Reference no: EM133142240 , Length: word count: 5000 words
Company Valuation Assignment - Company Valuation Report
You are required to analyse SEEK Limited (Eikon Code: SEK.AX) 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:
Sell - The shares should be sold, as a materially negative return is expected in the next six to 12 months.
Hold - The shares will have neither a materially positive return nor a materially negative return in the next six to 12 months.
Buy - The shares should be bought, as a materially positive return is expected in the next six to 12 months.
Company Analysis -
Provide an overview of the company's history, operations and any structural changes it has undergone since it began. This is to understand how the company got to where it is today and what may occur in the future. Also, discuss the ESG factors relevant for the company, including analysis of the company's contribution to the conservation of the natural world, consideration of people and relationships and standards for running a company.
Industry Analysis -
Analyse the structure of the industry in which the firm operates and whether it is domestic-focussed or has a global nature. Identify the industry's major companies and where they operate and how they compete with SEEK.
Evaluate the relative historical financial performance of the company among its peers
identify the firm's major 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 over a historical period of five financial years.
explain the performance of the company compared to its peers using this analysis
Using the DuPont method estimate the ROE of the company and three major competitors for the most recent five years.
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 for the company and its three selected competitors
compare the DuPont ROE of the company with its three peer group companies
Analyse the company's/industry's current issues and explain the effect of these issues on the company's future earnings
a) At the Macroeconomic Level
general factors that apply to the industry (GDP, employment, growth of the industry, regulation, global factors, supply, demand, prices, etc.)
b) At the Microeconomic Level
the company- and industry-specific factors (operation, financials, objectives, competition, etc.)
c) As a SWOT analysis
detail the Strengths, Weaknesses, Opportunities and Threats to the company
d) As either a PESTEL or a Porter analysis
analyse the company's position in its industry using one of these 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 daily closing price data for the company and the market index (provided on Canvas) to calculate daily holding period yields for the most recent five years. Using this data, you can estimate raw beta by using regression analysis from functions in Excel. Attach details of your work as an Appendix.
2. The Risk-Free Rate of Return
Use the 10-year Australian Government bond yield as a proxy for the RFR. This yield can be found on Eikon page AU10YT=RR. Take the current Bid yield (do not use the bond price)
3. The Market Return
Use this estimate of the market return E(RM): 8.90% (Source: Canstar)
Estimate the intrinsic value of the company's shares using the dividend discount model (DDM)
you must use a Multi-Stage DDM. Follow the methodology discussed in the Equity Valuation slides
justify the number of years used for each of your growth periods
determine the growth rate for Stage 1 using the Retention Ratio and ROE formula
estimate the growth rate for Stage 2 using your discussion in the company's/industry current issues section
estimate the terminal (Stage 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 multi-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 and use the growth rate in FCFE per share as your growth for Stage 1
estimate the growth of FCFE for Stage 2 using your macro and microanalysis
estimate the terminal (Stage 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
Apply Relative Valuation techniques to ascertain the valuation of the firm
compare multiples such as Price-to-Book, Price-to-Earnings and Price-to-Cash Flow or Price-to-Sales 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 S&P/ASX 200 Index (Eikon Code: .AXJO)
compare the relative performance of the company to its peer group
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 Buy and Sell signals
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?
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 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 in any particular period. You will be expected to provide justification for your 2% growth rate.
It's not enough to simply describe the financial ratios. You must find reasons why they are changing, especially if there are significant changes year-to-year. This will require in-depth research.
You must use Refinitiv Eikon Online and IBISWorld as major data sources. These can be supplemented with data from the companies' annual reports and other sources you have found.
Attachment:- Company Valuation Assignment File.rar