that's going to make me jealous. HA HA!

    1. Hi TTI,
      Yah ! I have all the books which I have mentioned in my blogs , as per my blog on " my book & blog list " , I have more than 600 books in my collection ,,,, my house is like a small library..:-) , yup,, guess is like hobby , I still prefer reading all books in hard copy , you may also find the photo of my bookshelf in that blog post.
      The biggest problem for these " hobby" is that when we need to shift house, I still remembered the mover charged me extra few hundred dollar just because of these books in my previous house shifting . :-( , but I think is fair enough as is really heavy - which need to packed into many smaller cartons.
      Cheers !


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