BAFI1045 Investment Assignment
Group Company Valuation
Assignment (40%) and
Individual Presentation (10%)
RMIT University
Today’s Agenda
1. Assignment Briefing
2. How to estimate expected return using CAPM
(raw data)
RMIT University BAFI1045 Investment 2
RMIT University BAFI1045 Investment 3
BAFI 1045 Investment
Group Company Valuation Assignment and Individual Presentation
Assessment Task 1:
Company Valuation Report (Group Assessment) and an Individual
Presentation
Company to Research: Singapore Press Holdings (SPH)
Marks/Weighting: 50 marks and accounts for 50% of the total grade for this
course
(i) Company Valuation Report (Group Assessment) - 40 marks
(ii) Individual Presentation (Video) - 10 marks
Assignment Due Date:
Sunday of Week 10 (21st March 2021, 10 pm, SG)
RMIT University BAFI1045 Investment 4
BAFI 1045 Investment
Group Company Valuation Assignment and Individual Presentation
Word Limit/Length:
Company Valuation Report - Maximum 5,000 words (excluding Executive
Summary, appendix, references)
Individual Presentation (Video) - Maximum 10 minutes.
Submission Instructions:
The assignment will be submitted via Canvas, Turnitin
Rubric/Marking criteria: A marking rubric is provided on Canvas.
Group Disputes/Free Rider Problem:
This must be brought to lecturer’s attention 2 Weeks prior to dateline.
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BAFI 1045 Investment
Group Company Valuation Assignment and Individual Presentation
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 (Recommendation):
Sell Hold Buy
The shares should be
sold, as a materially
negative return is
expected in the next 6
to 12 months.
The shares will have
neither a materially
positive return nor a
materially negative
return in the next 6 to 12
months.
The shares should be
bought, as a materially
positive return is
expected in the next 6
to 12 months.
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Part I
The final submission should fulfil the following minimum
requirements:
1. Introduction & Background
Company
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.
Industry
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.
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Part I
2. Historical Financial Performance (Topic 6)
Evaluate the relative historical financial performance of the
company among its 2 major competitors/peers
• Identify the firm’s 2 major competitors and discuss why they have
been selected
• Identify, and explain the relevance of, 5 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 2 major
competitors/peers using this analysis
➔ Analyse and explain the reasons for changes in these ratios over
the past five years
➔ Do not simply describe the changes in the ratios
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Part I
3. Historical Dupont ROE (Topic 6)
Estimate the ROE of the company and its 2 major competitors for
most recent 5 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 5
years for the company and its 2 selected competitors
• compare the DuPont ROE of the company with its 2 peer group
companies
➔analyse and comment on the reasons for the change in ROE for the firm
and its competitors with reference to the change in the 3 components
over 5 years
➔relevant charts/graphs may be used to illustrate these figures
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Part I
4. Company & Industry Analysis and Potential Impact on Future
Earnings (Topic 5)
Analyse the company’s/industry’s current issues and explain
the effect of these issues on the company’s future earnings
a) At the Microeconomic Level:
The company - and industry-specific factors (operation, financials,
objectives, competition, etc.)
➔ Use SWOT Analysis
b) 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.)
➔ Use Porter’s 5 Forces Analysis
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Part II
1. Estimation of Expected Return, E(ri), using CAPM (Topic 4)
➔ The estimated CAPM required return should be used as the
discount rate in your valuation models
E(ri) = Rf + βi [ E(Rm) – Rf ]
Expected
return on a
security
=
Risk-
free
Rate
+
Beta of
the
security
x Market risk
premium
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Part II
(i). An Estimate of the company’s Beta, βi.
Use the daily closing price data of the company and the market index
to calculate daily holding period yields for the most recent 5 years.
Using this data, you can estimate raw beta by using regression
analysis in Excel. Attach details of your work as an Appendix.
➔ Adjust the Raw Beta using the formula:
Adjusted Beta = [(0.67) x Raw Beta] + 0.33
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Part II
(ii). The Risk-Free Rate of Return
Use the 10-year Singapore Government bond yield as a proxy for
the RFR.
(iii). The Market Return
Please use an estimate of the market return, E(Rm)
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Part II
2. Intrinsic Value Estimation: Using Discounted Cash Flow
Models
(i) Dividend Discount Model (Topic 8 Part I)
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 slides
• Justify the number of years used for each of your growth periods
• Determine the growth rate for Period 1 using the Retention Ratio
and ROE formula (g = RR x ROE)
• Estimate the growth rate for Period 2 using your discussion in the
company's/industry current issues section (Part I, no. 4)
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Part II
• 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
➔ 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
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Part II
(ii). Free Cash Flow to Equity (FCFE) Model (Topic 8 Part II)
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 5 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 OR FCFE = Cash from Operating Activities – Capital
Expenditures + Net Debt Issued (Repaid)
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Part II
• Estimate the growth of FCFE for Period 2 using your macro and
micro analysis (Part I, no. 4)
• 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
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Part II
3. Intrinsic Value Estimation: Using Relative Valuation
Techniques (Topic 8 Part II)
(i). INTRINSIC or JUSTIFIED Price-to-Book Ratio (P/B)
(ii). INTRINSIC or JUSTIFIED Price-to-Earnings Ratio (P/E)
• Calculate and compare the Intrinsic or Justified Price-to-Book
and Price-to-Earnings ratio for the company
• Determine the relative valuation of the firm using these
multiples (Do not attempt to calculate the share price)
➔ Analyse and comment on the relative valuation of the firm in
comparison to what is being traded in the market.
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Part II
4. Technical Analysis
(i) Share Price Performance
Using relevant charts, evaluate the company’s share price
performance over the last 5 years
• Compare the relative performance of the company to the broad
market index
• Compare the relative performance of the company to its 2 peers
➔ Comment on these charts, referencing reasons for any
significant changes you have identified
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Part II
(ii). Moving Average and Volume Analysis
Use 50-day vs 200-day moving average lines and volume
analysis to identify Buy/Sell/Hold signals
➔ Show, and comment on, these analysis with reference to
charts sourced from Eikon
➔ Use volume analysis to confirm your price signals
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Part III
Conclusion and Recommendation
Evaluation of Findings and Recommendations
• 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?
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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.
• 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.
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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 information you have used in compiling the report
(annual reports, newspaper articles, etc.) to the report.
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Executive Summary
• An executive summary is often written for leaders in a business
or organisation, such as CEOs, department heads, or
supervisors, so they can get critical information quickly to decide
a course of action.
• An executive summary should summarise the key points of the
report.
• It should restate the purpose of the report, highlight the
major points of the report, and describe any results,
conclusions, or recommendations from the report.
• It should include enough information so the reader can
understand what is discussed in the full report, without having to
read it. Do not state your methodology in the Executive
Summary.
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References and Citations
Use proper citations and references and include a list of references
you use in your report. Failure to do so will result in a lower grade.
RMIT provides a web site which explains the use of the Harvard
reference system. Please consult it here:
https://www.lib.rmit.edu.au/easy-cite/
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BAFI1045 Investment 25
Suggested Format for Your Assignment
1. RMIT Assignment Cover Page, signed by all team members
2. Professional first page with major details such as recommendation,
price targets, price chart (similar to a broker’s report)
3. Executive Summary
4. Table of Contents
5. Introduction
6. Main body of your report
7. Conclusion and restatement of recommendation
8. References
9. Appendices
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Individual Presentation (10%)
• You will need to pitch this stock to your clients in your
Presentation. The aim of the presentation is to explain and
justify the buy/sell/hold recommendation to potential
investors.
• Each of you will need to present a comprehensive analysis.
That means you do not only present the part of the research that
you are mainly responsible for but the full analysis. You will
need to present company analysis, macroeconomic and
industry analysis, equity valuation and other important analysis
contained in your group report.
• Your slides should look professional and well structured. There
is no minimum/maximum number of slides. As the analyst, you
will need to decide the contents and number of slides to present
it professionally to your clients/investors.
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Some Useful Resources for This Assignment
• Reilly, Frank K., Keith C. Brown and Sanford Leeds, Investment
Analysis and Portfolio Management (11th Edition), Thomson
South-Western, 2019.
• You should also conduct your own analysis using the
companies' web sites, annual reports,
• Refinitiv Eikon, IBISWorld and any other sources you consider
to be relevant for your report.
• The more resources you use for your research, the better your
analysis will be.
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Assignment Submission Procedure
All assignments must be submitted online through the course Canvas
Turnitin for a plagiarism check. They must be accompanied by an
assignment cover sheet.
Penalties for Late Submission
All assignments will be marked as if submitted on time. Late submissions
of assignments without special consideration or extension will be
automatically penalised at a rate of 10% of the total marks available per
day (or part of a day) late.
For example, if an assignment is worth 20 marks and it is submitted 1 day
late, a penalty of 10% or 2 marks will apply. This will be deducted from the
assessed mark.
Assignments will not be accepted if more than five days late, unless
special consideration or an extension of time has been approved.
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An Important Note on Plagiarism
What is Plagiarism?
Plagiarism is the presentation of the work, ideas or creation of another person
without appropriate referencing, as though it is one’s own. Plagiarism can occur
in oral and written presentations and is never acceptable. The use of another
person’s work or ideas must be acknowledged. Failure to do so may result in
charges of academic misconduct, which carry a range of penalties including
cancellation of results and exclusion from the course.
Students are advised to read and understand the University’s policy on
plagiarism.
Do Not Plagiarise!
RMIT University
Equity Valuation
(Part I)
Next Week:
Casio FC-100V TI BA II Plus
Assignment
Requirement
Part II(1)
Now:










































































































































































































































































































































































































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