cfa presentation
TRANSCRIPT
SECOND A
SSIG
NMEN
T
25410 CORPORATE
FIN
ANCIAL
ANALYSIS
SPRING 2
013
VALUIN
G TEC
HNOLOGY C
OMPA
NIES
P R E S E N T E D B Y :
INTRODUCTION AND OVERVIEW OF THE
COMPANIES
Leaders in the provision of 3D content-to-print solutions:• 3D printing, print materials, on demand
custom part services, 3D authoring for consumers Current details:
• Rank 4th on Forbes ‘Fastest growing Tech Companies’ for 2013
• 46% sales growth from previous year• 30% EPS growth annually • Share price: $58.64 (October 25th 2013)
Provider of storage systems and data management solutions predominantly for Information Technology Infrastructures
FAS storage System E-series System
Current Details:
• 28% increase in profit (relative to previous
year)
• Initiation of a quarterly dividend of $0.15 per
share
• Share prices: $39.39 (October 25th 2013)
INDUSTR
Y ANALY
SIS
CO
MP E T I T
I VE F
ORC
E S
3D SYSTEM: 3D PRINTER INDUSTRY
• High barriers to industry
→ intellectual property rights held by existing
firms
• 3D printing industry interrelationship with
facets of the economy
→ education, healthcare, defence
NETAPP: ENTERPRISE STORAGE INDUSTRY
• Also high barriers to entry
• Rapid development of technological
changes
• Intense rivalry amongst existing firms within
industry• Main Competitors involved: Oracle & HP
both largely diversified companies Ability to maintain relationship with
customers/partners Offers diversified portfolio of products and
services
Equity Valuation
Model
1. FCFE
2. Residual Income
FUTURE CASH FLOW TO EQUITY MODELS (FCFE)
• ‘ T W O S TA G E F C F E M O D E L’ , C O M PA N Y T H AT I S E X P E C T E D T O I N I T I A L LY G R O W M U C H FA S T E R T H A N A S TA B L E F I R M B E F O R E T R A N S I T I O N I N G T O A S TA B L E R AT E
3D Systems
• ‘ C O N S TA N T G R O W T H F C F E M O D E L’ , C O M PA N Y T H AT I S P R E S U M E D T O B E I N A S T E A D Y S TAT E O F G R O W T H
NetApp
Measures amount of cash that can be paid to the equity shareholders of the company after accounting for all expenses, reinvestments and debt repayments
FCFE METHOD
K E Y I N P U T S :
3D SYSTEM
NETAPP
RESIDUAL INCOME APPROACH (RI)
S T O C K VA LU E = B O O K VA LU E O F E Q U I T Y + P V O F E X P E C T E D R E S I D U A L I N C O M E
M O S T A P P L I C A B L E F O R S M A L L T O N O D I V I D E N D C O M PA N I E S W I T H N E G AT I V E C A S H F LO W S E X P E C T I N G T O B E C O M E P O S I T I V E
KEY INPUTS : • current book value of equity• Net income• Required return on equity (from CAPM)• Steady-state growth rate (Industry)• A horizon point (2 years)
NETAPP
The historical data determines residual income and trends
Shows:1. Book Value of Equity – at 31/07/13 is $4018M, share price
$42.672. Net income3. Residual Income is decreasing but at an increasing rate of
13% in 2012 and 34% in 2013
NETAPP CONTINUE…
• Forecasting can be very qualitative
• Using the trend increasing rate of change, the growth could be
extrapolated to 42% then 80%.
• Instead of increasing the percentage I used the absolute value 700
(see red box).
• The PV of the perpetuity is in the green box.
• With all the values, we can find the stock price.
• V0= 4018 + (-644-94) + 889 = $4169M
• This gives $42.67 per share ($1.55 higher than
the price at valuation)
3D SYSTEM
• On 31 Dec 2012
• S.P = $53.35
• B.V = $480.33m
• Required return on equity = $41.98%
• Constant growth rate = 4.9%
2008 2009 2010 2011 2012
BV Equity 102.23 104.69 133.12 254.79 480.33
% Change 2.41% 27.15% 91.40% 88.52%
Net Income -6.15 1.14 19.57 35.42 38.94
% Change -118.51% 1617.82% 81.03% 9.94%
Residual Income -41.78 -24.39 -20.47 -68.03
% Change 41.63% 16.08% -232.35%
3D SYSTEMS CONTINUE..
• Used a 3 year horizon point
• 3D showed large variances and unpredictability with
historical values
• Estimated growth rate of -58%
• Did not correlate with market consensus that 3D had
large potential
• Predicted a negative share price for 3D
Signalled issues with model
2013 2014 2015
Residual Income -107.49 -169.83 -268.34
% Growth -58.00% -58.00% -58.00%
PV Residual Income -75.70 -84.24 -93.75
PV Horizon Value -252.79
NPV of Company -26.15
No. of outstanding Shares(millions) 101.61
Estimated Share Price ($, per share) -0.2574
THEORY FOR RI STATES…
• RI is most appropriate for growing
companies without dividends
• Higher emphasis on immediate
intrinsic value
• Less sensitive to terminal value -> limit
errors in forecasting
OHLSON, 2000
Residual Income Valuation: The Problems
• RI may not hold when there are expected
fluctuations in outstanding shares
• 3D Systems has a history of issuing
unexpected share options and splits
• Possible reason why the RI did not work
in this case
THE IN
VESTMENT
DECISIO
N