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SOGEN FUNDS'
JEAN-MARIE EVEILLARD ET AL.
(continued from preceding
page)
OID: And, I see, roughly 18.75% in 1995 and 1996.
Tobin: That's right. And, again, they earned those returns on a much higher net worth. Using my figures, Emin Leydier's book value would have been more than FF350 per share as of year-end 1996.
OID: So with your back-of-the-envelope adjustments, not only would their returns be far higher, but their higher book value would also imply that today's price represents a very small premium to book, if any.
Tobin: Yes, that's right - which is as it should be - because they spent over FF800 million in 1993 for that one paper machine or over FF500 per share.
OID: More than their current stock price?!
Tobin: Exactly. And so long as they're properly maintained, those machines actually last quite a long time. It's not unusual at all for them to last 20 years.
OID: Fascinating.
Tobin: And I'm not saying that my analysis is perfect. For example, their book value would be higher were we to begin adjusting their earnings in prior years. And, therefore, their returns would have been somewhat lower. But I think it's much closer to the true picture. And so, obviously, both Emin Leydier's book value and its earnings are very understated.
OID: Applying your adjustments to the estimate for 1997, what do you estimate the impact would be on their earnings for this year and their year-end book?
Tobin: This year won't be a good one because they were barely breaking even during the first half of the year. But making those same adjustments, their 1997 earnings would be around FF46 per share - which would be equivalent to a return on average equity of about 12%. And their adjusted book as of year-end 1997 would be about FF385 per share.
OID: So using their 18.75% return on average equity as our guesstimate for their ROE going forward would imply normalized earnings of FF75 to FF80 per share and a P/E ratio of 5-1/2?!
Tobin: That's not the way we do it. But that's right.
AND EMIN LEYDIER HAS EARNING POWER
THAT IT HAS YET TO DISPLAY. BUT IT WILL.
Page 17 of 20
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