ACCT30001-Analysis of Australian Company: Buy, Sell or Hold - Accounting & Finance Assignment Help

Assignment Task

Task 

Analysis and Valuation of an Australian Company: Buy, Sell or Hold

Your task:
HIDDEN ALPHA, a long-short investment fund based in Melbourne, Australia, has hired you as a graduate analyst. As part of your graduate training, with other graduates, you are to select an Australian public company, review its operations, and analysis the drivers of past and future performance, perform a valuation  and write a concise analysis and valuation business report that address’s  the questions below. A recommendation to BUY, HOLD, or SELL the shares should follow your valuation.

Deliverable:
You are required to deliver a professional presented  report in the form of a pitch. The report should be in bullet-point form with supporting data analysis presented by tables and figures. Your report should have greater focus on determinants of past performance relative to forecasting future. Your report must include the following sections with appropriate headings. Page lengths are simply an indicative guide and can be varied:

The Questions

1.Company Background and ROIC 
In this section, you should briefly discuss the nature of the company’s products/services and how those products are manufactured and sold. Then provide a qualitative and quantitative comparison based on ROIC  with other companies in its industry, and an assessment of whether your company is a strong, normal or poor competitor and performer in the industry.  You should include arguments for your conclusions.  

2. Revenue Growth 
In this section, you should present past revenue growth and then discuss the key drivers of the recent history (3-5 years) of revenue growth for the company. This should include the productivity of long-term resources in generating sales. You should then concisely discuss what you believe will happen to revenue (e.g key drivers) for the next 3-5 years and beyond. These discussions should emphasize why things happen rather than just solely what happened. Where appropriate, this discussion may occur at the product level.  All these discussions (both past and future) need to be supported by relevant quantitative evidence. This evidence should include appropriate ratio analysis, benchmarks against comparable firms and other forms of data analysis. This evidence can be included in your report as part of the qualitative discussion, or bullet-points, tables, or charts. 

3.    Margins, Expenses and Productivity of Working Capital

In this section, you should discuss the recent history of margins, key expense items and productivity of working capital (but not financing costs) and the primary drivers of the level and changes in margins and expenses. You should also concisely  consider what you believe will happen to key expense items and the gross and net profit margin in the next 3-5 years and beyond. As before, these discussions should emphasize why things happen rather than just solely what happened. Where appropriate, this discussion may occur at the product or other levels. 

All these discussions, of both past and future,  need to be supported by relevant quantitative evidence. This evidence can include appropriate ratio analysis, benchmarks against other firms and other forms of data analysis. This evidence can be included in your report as part of the qualitative discussion or bullet-points, tables or charts. 

4. Capital Structure, Soundness of Balance Sheet and Financing Costs 
In this section you should discuss past and expected capital structure (funding sources) to fund the changes in investment resulting from your expected revenue and expenses changes.  Document  your assumptions and approach to estimating cost of debt financing and cost of equity. 

5. Forecasting and Valuation 
In this section, you should report/show your valuation. Value your company using (a) the abnormal earnings valuation model; (b) the free-cash flow model and (c) earnings-multiples There should be a single table of forecasts for all the relevant variables (e.g sales/revenue, expense margins, net income/net profit, dividends, free cash flow). You should take care to ensure that your models are readable, visible and well set out .

6. Valuation Choice 
In this section, you should discuss which valuation approach you believe is best-suited to valuing your chosen firm. This discussion should directly relate the attributes of your firm to the strengths and weaknesses of each approach. The pitch should not simply summarise the strengths and weakness of each approach

7. Conclusion 
In this section, you should summarise your findings from your valuation, and suggest an appropriate course of action (BUY/HOLD/SELL) for investment purposes.

8. Caveats and Limitations of your Analysis due to Poor Quality Information 
In this section, you should document the most significant sources of estimation error in your analysis due to poor quality information. This discussion should include any caveats in interpreting ROIC (or necessary adjustments) due to accounting biases and random measurement error.

Guidelines to Presentation

• It is your choice as to how to structure the presentation and layout of the report. There is no objective correct approach as it may vary across for example type of company, the past and future drivers of performance that you focus on and your own preferences. 
• The report needs to have a professional presentation and be a concise report with powerful succinct insights supported by powerful data analysis, figures and tables. This will be rewarded. A lengthy report will NOT be rewarded. 
• A possible approach to achieving a concise report is summary table (s) of ratio analyses that disaggregate, identify and explain the primary past and future drivers of ROIC and ROE.  This could include an industry benchmark group of comparable companies. Your report could reference these Table(s), in concise bullet point form and include extracts and visualization. 

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