The group project requires you to conduct a complete analysis and valuation of a publicly listed company.
The group project requires you to conduct a complete analysis and valuation of a listed company.A key feature of the project is that it requires you to identify and obtain the relevant publicly available information. Thus, in addition to being evaluated on your ability to apply the tools of analysis described in the course, you will also be evaluated on your ability to identify and obtain the relevant information. Your analysis should provide solid support for the assumptions and forecast that drive your valuation. (Your valuation should use only publicly available information. Do not use inside information obtained from personal company contacts etc.) Do not use brokerage house reports or other published sources that make investment recommendations
You should incorporate the information you have already presented in the first Analyst Report submission.
Your analysis should follow the steps described in the course..
1.Business Strategy: Briefly describe the industry and the company's position within the industry and, most importantly, the sustainability of profits generated by the company's strategy Why do you think the firm's return on equity will or will not revert to its cost of capital? Please do not simply repeat the company overview from the company's website or Management Discussion.and Analysis.
2. Accounting Analysis: Assess the degree to which the firm's accounting reflects the underlying business reality. Identify accounting distortions and their impact on the sustainability of profits. For instance, R&D is sometimes expensed when incurred, but probably creates an economic asset. How will this affect your forecasts? You may also want to restate or rearrange the existino financial statements to make them easier to analyse and forecast.
3. Financial Analysis: Use ratio analysis and cash flow analysis to evaluate the current and past performance of the business and assess its sustainability. You should definitely compare your company to some peers in the same industry.
4. Forecasting: Forecast the firm's future income statements and balance sheets. This is the heart of the project so provide specific justification for each major component of your forecasts. Is the forecast based on past trends, comparisons with other firms in the industry, an industry report or your qut feel? How does your forecast for the next few years compare with analyst forecasts?Finding relevant data from outside the firm's own financial statements to quide your forecasts is particularly valuable here, but please only access publicly-available data; do not use inside information that you may have gathered from personal contacts in the companv. You should show your key forecasts in the proiect report itself (i.e.. don't iust state that the reader "should refer to the excel spreadsheet).
5. Valuation: Use either the residual income (i.e. abnormal earnings) model or a discounted free cash flow to equity model to produce an estimate of firm value. Focus on the value per share of equity in the company and compare your valuation to the market valuation, providing possible explanations for any differences, You should also conduct a sensitivity analysis by varying your discount rate and other crucial assumptions. You should include a summary of your valuation in the report, and not just in your excel file. [Update: you should specify in the report that date that you are making your valuation l.
6. Investment recommendation: state whether you would recommend a buy, hold. or sell for your company. Assume that you are advising a long-term investor with an existing portfolio that is well-diversified. [Update: You can assume that share price movements after the close of trading on Friday 16 July do not need to be considered for the purposes of answering this question.]
The project is due at on 5pm Friday 30 July (AEST). Please submit an electronic copy on Moodle. You should also submit an electronic copy of your excel spreadsheet on Moodle. Both your report ano the spreadsheet will be assessed as part of your project grade.
Your report should be a readily comprehensible and condensed report of your work (i.e., not a detailed compilation of all the information you collected and all the various valuation scenarios you considered). Accordingly, your report is limited to fifteen pages. This includes everything except the cover page and references.
You must include a cover page, as well as two Group Meeting Minutes (these can obviously be online meetings). Please site any sources for data used in your financial analysis or forecasts, such as industry reports. You are required to disclose all sources of information e.g. raw data, expert opinions, surveys, analyst reports etc.
Please use a minimum of 11 point Times New Roman, 1.5 line spacing, and minimum of 2cm margins. Submissions that do not follow these quidelines will have 3 marks deducted from you grade.
Tips and hints for the Final Report:
would not recommend trying to forecast the entire income statement or balance sheet. You will find it easier to use the 'condensed' financial statements that we have previously covered in class.Whether you use operating and financing items, or operating, investment and financing items wil depend on the way your business is structured.
You should forecast the key ratios that comprise the Du Pont decomposition. As we will see in our valuation class, it can be easier to do this using start of year balance sheet values rather than.average balance sheet values.
It is usually easiest to start with the sales forecast. For firms with different segments, you may wish to separately forecast sales (and other ratios) for each division.
You should be able to obtain security analysts' forecasts for each of your firms via the Factset database. This will allow you to compare your forecasts with those of the analysts.
You will need to think about how many years of detailed forecasting you will undertake. [Note: by detailed I am still referring to the 'condensed financial statements, not a full income statement or balance sheet]. Your assignment should explain this choice. At the end of the detailed year by year forecast you will need to make vour 'terminal value' assumptions. It is quite likely that your estimate of firm value will depend critically on these assumptions, so think carefully about them！
In the valuation section of the report you will think about applying sensitivity analysis to your forecasts. You should start to consider the possible extent of variation in your key metrics at this stage-that is, could sales by 5, 10, 15% higher or lower than you anticipate? What about margins, turnovers etc? Is your company a 'moon shot' or bust company (ie two possible, but widely different forecasts), or are the possible ranges less variable?
One of the critical aspects of this part of the project is justifying your forecasts. Your forecasts should be consistent with your prior analysis of the industry economics and business strategy, and how you have described your expectations for both of those things.