NOTIFICATION CENTRE
DEFINITIONS

What follows are some of the more common metrics that share market investors use to compare similar companies (peers) and their past performance. Each of the metrics used on our platform are forward looking and have been normalised, meaning they relate to forecast earnings and have been adjusted to remove one-off or non-recurring items.

Regular Filters


Exchange

Companies on Shareclarity are filtered according to the primary exchange on which their shares are listed. Investors often prefer domestic companies because they are less expensive to buy and sell (transaction fees), they benefit from certain tax incentives (franking and imputation credits) and they do not miss important announcements that would otherwise be released in a different time zone.

 

Relative risk (beta)

Companies on Shareclarity have been filtered according to their relative risk, meaning their financial and operating risks compared to other similar companies within the same sector. 

Low risk companies have less debt, better working capital management and a lower cost of capital than most of the other companies within the same sector. Their shares are often less volatile and they are generally able to tolerate bigger earnings 'shocks' without breaching their debt covenants.

- High risk companies have more debt, less efficient working capital management and a higher cost of capital than most of the other companies within the same sector. Their shares are often more volatile and they generally experience bigger earnings swings with any excess profits or losses shared among fewer shareholders.

Please note, the filters used to determine each company's relative risk are currently being refined and may change.

 

Sector

Companies on Shareclarity are filtered according to the sector and sub-sector in which they operate. Investors generally look for shares in different sectors to diversify their investments and reduce their risk and exposure to any one sector.

 

Size

Companies on Shareclarity are filtered according to their market capitalisation. Large companies trade above AUD/NZD 1.0 billion or HKD 5.0 billion, medium companies trade above AUD/NZD 250.0 million or HKD 1.0 billion and small companies trade below these thresholds. Investors generally look for larger companies because they are more liquid, they have proven revenues and they often have stable and diversified earnings, but their continued growth and share price appreciation can be harder to achieve.

 

Type

Companies on Shareclarity are filtered according to whether they are growth or dividend companies.

Growth companies are expected to grow their earnings per share (EPS) by 7.5% pa by reinvesting their profits into expanding their operations and making acquisitions. This can increase their size, but also the risks associated with scaling their operations, integrating acquisitions and financing new developments.

- Dividend companies are expected to payout 75.0% of their profits to shareholders rather than reinvesting those earnings back into growing their operations. They generally try to pay consistent dividends, but this can limit their growth and share price appreciation.

 

Quick Filters


Dividend ideas

Companies that distribute most of their profits to shareholders are referred to as 'dividend companies' (sometimes income or yield companies). Companies shown on the dividend ideas list have been filtered by size, price, profitability and debt:

1. they are listed on either the Australian or New Zealand exchange with a market capitalisation of at least AUD/NZD 250.0 million;

2. they are expected to payout at least 75.0% of their normalised net profit after tax and maintain a dividend cover of at least 1.0x over the next three financial years;

3. they have a forecast post-tax dividend yield of at least 4.5% and a value-gap above -35.0%; and

4. they have a net debt to capital below 40.0% and are expected to maintain an interest cover of at least 3.0x for property, infrastructure and transportation companies or a net debt to capital below 30.0% with an interest cover above 6.0x for all other companies.

See the definitions below for more information about each of these metrics.

 

Growth ideas

Companies that grow quickly and reinvest their profits into expanding their operations and making acquisitions are referred to as 'growth companies'. Companies shown on the growth ideas list have been filtered by size, price, profitability and debt:

1. they are listed on either the Australian or New Zealand exchange with a market capitalisation of at least AUD/NZD 25.0 million;

2. they have a forecast EPS growth of at least 7.5% pa and are expected to maintain a cash conversion of at least 90.0% and a working capital to revenue (WC to revenue) ratio of less than 25.0% for healthcare and manufacturing companies and 15.0% for all other companies over the next three financial years;

3. they have a value-gap above -15.0%; and

4. they have a net debt to capital below 40.0% and are expected to maintain an interest cover of at least 3.0x for property, infrastructure and transportation companies or a net debt to capital below 30.0% with an interest cover above 6.0x for all other companies.

See the definitions below for more information about each of these metrics.

 

Value ideas

Companies with positive earnings growth that appear undervalued by the market are referred to as 'value companies'. Companies shown on the value ideas list have been filtered by size, price, profitability and debt:

1. they are listed on either the Australian or New Zealand exchange with a market capitalisation of at least AUD/NZD 250.0 million;

2. they have a forecast EPS growth of at least 0.0% pa and are expected to maintain a cash conversion of at least 90.0% and a working capital to revenue (WC to revenue) ratio of less than 25.0% for healthcare and manufacturing companies and 15.0% for all other companies over the next three financial years;

3. they have a value-gap above 10.0%; and

4. they have a net debt to capital below 40.0% and are expected to maintain an interest cover of at least 3.0x for property, infrastructure and transportation companies or a net debt to capital below 30.0% with an interest cover above 6.0x for all other companies.

See the definitions below for more information about each of these metrics.

 

Speculative ideas

Companies with high earnings and borrowing risks with a binomial chance of success that appear undervalued by the market are referred to as 'speculative companies'. Companies shown on the speculative ideas list have been filtered by size, price, profitability and debt:

1. they are listed on either the Australian or New Zealand exchange with a market capitalisation of less than AUD/NZD 500.0 million;

2. they have a forecast average EPS growth of not less than 0.0% over the next three financial years and are expected to maintain a cash conversion of at least 50.0% and a working capital to revenue (WC to revenue) ratio of less than 50.0% for healthcare and manufacturing companies and 35.0% for all other companies over the next three financial years;

3. they have a value-gap above 20.0%; and

4. they have no maximum net debt to capital or interest cover thresholds.

See the definitions below for more information about each of these metrics.

 

Metrics


Capital expenditure

The amount money invested in the planned and unplanned maintenance of a company’s fixed assets, the acquisition or expansion of fixed assets, and the acquisition or development of goodwill and other intangible assets. Investors generally compare a company’s capital expenditure to its depreciation to see if it has potentially been underinvesting or overinvesting in its asset base.

 

Cash conversion

The amount of money, in cash, that a company makes divided by the amount it reports to have made from an accounting perspective. Investors generally look for companies with higher cash conversion ratios as it suggests they are able to convert more of their reported earnings into cash through better debtor, creditor and inventory management than their peers.

 

DCF value (discounted cashflow valuation)

The value of a company’s shares based on the amount of money, in cash, it is expected to make going forward.

 

Distributable free cashflow (distributable FCF)

The cash left after all of a company’s revenues have been received and all of its expenses have been paid. Investors generally look for companies with positive distributable free cashflows as it suggests they have excess cash that can be used to repay debt, distribute to shareholders or invest in new developments and acquisitions.

 

Dividend cover

The amount of money, in cash, that a company makes and is able to distribute as dividends, divided by the amount it does distribute as dividends. Investors generally look for companies with higher dividend coverage ratios that are also above 1.0x as it suggests they are able to produce sufficient cashflows to meet their dividend payments without the need to raise debt or sell assets.

 

Dividend yield

A company’s post-tax dividends per share (DPS) divided by its share price. Investors generally look for companies with higher dividend yields than their peers, provided they also have dividend coverage ratios above 1.0x, as it suggests they can keep paying dividends without increasing debt and they may be undervalued by the market.

 

EBITDA (earnings before interest, tax, depreciation and amortisation)

The total recurring revenues less costs incurred during the regular, ongoing operations of company. Investors generally look for companies with higher EBITDA and EBITDA margins than similarly sized peers as it suggests they have lower costs or greater pricing power than their peers.

 

Enterprise value (EV)

The total value of a company including all equity, cash, investments, minority interests and outstanding debt. Investors generally look for larger companies because they are more liquid, they have proven revenues and they often have stable and diversified earnings.

 

EPS growth

A company’s growth in earnings per share (EPS) over the next three years. Investors generally look for companies with higher underlying earnings growth than similarly sized peers, after accounting for any acquisitions or other corporate transactions, as it suggests they are able to sell more products or services at higher prices than them.

 

EPS normalised (normalised earnings per share)

The total underlying net profit per share that a company generates, after adjusting for one-off and other non-recurring items. Investors generally compare a company’s EPS to its share price as a measure of its expected investment return (P/E).

 

EBITDA margin

A company’s earnings before interest, tax, depreciation and amortisation (EBITDA) divided by its revenues. Investors generally look for companies with higher EBITDA margins as it suggests they have lower costs or greater pricing power than their peers.

 

EV/EBITDA (enterprise value to EBITDA)

The total value of a company’s debt and equity, being its enterprise value (EV), divided by its earnings before interest, tax, depreciation and amortisation (EBITDA). Investors generally look for companies with lower EV/EBITDA ratios and higher earnings growth than their peers as it suggests they may be undervalued by the market.

 

Favourable metrics

A fifteen-point measure of how a company compares to other, similar companies within the same sector. A higher number suggests its price, risk and earnings quality are better than its peers.

 

Franking

The proportion of the income tax paid by a company on behalf of its shareholders that would otherwise be payable by its shareholders for any dividends they receive. Investors generally look for domestic companies that pay fully-franked or fully-imputed dividends.

 

Interest cover

A company’s earnings before interest, tax, depreciation and amortisation (EBITDA) divided by its interest expense. Investors generally look for companies with higher interest coverage ratios as it suggests they are able to service their debt more easily than their peers.

 

Market capitalisation

The proportion of a company that is attributable to its common shareholders, being the total number of shares multiplied by their share price. Investors generally look for larger companies because they are more liquid, they have proven revenues and they often have stable and diversified earnings.

 

Net debt to capital ratio

A company’s net debt divided by the book value of its debt plus equity. Investors generally look for companies with lower debt and higher interest coverage ratios than their peers.

 

NPAT normalised (normalised net profit after tax)

The total underlying net profit that a company generates, after adjusting for one-off and other non-recurring items. Investors generally look for companies with higher NPAT and EPS growth than similarly sized peers as it suggests they are able to sell more products or services at higher prices than them.

 

Payout

The proportion of a company’s underlying net profit after tax that is distributed to its shareholders. Investors looking for dividend income generally look for companies that payout less than 100% of earnings and can maintain a dividend coverage above 1.0x as it suggests they are able to produce sufficient cashflows to meet their dividend payments without the need to raise debt or sell assets.

 

P/B (price to book)

A company’s share price divided by the book value of its shareholders’ equity. Investors generally look for companies with lower P/B ratios and higher return on capital employed (ROCE) ratios than their peers as it suggests they may be undervalued by the market.

 

P/E (price to earnings)

A company’s share price divided by its earnings per share (EPS). Investors generally look for companies with lower P/E ratios and higher earnings growth (EPS growth) than their peers as it suggests they may be undervalued by the market.

 

Post-tax DPS declared (declared post-tax dividend per share)

The total cash distributed by a company for each outstanding share that it has, net of any taxes paid by the entity on behalf of its shareholders or by the shareholders themselves. Investors generally compare a company’s post-tax DPS to its share price as a measure of its expected dividend return (dividend yield).

 

Revenue growth

The year-on-year percentage change in a company’s underlying revenues, after adjusting for any one-off and non-recurring items. Investors generally look for companies with higher revenue growth than similarly sized peers, after accounting for any acquisitions and other corporate transactions, as it suggests they are able to sell more products or services at higher prices than them.

 

ROCE (return on capital employed)

A company’s earnings before interest and tax (EBIT) divided by its total assets less creditors. Investors generally look for companies with higher return on capital employed (ROCE) ratios that are also above its weighted average cost of capital (WACC) as it suggests they are able to produce better shareholder returns than their peers.

 

Share price

The current share price, delayed by up to 30 minutes.

 

TV/DCF (terminal value to DCF value)

The value of a company beyond what can be reasonably forecast, being its terminal value (TV), divided by its DCF value. Investors generally look for companies with lower TV/DCF ratios than their peers to minimise the risk that the terminal value is not realised.

 

Value-gap

The proportional difference between a company’s share price and its DCF value. Investors generally look for companies with positive value-gaps as it suggests they are undervalued by the market.

 

WACC (weighted average cost of capital)

An overall assessment of a company’s intrinsic risk, calculated using the 'Brennan Lally capital asset pricing model'. Investors generally look for companies with a lower WACC as it suggests they have fewer company-specific risks than their peers.

 

WC to revenue

A company’s working capital (WC) divided by its revenue. Investors generally look for companies with lower working capital ratios as it suggests they hold less surplus inventory and are able to manage their debtors and creditors better than their peers.