coca cola amatil: a tale of two stories, page-84

If I told you my company bonanza r us was gonna pay a 1 off dividend in 100 years of $100 (not indexed for inflation) and no dividends ever after if you invest $100 today? sounds rhetorical aye? That is what you suggested people should do when valuing coke by failing to convert the numbers into today's money.

You need to discount earnings when looking into the future! CCA is still in FY14 so using FY14 earnings would be using a forward PE, using FY15 is too far a stretch to avoid discounting. Average ASX PE ratio (trailing) is 14-15. Roughly speaking, the average company grows earnings by 5-7% (growth - dividend) per year so discounting a PE of 14-15 by 5-7% means that ASX companies trade at about 13-14 on a 1yr forward PE. and 12 -13.5 on a 2yr forward PE (what your doing). I'd say we are very close to FY14 becoming a trailing number so let us do the math slightly in your favour and assume FY14 is over. This means it would need to trade between 13 and 14 to be equal with the average asx company. In FY 14/FY15 this will equate to a price of $7-. Same concept applies to cashflows ect.

So... I guess if we use your numbers and adjust to today's prices we get a price of $7 today. Good work getting the same numbers. I always like knowing I'm in the right ballpark. Sadly the share price only ever seems to roughly follow fair value at best. Mr market is a rather irrational beast and finds many ways to justify rather ridiculous "reasonable prices" for companies at various times (just think about the extortionate prices paid for tech stocks in 2000). I wouldn't be surprised if it didn't reach $7/share but I am hopeful it does reach $7 as I'm more than happy to load up in an excellent company at a reasonable price.