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ING Groep N.V. Message Board

  • b.sam44 b.sam44 Jun 30, 2011 2:32 AM Flag

    J pomper

     

    Greetings my fellow investor. Troubled world of banking continues to run Amok. C, BAC, ING, NBG, LYG, STD,....must I go on. Opportubity knocks? I see a worldwide mergermania in Banking. Lets have your opinion.

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    • Did I make a mistake jumpin into ING today?

    • Hi Sam,
      I offer you two ideas to understand why I like bank's stocks now, and this might help you estimate where we are at the bank's longterm valuation cycle.

      1) The longterm Relative Average Bank PE ratio is cca. 0.82
      (in 1997=0.81, in 1998=90, in 1999=0.80, etc).

      The bank's relative PE number usually varies betweeen 0.80 and 0.90 of the Market Average PE.

      Now, in June 2011, we have S&P500 Market Average PE ration at 15.6, so the Bank's Relative (to S&P500) Average PE should be around (15.6*0.82) 12-13.


      Instead, we have a current Bank PE average PE=7.6

      I just calculated this PE average using the world's 10 biggest banks latest data.

      So, currently we have a very nice bank sector undervaluation
      at (7.6/12) 63%.

      I am sure the world will need banks in the next 20 years. This is much safer bet than the world will need MSFT, CSCO, AAPL, INTC.

      If this is not a once in a lifetime opportunity to accumulate bank stocks, I dont know what is.

      • 1 Reply to jpomper
      • 2) I like to use multiple linear regression (a math model) to calculate how the bank share price depends on their EPS and Bookvalue.

        2A)In 2001, for the world banking sector the best linear approximation equation looked like:
        SharePrice= 0.27*EPS(ttm)+2.27*Bookvalue

        For example, using the above eq. for JPM in 2001, this price estimation worked out like this:
        0.27*2.15+2.27*21.5=49.2, while JPM actual price was 48 in 2001.

        2B)Since that time, this equation changed dramatically, and now looks for top banks like this:
        Shareprice=3.1*EPS+0.6*BookValue

        For example, in 2011 for JPM, the price can be estimated using this new equation as:
        3.1*4.5+0.6*43.7= 40.1

        Well, the current share price for JPM is 40.9
        so, prety good.

        2C) This just shows, that in 10 years the investors value perception changed a lot. The importance of the first parameter (EPS) increased from 0.27 to 3.1, which is like 11 times. So, today people put a much higher importance to EPS than they did 10 years ago. Paralel, people were ready to give -to own a bank share- over 2 times its Bookvalue 10 years ago, but today they are much more tightfisted and ready to give only 0.6 PB.

        2D) Finally, this only shows you how much potential JPM (and ING) shares migth have in 10 years again.

        Do the math for yourself. If the perception swings back in the next 10 years to the 2001 state of mind, we might get far over 100 for JPM.

        Do the math for ING yourself.

 
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