BAFI 1045: You are Required to Analyse a Listed Company and Prepare an Investment Recommendation Report: Investment – Company Valuation Assignment, RMIT

Assignment Brief: You are required to analyse a listed company and prepare an investment recommendation report. The report provides an assessment of the company’s current position and future prospects, incorporating the use of various valuation techniques to arrive at estimates of the intrinsic value of the company’s shares. Your report should make a case for …
Continue reading “BAFI 1045: You are Required to Analyse a Listed Company and Prepare an Investment Recommendation Report: Investment – Company Valuation Assignment, RMIT”
The post BAFI 1045: You are Required to Analyse a Listed Company and Prepare an Investment Recommendation Report: Investment – Company Valuation Assignment, RMIT appeared first on Assignment Help Singapore No 1 : Essay & Dissertation Writers, SG.

Assignment Brief:

You are required to analyse a listed company and prepare an investment recommendation report. The report provides an assessment of the company’s current position and future prospects, incorporating the use of various valuation techniques to arrive at estimates of the intrinsic value of the company’s shares.

Your report should make a case for the company’s shares to be rated in one of the following ways:

The final submission should fulfill the following minimum requirements

Evaluate the relative historical financial performance of the company among its peers

• identify the firm’s competitors and discuss why they have been selected
• identify, and explain the relevance of, five financial ratios of your choice (not to include ROE, Net Profit Margin, Total Asset Turnover or Financial Leverage) for the company and its peers
• explain the performance of the company compared to its peers using this analysis

Estimate the ROE of the company for the most recent five years using the DuPont ROE approach.

• DuPont Analysis should be done using the 3-step procedure
• 3 steps: Net Profit Margin, Total Asset Turnover, and Financial Leverage
• analyse the company’s and your selected peer companies’ ROEs over the period
• show your own calculations for each component over the previous five years compare the DuPont ROE of the company with its industry peer group companies

Analyse the company’s/industry’s current issues and explain the effect of these issues on the company’s future earnings

1. At the Macroeconomic Level

• general factors that apply for the industry (GDP, employment, growth of the industry, regulation, global factors, supply, demand, world commodity prices, etc.)

2. At the Microeconomic Level

• the company- and industry-specific factors (operation, financials, objectives, competition, etc.)

3. As a SWOT analysis

• detail the Strengths, Weaknesses, Opportunities, and Threats to the company

4. As either a PESTEL or a Porter analysis

• analyse the company’s position in its industry using one of the above techniques

Intrinsic Value Estimation

Start your valuation analysis with the estimation of expected return using CAPM You need 3 inputs to calculate the CAPM expected return

1. An Estimate of the company’s Beta

Use the closing price data of the company and the market index to calculate daily log returns for the most recent five years. Using this data you can estimate raw beta by using regression analysis. Attach details of your work as an Appendix.

• Adjust the Raw Beta using the formula: Adjusted Beta = (0.67) x Raw Beta + 0.33

2. The Risk-Free Rate of Return

Use the 10-year Singapore Government bond yield as a proxy for the RFR.

3. The Market Return

Please use an estimate of the market return-E(Rm)

• The estimated CAPM required return should be used as the discount rate in your valuation models

Estimate the intrinsic value of the company’s shares using the dividend discount model (DDM)

• you must use a 3 Stage DDM. Follow the methodology discussed in Equity Valuation Chapter
• use CAPM return as your discount rate
• estimate the growth rate for Period 1 using the average growth rate in dividends for the past 5 years
• estimate the growth rate for Period 2 using your macro and microanalysis
• estimate the terminal (Period 3) growth rate using a proxy that represents the long-term growth rate and calculate the terminal value
• calculate the present value of each future dividend and the terminal value, then add them to calculate the intrinsic value of the company

Estimate the intrinsic value of the company’s shares using the Free Cash Flow to Equity (FCFE) model

• you must use a 3 stage FCFE model to calculate the intrinsic value of the stock
• source the components for FCFE from the company’s financial statements using Eikon
• calculate the FCFE per share over the past six years. The average growth in FCFE per share will be the growth rate for Period 1

Formula FCFE = Net Income + (Depreciation Expense – Capital Expenditures)-Δ in Working Capital – Principal Debt Repayments + New Debt Issues

• estimate the growth of FCFE for Period 2 using your macro and microanalysis
• estimate the terminal (Period 3) growth rate using a proxy that represents the long-term growth rate and calculate the terminal value
• calculate the present value of each future year’s FCFE to calculate present value, then add them to calculate the intrinsic value of the company
• provide justification and reasoning if you use a different growth rate than the one calculated for Period 1
• provide justification and reasoning for your growth rate assumptions for growth in Period 2 and Period 3

Apply Relative Valuation techniques to ascertain the valuation of the firm

• calculate and compare multiples such as Price-to-Book, Price-to-Earnings, and Price-to-Cash Flow for the company and its peers
• determine the relative valuation of the firm using these multiples (do not attempt to calculate the share price)

Using relevant charts, evaluate the company’s share price performance over the last five years

• compare the relative performance of the company to the broad market index
• compare the relative performance of the company to its peer group
• comment on these charts, referencing reasons for any significant changes you have identified

Perform a technical analysis of share price movements over the last five years

• use 50-day vs 200-day moving average lines and volume analysis to identify
• the show, and comment on, these analyses with reference to charts sourced from Eikon

Evaluate your findings

• Why do the intrinsic values you have calculated differ from the current/recent share price?
• How does this difference inform your investment recommendation?
• Why is there a difference between your DDM valuation and the one from the FCFE valuation?
• Which is the most appropriate valuation model for this company? Why?
• And, more importantly, what is your investment decision based on your evaluation?
  • Is your recommendation to Buy, Sell, or Hold shares in this company?

• Is it different from the signal obtained from the technical analysis? Why?
• Does your qualitative analysis agree with your quantitative analysis? If not, why not?

Important points to be covered regarding Valuation Models

• Explain any assumptions you have made in implementing your models.
• Where appropriate, explain how you arrived at the variables you are using. For example, it is not enough to say you are assuming a 2% growth rate. You will be expected to provide justification for your 2% growth rate.
• Provide tables of data for FCFE calculations.
• It’s not enough to simply describe the financial ratios. You must find reasons why they are changing, especially if there are large changes year-to-year. This will require in-depth research.
• You must use Refinitiv Eikon Online and IBISWorld as major data sources.

Presentation of Report

The report is to be presented in the form of a stock analyst’s investment report. It should have an Executive Summary, outlining the main findings, at the beginning. The remainder can be structured in line with the above points. Attach details of your working and calculations, and any other relevant information, as an Appendix. DO NOT send a separate Excel file. Don’t include all the data for the beta calculation, just the regression statistics from Excel.

• Illustrate your arguments with relevant charts and diagrams.
• Relate all the information in your analysis to your investment recommendation.
• Build a case for your recommendation by using your findings from each of the points above.
• Your report should look professional.
• DO NOT attach the information you have used in compiling the report (annual reports, newspaper articles, etc.) to the report.

The post BAFI 1045: You are Required to Analyse a Listed Company and Prepare an Investment Recommendation Report: Investment – Company Valuation Assignment, RMIT appeared first on Assignment Help Singapore No 1 : Essay & Dissertation Writers, SG.