Investment appraisal report

Investment appraisal report

PART A Question 1

VALUING A FTSE-100 COMPANY

Please read!

Please note the sample report word is 4379 this is a very detailed report

However, for this  report the word requirement is 2000 words.

I will also attach a sample report please note the sample report is a non-FTSE 100 company.

The task is to write about FTSE 100 Company.

Instead of using Bloomberg as required in the coursework, you can use www.investing.com instead to generate the information needed. You need to sign in order to download the data.

Or type into google to find out the annual report of WM Morrisons plc.

Students are expected to produce an investment recommendation report about a FTSE-100 Company of their choice. In this report students expose their investment case about the selected company, supported in their valuation analysis.

The investment recommendation can be to BUY (If the valuation is higher than market price) or to SELL (if the valuation is lower than market price) the selected FTSE-100 company. The consistency and quality of the investment case and the supporting valuation exercise, both properly explained, are the topics to be evaluated. The investment report is self- contained, i.e. there are no additional elements to be evaluated.

 

REQUIRED: Prepare an investment recommendation report for a FTSE-100 company of your choice.

The company I have chosen for this task WM Morrison plc.

 

Guide lines very important! all is important, I have highlighted the key words.

  • Valuation exercise should be carried out for the most recent financial year end.
  • March 2019, Closing Market price must be used for the investment decision making exercise.
  • Investment recommendation report must satisfy a minimum of 2000- word count.
  • In order to address this topic student must exercise financial modelling skills and valuation techniques.
  • Quality, consistency of the assumptions in the model, and investment story is what is assessed.
  • The best approach is to start with Cash flow statement and arrive at free cash flows. (For the range of period (2016 – 2024)
  • Use the appropriate discount rate to calculate the Enterprise value of the company.
  • Compare the Equity value per share against the March 2019 market closing price to decide on your investment decision; that is whether to BUY or SELL
  • As part of your valuation exercise you are also expected to carry out a detail comparable valuation analysis.

o Find the right comparable companies

Look up the company you are trying to value on Bloomberg so you can get a detailed description and industry classification of the business.

o Search databases such as Bloomberg for companies that operate in the same industry and that have similar characteristics. The closer the match, the better! The analyst will run a screen based on criteria that include: use www.investing.com

industry classification includes:

  • Geography
  • Size (revenue, assets, employees)
  • Growth rate
  • Margins and profitability
  • Gather financial information for those similar companies.

o Calculate the comparable ratios, such as P/E ratio. You may also want to use other ratios such as EV/Revenue, EV/Gross Profit, EV/EBITDA, P/NAV, or P/B.

-Use the multiples from the comparable companies to value the company in question. For example, if the average P/E ratio of the group of comparable companies is 12.5 times, then the analyst will multiply the earnings of the company they are trying to value by 12.5 times to arrive at their equity value.

 

Assumptions must be supported by valid arguments.

 

Format is important!

Note:  A sample report structure: should include i.e. the headings.

  • Introduction
  • Data description and methodology – FCF and Multiple analysis
  • Key assumptions –must be supported by the valid arguments based on research.
  • Empirical analysis

And Conclusion

Word count 2000 words

Harvard referencing

Please when collecting data and make sure you screenshot the data clearly so that the figures can been seen clearly.

Please start with the free cash flow and I will provide a template.

 

Please focus on the following:

 

Free cash flow given -in table 8 in the sample report

WACC assumptions -table 1   in the sample report

Enterprise value and value per share- table 10 in the sample report