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FINC6001 – Finance: Theory to Applications
Semester 1, 2022
MAJOR ASSIGNMENT



PART A – Written Report – 20% of overall grade


Motivation

Stock valuation is an important activity routinely performed by financial analysts. As
discussed in Module 2, there are different methods that can be used to estimate the equity
value of a corporation and we will explore some of these in this Written Report.


Context

As part of an investment fund, your group will need to issue a recommendation in relation
to whether the stock of a specific company should be added to the fund’s portfolio. The
name of the company assigned to the group will be disclosed once all groups have been
formed.


Group Formation

The assignment has two components, a Written Report (due in Week 5) and a Video
Presentation (due in Week 10). Both parts of the assignment should be developed through
teamwork. Students are free to form their groups with the condition that each group
must have a maximum of 4 members. Groups will be created on Canvas and those students
that do not have a group by 5pm (Sydney time) on Wednesday 2nd March 2022 will be
randomly allocated into one. A publicly listed company will be randomly assigned to each
group and this will then be the object of the analysis.

Since the goal of the assignment is to provide an opportunity to gain and develop team
working skills in a safe environment, no individual submissions are allowed. Moreover, as
the Video Presentation will be an extension of the Written Report, the same group
members will be assessed across the two parts of the assignment.



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Task

In order to issue a recommendation in relation to the stock analysed, the group will have
to estimate the fair stock value and compare it to the corresponding market price. For this
task, the discounted cash flow (DCF) methodology discussed in Module 2 will have to be
employed using a 10-year horizon and with a terminal value calculated according to the
following methods:

- Constant growth model
- Valuation by multiples (P/B and P/E ratios)

In applying the DCF methodology, a table containing the estimated free cash flows (FCFs)
will have to be generated and, in particular, assumptions will need to be made in relation
to the company’s profitability (ROA) and the growth rate of both (i) assets and (ii) earnings
per share (EPS).

Estimates of the variables necessary to apply the DCF methodology will need to be
generated for three different scenarios: optimistic, neutral, and pessimistic. Each of these
scenarios will lead to a specific stock price; based on them, the group should provide a
sensitivity analysis explaining the changes in prices vis a vis changes in the assumptions.
The group will need to provide a narrative where the assumptions made in each scenario
are internally consistent and plausible relative to the scenario.














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Written Report

The main deliverable in Part A of the Major Assignment is a written report that all members
of the group will need to contribute to. The report is to be structured as follows:
1. Cover Page
→ Including group number, student names, and SIDs
2. Executive Summary
→ Short summary of the analysis and recommendations presented in the report
3. Table of Contents (sections need to be individually page numbered)
4. Introduction
→ Motivation (reason and purpose) for the Written Report
5. Company’s Overview and Update
→ Discussion of the firm’s competitive environment and industry where it operates
→ Analysis of any recent information (up to one year ago) that might be relevant to
the company’s current and future performance
6. Financial Information and Price Targets
→ Presentation and explanation of the projections associated with three scenarios:
- Optimist
- Neutral
- Pessimist
These projections should refer to the variables included in the estimation of FCFs
and should lead to a price target for each of the scenarios
7. Investment Thesis
→ Based on the three scenarios described in the previous section, provide a
recommendation in relation to whether the investment fund should add the
assigned stock to the portfolio
→ This section should contain the reasoning behind the group’s belief that the
stock will over- or under-perform
8. Risk and Disclaimers
→ Discussion of any risks identified and associated with investing in the stock
→ Discussion of any potential shortcomings associated with the analysis
9. References
10. Appendix
→ List of the key input(s)/assumption(s) for each scenario
→ Tables with DCF estimates (in case they are not in the body of the report)

Each group will need to submit two files for Part A of the Major Assignment. The Written
Report as well as a spreadsheet containing the valuation model should be submitted by
11:59pm (Sydney time) on Friday 25th March 2022.
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The above structure is provided as a guide of items that need to be covered in the Written
Report. You may make amendments to this structure and ordering of items; however, the
written report should not exceed 12 pages (excluding parts 1, 2, 3, 9, and 10 above).

You must ensure that all sources are properly referenced and that you provide a full
reference list at the end of the Written Report. Remember, this is a report to the
investment committee of a fund and should be presented with that in mind.


Tips for Writing the Report

- Refrain from writing in the first person
- Make use of charts and diagrams as they can better convey information than tables
- Label properly the sections of the report and the figures included on it
- Please make sure to include at least 5 references in your report. Citing articles from the
news media or the academic literature will offer extra support to the analysis
- All the references should be cited at least once in the body of the report; the list of
references should be formatted following the APA 7th style (information about it can be
found here)
- Do not forget to include double quotation marks in case of direct quotations;
paraphrase your sources (if required) to avoid issues of academic integrity
- Avoid unduly lengthy paragraphs (more than 10 lines) as they compromise the flow and
understanding of the text
- Use 1.5 line spacing and size 12 Arial or Calibri font; margins should be normal sized
- Always put yourself in the shoes of the reader
- Proofread your report before submitting it on Canvas


Data sources

As mentioned previously, a public company listed in the ASX will be randomly allocated to
each group. The data for the DCF analysis required in the report can be obtained from
Morningstar DatAnalysis or IBISWorld or among other databases that The University of
Sydney subscribes to. These sources contain a variety of resources that will assist you in
generating projections towards calculating the price targets across the different scenarios.
They also provide access to industry reports describing the competitive landscape where
the company being studied operates. In addition, annual reports with relevant information
to the Written Report can also be found on each companies’ website.


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Report Submissions

Submission links will be provided on Canvas for your Written Report submissions. Only one
member (the group leader) should submit the relevant files for Part A on behalf of the
whole group. Consistent with Business School practice, a late submission penalty will be
applied if your submission is not received by the announced due date/time.

As noted earlier, please make sure to include in your submission the written report (as a
.pdf file) and the spreadsheet (as a .xlsx file) containing the valuation model.


Marking Guide

All the members of the group will be initially awarded the same mark as they are expected
to equally contribute to the report.

The marking guide is as follows:

Strategic analysis of the firm /10 marks

Financial projections /10 marks

Investment thesis /10 marks

Risk analysis /5 marks

Presentation and style /5 marks

TOTAL MARKS /40 marks


Following the submission of the Written Report in Week 5, students will be given the
opportunity to provide feedback to each other. Students poorly evaluated by their peers
will be contacted by the UoS Coordinators and their mark in this assessment task might be
amended.