Comparing and advising two publicly listed companies in same industry of their equity performance
Select two publicly listed companies which are in the same industry (preferably two competitors) and listed on either the London Stock Exchange or the New York Stock Exchange, with at least five years available data.
You have been hired as a consultant by the shareholders of both companies to advise them on equity performance. i.e. strengths, shortcomings and opportunities for growth over the short-term and long-term.
Assessment task details and instructions
Select two publicly listed companies which are in the same industry (preferably two competitors) and listed on either the London Stock Exchange or the New York Stock Exchange, with at least five years available data.
You have been hired as a consultant by the shareholders of both companies to advise them on equity performance. i.e. strengths, shortcomings and opportunities for growth over the short-term and long-term.
Requirements:
(i) Choose one Absolute Valuation Model and one Relative Valuation Model to value both companies, justifying the selection of the models chosen.
As can be seen in the content of the module:
The Absolute Valuation Models are:
• Present valuation models:
– Dividend Discount Models
– Free Cash Flow to Equity
– Free Cash Flow to Firm
– Residual Income
• Asset Based Models
The Relative Valuation Models are:
• Price Ratios:
– Price to Earnings Ratios
– Price to Book Value Ratios
– Price to Cash Flow Ratios
• Enterprise Value Multiples
(ii) Provide a brief introduction to global, local economy and industry performance over the last five years.
(iii) Compare the performance of the two companies with each other and the overall performance of the local economy and the industry.
(iv) Evaluate trends in the company’s financial position and stock price over the last five years;
from a shareholder’s point of view, such financial analysis will help predict future earnings, dividends and the firm’s stock price.
(v) Summarise the key findings of the equity analysis in a format and structure suitable for presentation to the shareholders.
(vi) Compare your valuations with the current market stock price and analyse any over-pricing and under-pricing of the stock price.
Instructions:
Any essay style answer and the written report will be assessed on content, writing style and originality.
• Clarity of argument and analysis
• Knowledge and interpretation of equity valuation and their calculations.
• Justifications of implied equity valuation to support the analysis and the recommendations
• Evidence of applying relevant equity valuation theories.
• Use of English, clarity and suitability of presentation.
• Professional presentation.
• Structure; that is use of paragraphs, headings and sub-headings to convey the analysis in a clear manner.
The report should be 4000 words plus or minus 10% (i.e. between 3,600 and 4,400 words)
The Appendix, reference or bibliography is not included in the word count. You MUST insert and highlight the word count
