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ING Groep N.V. Message Board

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  • jpomper jpomper Sep 24, 2011 1:40 PM Flag

    Jpomper: A valuation question :)

    Hi combohost,

    I copy for you some pages from my ING dossier. This is just for samples. Never trust anybody except your analysis.

    1.Graham's Number (GN) on ING, and other banks
    Benjamin Graham, the man who developed this equation, was a former mentor of Warren Buffett and is the so-called Godfather of value investing. The Graham Number (GN), or the maximum price an investor should pay for a stock, is derived using only two data points:
    -current earnings per share and
    -current book value per share.
    You buy as long as price is below GN, and sell on weakness above it.
    Graham Number = Fair Value of a Stock = Square Root of (22.5) x (Earnings per Share) x (Book Value per Share).
    The math of the Graham number is relatively straightforward. It is predicated on the belief that the price-to-earnings (P/EPS) ratio should be no more than 15, and the price-to-book value (P/BVPS) ratio should be no more than 1.5.
    From that, the product of the two should not be more than 22.5. In other words, (P/EPS of 15) x (P/BVPS of 1.5) = 22.5, from which the equation was created.

    Lets check ING, and 4 other banks to take a first look at the method. I use yahoo data here.

    ING GN=SQR(22.5*$1.34*14.5)=$21, current price $6.5, at 31% of GN.

    CITI GN=SQR(22.5*3.24*60)=$65, current $25, at 38% of GN.

    JPM GN=SQR(22.5*4.68*45)=$68 current $30, at 44% of GN.

    UBS SQR(22.5*14*1.76)=$23 current $11.5, at 50% of GN

    Clearly, all banks are undervalued, ING the most, UBS the least.

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