Circa 1963 I recall reading “milliards” in Adam Smith's “Wealth of Nations”, which was written at the close of the 1700s. Cognates (the new word for today) in many European languages are still used – e.g., miljarden in Dutch (the “j” is pronounced like a “y”, which is not too different to the pronunciation of the second “i” in the English word), and Milliarden in German, which capitalises the spelling of nouns – the “en” ending is the plural, like it is with “oxen”. We now use the word “billion” because American influence has changed the choice of integer scaling in some countries in recent years – see https://en.wikipedia.org/wiki/Long_and_short_scales.
Sabine
The link that you provided mentions NWH as one of a few companies expected to surprise to the upside. A recent article written by FNArena's Eva Brockelhurst, who always writes sense, gives details of Macquarries's valuation for DOW, and it refers to the consensus evaluation of the group of brokers that FNArena uses for DOW. I use some of that information below, under the heading “Selecting a PER for NWH”.
Valuation Methodology
My preferred methodology for valuing NWH is PER-times-EPS, with EPS being the FY19 guesstimated EPS. In the absence of a steady-state historical set of metrics that can be extrapolated forward with confidence, one has to rely on very subjective guesstimates, and subjecting those to cute mathematics is sophistry, IMO.
PERs are a subjective measure of Mr Market's mood. Deriving a PER can be done by looking at similar companies, and selecting a point on the range of PERs that one thinks is apt. Deriving an FY19 EPS guesstimate can be derived in part from H1FY19 results and Management guidance. One can factor the results downward to be conservative. There is nothing to be gained by looking at NWH's EPS metrics for the past few years.
Selecting a PER for NWH
According to an FNArena report that I read recently, for DOW the EPS estimates attract a PER of 15+ for FY19, and 14+ for FY20. The DOW numbers are as follows:
Other things being equal, which they are not, one could hold that DOW should have a higher PER than NWH. Dow is more diversified in both its range of work and its geographic footprint, plus it has a higher dividend payout ratio. On the other hand, NWH is a turned-around stock that is bounding back to its historical EPS. Anyhow, NWH's FY19's guesstimated EPS could reasonably have a per of 14 applied, IMO. Each investor should select their own PER and EPS guesstimate.
Roger Montgomery's valuation methodology of using ROI, EPS and RRR, plus some tinkering driven by dividend payout ratio is not very different from selecting a sensible PER. His approach skewed the valuation towards non-dividend-paying companies based on the idea that companies can put earnings to better use at its ROI rate than what investors could do with the dividends. I am relying on memory here, so this paragraph does not claim to distil what Roger wrote about share valuation.
One can value a share in many ways, but as one always ends up with a valuation, and if one divides this by an EPS of whatever hue, one has a PER, either forward-looking, or backward-looking, and the latter is often normalised by excluding one-offs.
Adjusting for Safety
To be conservative, there is a tendency to build a margin of safety into metrics that are relevant to one's share-valuation methodology, and then if one considers buying, set a further margin of safety (MOS) to the calculated valuation. It is, I think, intellectually more sound to use honest guesstimates of the underlying metrics, and use a MOS adjustment at the end, which is what Roger M advised. Where in the past I have written that I expected the SP to hit $2.30 before 30 June 2019, I could have said, I think the value is $2.70 in round numbers, but I will apply a 15% MOS when venturing an opinion, and that gives $2.70 x 85% = $2.30 as a rounded number.
I often derive two or three sets of results to obtain a range of plausible guesstimates. There is also a difference between the price at which one would buy, and at which one would sell, and these themselves vary according to one's circumstances (need cash, hold too much of a particular stock, et cetera), and so a MOS factor should not be rigid, IMO.
New Target Price
My long-held target price of $2.30 this financial year should soon be eclipsed, so I am inclined to invent a new target price of $3.00 before 30 June 2020, which I will confirm or change when more facts become available. I suspect I may keep the target at $3.00, and narrow the window of time.
I have for a while though that $3.00 was a reasonable new target, but today I invented a $2.58 pessimistic target value, a $3.04 comfortable value, and a $3.40 bullish value. The last valuation extrapolated H1 NPAT on the basis of 11/5, because HI revenue was $500 million, and the target for FY19 revenue is $1,100 million. The three valuations averaged $3.01, so I picked $3.00 as a round number that has no pretensions of accuracy.
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