Equity Valuation Workshop
Introduction – Comparable Company Analysis vs Free-standing Valuation modeling
• Comparable Company and/or comparable Transaction Analysis?
• Selecting the peer group – Market or (global?) sector?
• Analysing what? Earnings, Dividends, Assets, Sales, Interest Cover…..
• Life Cycle of a Company and Porter’s Five Forces. From growth to Fade
• Writing a Research report – do’s & don’ts
Traditional Earnings- based Methodology
• The love affair with the The Price/Earnings ratio
• What is an appropriate Multiple? PEGs
• Comparable company analysis, the effect of Cyclicality
• Shortcomings of this valuation metric
• Do share buybacks make a Company’s shares cheaper?
Asset Based Valuations
• Book Values and Returns on Equity (ROE)
• The special challenge that is the Bank sector
• Price to Book Values (premiums and Discounts) – The Property sector
• Embedded and Appraisal Values – The Insurance sector
• Case Study - Intangible Assets – What are Brand names worth?
Price to Sales metrics taken further - Enterprise Values
• Price to Sales, the basics
• Enterprise Values - What are they and why were they developed?
• EV Multiples - EBITDA, Sales – Manufacturing, Retailing sectors
• Case Study
The Capital Asset Pricing Model & the Cost of Equity
• Risk Free Rates, Betas & the Equity Risk Premium
• Leveraged Betas & the Cost of Equity
• Deriving the Cost of Equity using CAPM
• Risk Free Rates & the Cost of Equity
• Case Study – Betas in practice
Discounted Cash Flow Valuations
• Using Cash to measure return. How does a Company make money?
• Free Cash Flow for the Firm vs Free Cash Flow for Equity holders
• Deriving the Cost of Debt
• The Discount Rate - Weighted Average Cost of Capital
• Terminal Value derivation and forecasting into Perpetuity
• Case Study (Excel based) – DCF in practice
Dividend Based Valuations
• Dividend Yields and Cover – who pays them and how much
• Dividend Discount Models – The Bank sector revisited
• Advantages and Disadvantages of this approach
• Case Study (Excel based) – Dividend Discounting in practice (Financials)
‘Value’ Investing at work & Alternative Valuation methodology
• Value Investing at work – from Benjamin Graham to Warren Buffet
• Arbitrage Pricing Theory
• Residual Income Model
• Stumbling blocks in the Valuation process & Analytical ‘gut instinct’
• Recap – Valuation methods & applicable sectors