Finance Project - I only have to do one company which is Air Canada
Microsoft Word - AFF420-W2022 Term Project Insructions.docx 1 RYERSON UNIVERSITY School of Accounting and Finance AFF420 Principles of Finance III – Winter 2022 Term Project Instructions The term project is designed to apply the valuation techniques learned in class to real-world companies. Students are required to work in groups of 3 to 4 members to produce a valuation report. The valuation report should contain detailed analysis of intrinsic valuation and relative valuation, a brief discussion of the option pricing model, and a final recommendation based on the estimated equity value. Company List: Each member of a group will pick one company from the following list: 1. Air Canada 2. Costco Wholesale Corporation 3. Lululemon Athletica, Inc. 4. McDonald's Corporation 5. Moderna, Inc. 6. PayPal Holdings, Inc. 7. Zoom Video Communications, Inc. Each group will submit one valuation report containing the analysis of all companies picked by the group members. The report will be submitted in two parts. Part I is due at 11:59 pm on February 18 and Part II is due at 11:59 pm on April 7. Both parts should be submitted electronically to Turnitin via D2L. Late submissions will be penalized by 20% of the assigned marks per day. For example, a submission made one day after the deadline will receive no higher than 80% of the assigned marks and a submission made two days after the deadline will receive no higher than 60% of the assigned marks. Students in the same group will receive the same grade on the term project. Part I: Snapshot Report The snapshot report must cover all of the companies that the group is going to value. The report should be 4-5 pages long, i.e., one page per company and a summary page. The following information of the companies should be included: 1) Company overview: Examples include the company’s business descriptions, strategic plans, financial strength, competitive position in the industry, and future growth expectations. 2) Summary table: 2 Company 1 Company 2 Company 3 Company 4 Stock Exchange Ticker symbol Stock price as of __ (date) Fiscal year-end Industry Currency in valuation Risk-free rate Equity risk premium Beta Marginal tax rate 3) Sources of information: List the reference for the information collected for 1) and 2). Examples include the links to the company’s financial reports, the company’s website, and sources of relevant financial data and company news. Part II: Final Project Report The final project report must combine analysis of all companies covered by the group. The report should include a one-page executive summary and a detailed valuation analysis of 15-20 pages. The valuation analysis should include the following components: 1) Intrinsic Valuation • The rationale for choosing an appropriate valuation model • The key assumptions used to build the model (e.g., length of high growth period, stable growth rate). • The process of estimating the company’s cost of capital and future cash flows • The process of estimating the company’s equity value per share based on the inputs and assumptions above • Sensitivity analysis of the estimated equity value to the changes in the assumptions above 2) Relative Valuation • The list of “comparable” companies using appropriate criteria and provide the justifications for selecting the comparable companies • An appropriate valuation multiple for each company being valued and the justifications for choosing that valuation multiple • The process of estimating the company’s equity value per share based on the comparable companies and the multiple chosen 3) Final Value Estimate and Recommendation • A final check for whether any information and assumptions need to be updated since you started the project • A brief explanation of how to reconcile the different valuations obtained from the intrinsic 3 and relative valuation models • Possible application of the option pricing models. If applicable, briefly describe how the equity value may be derived from the model. • A final recommendation for the company’s stock 4) Appendix • Sources of financial and qualitative information • Step-by-step valuations in Excel • The summary table: Company 1 Company 2 Company 3 Company 4 Fiscal year-end Industry Currency in valuation Risk-free rate Equity risk premium Beta Marginal tax rate Cost of debt at the start of DCF Cost of equity at the start of DCF Cost of capital at the start of DCF Cost of capital in perpetuity Length of the high growth period High growth rate Perpetual growth rate Multiple used in relative valuation Multiple value Estimated value of equity per share (DCF) Estimated value of equity per share (Relative) Stock price as of __________ (date) Final recommendation 4 Recommended Project Timeline: Class Week Tasks Intrinsic Valuation 1 Jan 14-20 Join a group Pick a company from the list Collect information about the company and the industry it is in Obtain the company's past financial statements 2 Jan 21-27 Obtain the risk-free rate Estimate an equity risk premium Estimate the market value of equity and debt Estimate the bottom-up levered beta Estimate the pre-tax cost of debt Estimate tax rate Estimate the cost of capital 3 Jan 28- Feb 3 Capitalize R&D expenses Adjust operating income after capitalizing R&D Estimate net capital expenditures Estimate non-cash working capital 4 Feb 4-10 Estimate the growth rates Estimate the terminal value Determine the length of the high growth period 5 Feb 11-17 Choose a DCF model Estimate the equity value per share 6 Feb 18-24 Sensitivity analysis Relative Valuation 8 Mar 11-17 Identify comparable companies Determine candidate valuation multiples 9 Mar 28-24 Estimate the multiples for the companies Use regression analysis to determine the appropriate multiple to use Estimate the equity value per share Final Recommendation 10 Mar 25-31 Update your estimates if any new information affects your estimates Reconcile the differences in the estimated values from the intrinsic and relative valuation models Discuss whether and how the option pricing model may be applied Make a final recommendation Data Notes: • Company filings: Filings of U.S. listed companies can be found at EDGAR: https://www.sec.gov/edgar/searchedgar/companysearch.html; Filings of Canadian listed companies can be found at SEDAR: https://www.sedar.com/search/search_form_pc_en.htm • 5 • Macroeconomic information, such as government issued bond rates, exchange rates, GDP growth, can be found at Federal Reserve at St. Louis site (FRED): https://fred.stlouisfed.org and at Statistics Canada: https://www150.statcan.gc.ca/n1/en/dsbbcan • Financial data vendors: Quick access to compiled company financial data at Mergent Online and Capital IQ via Ryerson library (may require registration): https://library.ryerson.ca/ • Aswath Damodaran’s data library: http://people.stern.nyu.edu/adamodar/New_Home_Page/data.html AFF420: Group 15 Valuation Project 1 AFF 420 Valuation Project Shopify, Uber, Beyond Meat & Novartis AFF420 021 W2020 Professor: Dr. Yi Feng 2020/3/30 Group 15 Ali A. Alibhai Dalton Austin Elaine Liu Ashraf Teli AFF420: Group 15 Valuation Project 2 Table of Contents Executive Summary 3 Shopify 3 Uber 3 Beyond Meat 3 Novartis 3 Shopify 4 Business Overview and Drivers 4 Intrinsic Valuation 5 Relative Valuation 9 Final Value Estimate and Recommendation 11 Uber Technologies, Inc. 12 Business Overview and Drivers 12 Intrinsic Valuation 13 Key Assumptions 14 Relative Valuation 18 Contingent Valuation 19 Final Value Estimate and Recommendation 20 Beyond Meat 21 Business Overview and Drivers 21 Intrinsic Valuation 21 Relative Valuation 25 Final Value Estimate and Recommendation 26 Novartis 27 Intrinsic Valuation 28 Relative Valuation 30 Final Value Estimate and Recommendation 31 Appendix Summary 32 Appendix 34 Shopify 34 EV/Sales Comparable Table 35 Uber 35 Beyond Meat 38 Novartis 39 References 41 AFF420: Group 15 Valuation Project 3 Executive Summary Shopify Shopify (TSE:SHOP) is a Canadian online e-commerce giant currently in a high growth phase, providing over 1 million merchants the services needed to create their own online businesses. With 52 week highs & lows of $786 & $254 respectively, and a current market price of $458.52 EOD 03/16/2020, the Value/Share from the DCF gives an Intrinsic value of $64.98. Relatively, using the P/S Ratio & EV/Sales multiples, the Relative Value/Shares were $232.03 and $235.08, respectively. The option pricing model doesn’t