In philosophy, “the whole is greater than the sum of its parts,” according to Aristotle. Mathematics tells us this cannot be true. But what about investing? In investing, a common way to value a large conglomerate is to use a sum-of-the-parts analysis. Put simply, this method values each division then adds them up. It is often used to highlight hidden value in conglomerates; perhaps an asset or division whose full worth might not be appreciated by the market. But it can also be misleading as a tool for valuing companies. Sum-of-the-parts analysis is often applied to value News Corporation. This is because it has dozens of well-known assets, including a 50% stake in Foxtel and a 61.6% stake in REA Group, owner of realestate.com.au. Many analysts use it to determine their valuations, which tend to be well above the share price. The median of analysts’ share price targets is $22.66, which values News at $13 billion, some 30% above the $10 billion valuation implied by the current share price. How do they derive such lofty valuations? Read full blogpost (VIEW LINK)
Daniel joined Forager in April 2016 as a senior analyst / portfolio manager for the Australian Fund. He is an avid value investor having previously worked at Investors Mutual and MMC Asset Management. He has a Bachelor of Commerce degree...
Daniel at 30% premium above Market Cap value this would represent the difference between valuation methods based on a controlling interest basis (sum of the parts) and a minority interest basis (market capitalisation).