The key principle of Clime’s investment approach is to purchase quality companies at prices that are lower than their intrinsic value. Valuing companies is our core competency. Our approach is based upon the notion that good quality, profitable stocks will yield a good return in the mid-to-long-term when bought at a discount to value. The reason this discount exists at all is because the market is not rational and market sentiment can skew perceptions of the ‘fair price’.

Clime Direct uses a modified NROE (normalised return on equity) model to calculate intrinsic value. The way we measure NROE is by looking at the cash flows from an owner’s perspective and how much equity is required to produce those cashflows for owners (shareholders’ equity). For example, the calculation of NROE takes into account the reported after-tax profits the business earns throughout the year; the amount paid to shareholders as dividends (and any applicable franking credits on those dividends); those retained from shareholders and allowed to compound back into the business; and any new capital raised or bought back as well changes in accounting reserves (i.e. foreign exchange gains/losses, revaluations of assets) which are unrealised profits or losses that flow through profit and loss account. All of these amounts go into the calculation of NE (normalised earnings) and that is then divided by average shareholders’ equity over the period to give you NROE. Therefore our measure of NROE looks at all of the cash flows from an owner’s perspective.

Normalised figures (determined by our analysts) are used in all our calculations as they are able to eliminate the skewing from abnormal items that occur within company accounting records. Moreover, it is able to better account for the effect of franking and the Australian imputation tax system which regular ROE does not. In this way, our system is adept at valuing Australian companies listed on the ASX.

Of course, as with any formula, the valuations are only as good as the inputs used. Clime Direct provides access to the expertise of Clime’s investment team, who test and revisit their valuation assumptions – rather than just taking a consensus ‘data feed’.

For this reason, you should watch out for services:

• That present value investing formulas that don’t account for this uniquely Australian aspect of franking credits
• That is a ‘black box’ valuation and don’t have any experienced analysts behind their valuations

We have detailed information on our valuation approach in the Support section of our site.

The market does not value stocks, it simply reflects transient prices determined by a minority of market participants whose reasons for buying and selling are likely to be influenced by a broad range of objectives and motivations. The opportunity lies in identifying divergence between the current market price of that company and the intrinsic value – to which, over time, price should gravitate.

Both the current and future valuations are relevant when considering investment decisions. The current valuation is calculated from existing interim and final reports while the future valuations are based on next-year forecasts. As a result, future values are based on forecasts that are the best estimates of our analyst team. This provides an important insight into how we think a company will perform in the future, but clearly has a greater degree of risk that our valuation will prove inaccurate.

You should be particularly aware of the risks of longer-term forecasting accuracy (you only have to look at broker consensus forecasts, to see how quickly expert views can change!), and we advise you to consider our forecasts (and the inputs behind them), as one input in your investment decision.

The valuations presented on Clime Direct are derived by the investment team of Clime Asset Management.

The team is led by Head of Investments Adrian Ezquerro and comprises a team of 10 staff, 6 of whom have more than 10-years’ investment experience.

The Clime Asset Management investment team use these same valuations for their own investment activities. They invariably check and revise valuations daily, but as with any calculations which rely on forecasts and estimates, these valuations will always be an approximation.

As the valuations are based upon a variety of inputs, they will change if and when new information arises. Some of the inputs are made by our investment team – for example, the forecast earnings of a company. If an analyst changes this input the value will change. Other inputs are based on reported company information – for example, its current earnings. If this information changes, for example, a company releases a new set of earnings results for the year, the valuation will change.

This means that typically valuations will change at least twice a year though in some cases, more frequently.

Valuations can be made using many different methodologies, which accordingly produce different results. Even when the same valuation methodology is adopted, where assumptions are required, the valuations will depend upon the sense and accuracy of input assumptions made by the investment team.

Yes, you can make your own valuations on our company valuation page by changing the value of a variety of inputs. You can also choose to save these valuations for future review.

No, at this stage you cannot trade shares within the platform. Clime Direct is a stock valuation service with a focus on identifying long-term investment opportunities.

Unlike some investing ‘newsletters’ or ‘tipping’ services, we do not promote selected stock returns from recommendations. We prefer two more comprehensive measures for reflecting our performance:

1. As the tool is used by the investment team of Clime Asset Management, and the valuations they determine for their portfolio stocks are reflected in Clime Direct, long term investment performance is a good proxy for the overall quality of valuations in the system. Click here to go to Clime Asset Management’s website, see the latest performance
2. Within Clime Direct we have a proprietary measure or rating of “financial health” for all covered stocks. Historically this has been a sound predictor of stock performance.

We strive towards transparency and as such, have in place several protocols to avoid conflicts of interest. Wherever a stock is discussed in an article or report, if that stock is held within Clime’s managed portfolios, we will notify you. Analysts reporting on stocks, or contributors to articles, must also disclose any personal holdings. In addition to these disclosures, we have a stringent staff trading policy in place, to ensure compliance with ASIC regulations.