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Monday, 12 February 2018

DBS Target Price: $53.42 using The Donovan Norfolk Fundamentals-Logic Forward Valuation Metrics Regressed to Current Point in Time: 12 February 2018, Monday, 9.20am Singapore Time

DBS Target Price: $53.42 using The Donovan Norfolk Fundamentals-Logic Forward Valuation Metrics Regressed to Current Point in Time:
12 February 2018, Monday, 9.20am Singapore Time

Dividends is carved out from Earnings Per Share, making a fixed proportion of Earnings Per Share.

From 2018 on, DBS Group Holdings will pay $1.20 per share in annual dividends from 2018 onwards - double the payout in three of the past four years. This is statement of guarantee from a reputable bank with words of credibility. This is a result of robust profits projected for the next few years. And the projection will rarely be wrong with such a statement on dividend guarantee.

At a share price of $26.71 as of DBS closing price of its shares on Friday, 9th February 2018, dividends of $1.20 per annum presents a 1.20/26.71 = 4.50% per annum dividend yield. This represents a 400% dividend yield over fixed deposit rates and way over SIBOR and LIBOR rates. Any smart monies worldwide will flood in and rush to buy up as much DBS shares as possible. Because shares of DBS Bank is now a world class asset to have when considering its track records, reputations, Temasek-backing, and solid management which have high integrity.

Note let us apply reverse logic flow that all Artificial Intelligence A.I algorithms will use to derive valuation metrics. Assume we want to half that dividend yield from 4.50% to that of 2.25% which is still a reasonable dividend yield rate for companies. This is still a 200% dividend yield compared to fixed deposit rates and is reasonable. This dividend yield of 2.25% is assuming nothing changes, Earnings Per Share did not increase, it was stagnant and nothing fundamental changed, and dividends is still $1.20. This reasonable dividend yield of 2.25% is a result of DBS shares price being 26.71 x 2 = $53.42 to still give a reasonable dividend yield of 2.25%, i.e. DBS shares priced multiplied by 2 to give a halved-yielded dividend yield of 2.25%. This means from dividend aspects, even if DBS Bank is worth $53.42 per share currently, ceteris paribus with EPS remaining constant, the dividend yield is still acceptable. This makes DBS Bank tentatively very undervalued.

Now as we know, dividends is possible only when EPS flow into the company is possible. DBS current Price-Earnings Ratio is 16.00. Assume $1.20 per share dividend is given out in the next few years as guaranteed by DBS because of bright earnings prospects. Assume come next year 2019 DBS disappointed, its EPS had ZERO growth despite under the umbrella of such bright economic prospects, rising rates environment and strong growth rates, and its dividends is as expected $1.20 per share. With a share price of $53.42 as derived earlier as reasonable, its dividend yield would be 2.25% in 2019 if shares price had increase 2x (2 folds) but Earnings Per Share and Dividends Per Share remained stagnant. At a price of $53.42 per share, with such terrible corporate results as assumption (which is close to impossible), the dividend yield will be 2.25% and the Price Earnings (PE) Ratio will be 32.00. A PE ratio of 32.00 is not even considered as high or expensive under NYSE evaluation metrics (international standard), and a dividend yield of 2.20% is not considered as unreasonable. In NYSE evaluation metrics (international standard guide), a PE ratio of 50 or more is then considered as high.

With the fundamentals-logic forward valuation metrics being established at above, i.e. $53.42 as target price with dividends of $1.20, 0% Earnings growth (sick circumstance), dividend yield rate of 2.25% and PE ratio of 32.00, this makes DBS share price of $26.71 extremely undervalued. It is too depressedly cheap. It is SEVERELY UNDERVALUED because at an immediate share price of $53.42 without any fundamental change to fundamentals under a bull market, this share price is still considered reasonable, and not even overvalued.

This enables us to conclude that DBS share price of even under $30.00 as a cheap bargain and a stealer, not to even mentioned a share price of $26.71 per share, which is ridiculously cheap and such a must-have, considering DBS is highly respected, has very sound banking expansion plans and credible management. Expect a hot rush of monies to flood into DBS equities. Only fools call it expensive because they peg their consciousness to the past and not the future, which is surely the greatest sign of a big fool.

The Donovan Norfolk Fundamentals-Logic Target Price on DBS:
Increase Target Price from Technical Analysis derivation of $40.00 a share to Fundamentals-Logic derivation of $53.42 per share

DBS Share Prices are EXTREMELY UNDERVALUED right now:

When a bank is at too cheap a valuation, of below 15, or even worse less than 10, we should be highly cautious. PE ratio projection is used only when a company is at healthy level of above 15 but way below 50, and backed with solid earnings growth with earnings momentum very destined to continue.

Additional Side Notes:

Characteristics of a Banking Sector Bull Run: 
Markets like to do 2.0 to 3.0 folds the normal-run PE valuation during the accelerated phase of a banking stocks rotated bull run. Price keeps experiencing constant pressure to move 2x-3x upwards the earnings while letting earnings to catch up later, until the process produces an effect in which the earnings cannot consistently catch up and it becomes a shorting market.
 In the accelerated run-up of banking sectors' bull runs, banking stocks do not have low PE ratios. The risk appetites are high.

Prices will run first, letting earnings catch up later, the process repeating (bull market) until earnings consistently are not able to beat expectations and it becomes a selling and shorting market (bear market).

Supercycle Extrapolation of DBS Bank as Attached

Apply computer science logic again: 
it was already derived that $54.32 is not an unreasonable price as target, on supercycle technicals this means DBS will break up the resistance of the black line. This means DBS Bank will have very good probability of hitting the upper most resistant area of the Green Trend Line in the super-cycle.

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