| | Tuesday 5 June 2012 QUOTE OF THE DAY A study of economics usually reveals that the best time to buy anything is last year
- George Bernard Shaw
ON THE SHARECRAZY BLOG Facebook - Fair Value $7.30? writes Tom Winnifrith
I do not use Facebook. It seems to me like a tool for morons who cannot read a book, engage in sensible conversation or live away from their screen or phone. In other words it has a vast target market in today's world. Its shares have plunged from $38 at IPO two weeks ago to $26.90 but I fail to see how they are worth more than $7.30. I would not be tempted to bottom fish.
At $38 the company was valued at $104 billion. True it had net cash and post tax profits in calendar 2011 were up by 65% at $1 billion. However, profits in the first quarter of this year slipped back a tad as the company invested in marketing and back office infrastructure. So it would be an error to extrapolate last year's profits growth out ad infinitum.
There is no doubt that Facebook has a lot of users (900 million) and operates on a nigh margin (heading towards 50%). However I flag up just a few concerns:
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Valuation anomalies ad absurdum, writes Tom Winnifrith
I am not sure of my Latin. No doubt my father or Evil Knievil or his father George could do better. What I note is just that very few stocks in London seem to be perfectly priced. At one end of the spectrum there are some ludicrously overpriced bags of huff and puff. I flagged up one such enterprise and explained why it was 90% overvalued earlier today here. But it is not alone - I am sure it is not hard to find another two or three dozen companies that are equally over-valued. And I shall turn my attention to Facebook later. Yet at the other end of the spectrum there are profitable companies trading at a discount to Tangible Net Asset value or even to net cash. This is bizarre.
What does this tell us?
Firstly that in illiquid markets the share price is almost never right and markets are far from perfect. One desperate seller or one crazed buyer is all it takes to create a large valuation anomaly.
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Taking stock: a view since '52 Back in 1952, there was no FTSE 100 index, so it makes it difficult measuring the performance of the London stock market during the reign of Queen Elizabeth II.
Even the broader-based FTSE All Share index did not start life until 1962, so if you want to measure how well the market has performed, you have to use the good old FT 30, Britain's answer to the Dow Jones index which for some reason, unlike its US counterpart, seems to have fallen out of favour as a market benchmark.
Dating back to July 1st 1935, the FT 30 is the oldest stock market index in the UK and one of the oldest in the world.
Unlike the FTSE 100, where the constituents of the index are reshuffled according to the market capitalisation of London quoted stocks, the composition of the FT 30 is determined by the guardians of the index at the Financial Times.
The idea is that the index should represent, broadly speaking, the gamut of the UK economy, unlike the FTSE 100, which these days seems largely a proxy for the mining and/or oil sectors.
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Weekend Share Tips Magnolia Petroleum, whose shares trade on the Alternative Investment Market, is run by Rita Whittington, an expert who has spent more than 30 years in the industry. As a senior director of two private American oil firms, her most recent ventures were immensely profitable. Now Whittington is hoping to generate similar returns for investors in Magnolia. The company buys oil and gas leases in North Dakota and Oklahoma, participates in drilling projects and generates cash when the oil is produced. The key to success lies in buying the leases at the right price and forming partnerships to drill wells at a reasonable cost so the business can expand without constantly asking shareholders for more money. Magnolia shares are 1.98p and can be volatile but the next couple of years should deliver strong growth, says The Financial Mail on Sunday´s Midas column.
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BOOK OF THE WEEK  By Johan Stenebo
A book review by Aaron Padgham of t1ps.com Johan Stenebo was a leading director at IKEA for more than two decades during a period in which it rapidly transformed into a leading flatpack retailer, generated billions of pounds of revenue across 38 countries. Working directly beneath Ingvar Kamprad, owner of the Swedish furniture giant, Stenebo was pivotal in the opening and running of the Leeds store, that soon went on to break company records, and was for some time Kamprad's personal assistant. John left the group in early 2009, after disputes with other members of management, and a few months later this book was released.
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