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Valuation (12.5 times 2017 PE) and 5% sector discount are not reflective of core business growth and longer-term potential.
Trading at a 17% sector discount, the market has overstated CJR reimbursement risk and undervalued a 150 basis points uplift in organic growth atop a leaner cost base.
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So, from reports in the public domain, I have identified over 100 cases in the public sector and around 80 in the private sector (discounting those in the building and construction industry).
In the private sector, companies discount their liabilities in their accounts at a median rate of 4.7%.
American public-sector schemes discount their liabilities by the expected return on their assets.
Medicare drug prices would then become public -- in the private sector, negotiated discounts are kept secret -- and private insurers would inevitably demand similar breaks.
Several interviewees noted industry variations in the desktop valuation methods, "Telecommunications and service industries tend to prefer multiples (e.g., economic value and/or EBITDA), while the financial sector prefers discounted cash flow".
Our target price, based on a 35% sector 2017 PE discount, falls to 67p {from 70p].
According to separate research by The Local Data Company, the discount sector – including Poundland, Poundworld and Poundstretcher – grew by 52% between 2010-15.
"Brands used to think of the discount sector only in physical terms, existing in outlets miles from cities, disconnected from the main retail experience," explains Phair.
Dave McCarthy, an analyst at HSBC, said Sainsbury's was merely adding momentum to the discount sector's growth rather than fighting back.
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