Quĩ đầu tư - Chapter 10: Equity valuation: concepts and basic tools

Chapter 10 Equity Valuation: Concepts and Basic ToolsPresenterVenueDateEstimated Value and Market PriceUndervalued:Intrinsic value > market priceFairly valued:Intrinsic value = market priceOvervalued:Intrinsic value < market priceDealing with UncertaintyConfidence in intrinsic value estimateUncertainties related to model appropriateness and the correct value of inputsMajor Categories of Equity Valuation ModelsPresent value modelsDividend discount modelsFree cash flow modelsMultiplier modelsShare price multiplesEnterprise value multiplesAsset-based valuation modelsAdjustments to book value Present Value ModelsValue of an investment = present value of expected future benefitsFuture benefits = dividendsFuture benefits = free cash flowPreferred Stock Valuation (Non-callable, Non-convertible Shares)PerpetualMaturity at time period nThe Effect of Options on the Price of a Preferred ShareCall optionMay be exercised by the issuerLower share priceRetraction (put) optionMay be exercised by the investorHigher share priceThe Gordon Growth ModelAssumptions:Dividends are the correct metric to use for valuation purposes.The dividend growth rate is forever: It is perpetual and never changes.The required rate of return is also constant over time.The dividend growth rate is strictly less than the required rate of return.When Is the Gordon Growth Model Most Appropriate for Valuing Equity?Dividend-paying companyInsensitive to the business cycleMature growth phaseUse the Gordon growth modelEstimating a Long-Term Growth RateEarnings retention rate (b)Return on equity (ROE)Dividend growth rate (g)0.4015.00%6.00%Multistage Dividend Discount ModelUse multistage dividend discount modelRapidly growing companiesCompany will pass through different stages of growthGrowth is expected to improve or moderateThe Two-Stage Dividend Discount ModelDividends grow at rate gS for n years and rate gL thereafter:The Two-Stage Dividend Discount Model(continued from previous slide)Price MultiplesGroup or sector of stocksUse price multiples as a screenIdentify overvalued and undervalued stocksPopular Price MultiplesPrice-to-earnings ratio (P/E)Stock price ÷ earnings per sharePrice-to-book ratio (P/B)Stock price ÷ book value per sharePrice-to-sales ratio (P/S)Stock price ÷ sales per sharePrice-to-cash flow ratio (P/CF)Stock price ÷ cash flow per sharePrice Multiples for Telefónica and Deutsche TelekomSources: Company websites: www.telefonica.es and www.deutschetelekom.com.Justified Value of a MultipleFundamentals or cash flow predictionsDiscounted cash flow modelJustified value of a multipleJustified Forward P/E for NestléRequired Rate of Return = 12 percentThe Method of ComparablesMethod of comparablesTime series analysisComparison to past or average valuesCross-sectional analysisComparison to benchmark or peer groupPrice-to-Sales Ratio Data for Major Automobile Manufacturers (2009)P/E Data for CanonSources: EPS and P/E data are from Canon’s website: www.canon.com. P/E is based on share price data from the Tokyo Stock Exchange.Enterprise Value MultiplesMarket capitalizationMarket value of preferred stockMarket value of debtCash and equivalentsEnterprise valueEnterprise value (EV)EBITDAEV/EBITDAEV/Operating Income Data for Nine Major Mining CompaniesSource: www.miningnerds.comAsset-Based ValuationBook value of assets and liabilitiesEstimation process or processesMarket value of assets and liabilitiesMarket value of equity = market value of assets – market value of liabilitiesAsset-Based Valuations: Potential ProblemsDifficulties determining market (fair) valuesBook values differ significantly from market valuesIntangible assetsHyper- or rapidly rising inflation Asset-Based Valuation versus Discounted Present Value ApproachesAirline in financial distressPresent value modelsAirline stopped the dividend and is losing money and “burning” cashAsset-based valuationRoutes, flight agreements, equipment, and aircraft have valueCompany to be valuedValuation approachesValuation inputsAdvantages and DisadvantagesPresent value modelsTheoretically appealing and provide a direct computation of intrinsic valueInput uncertainty can lead to poor estimates of valueMultiplier modelsRatios are easy to compute and analysis is easily understoodProblems with selecting a peer group or “comps”Asset-based valuationConsistent with the notion that a business is worth the sum of its partsDifficulties determining market value and the value of intangible assetsSummaryOvervalued, fairly valued, or undervalued securitiesMajor categories of equity valuation modelsPresent value models: dividend discount models and free cash flow modelsMultiplier models: price ratios and enterprise value ratiosAsset-based valuationAdvantages and disadvantages of equity valuation models