BAFI1042 Investment – Company Valuation Assignment

BAFI 1042 Investment
BAFI1042 Investment – Company Valuation Assignment (50%)
Company:
Website:
Submission Date:
Word Limit:
FlexiGroup Limited
https://www.flexigroup.com.au/
Saturday,9th May 2020 by
5:00pm, 5,000-5,500 words
(excluding Executive Summary,
References and Appendix)
You are required to analyse FlexiGroup Limited (FXL) and prepare a report. The report provides
an assessment of the company’s current position and future prospects and incorporates using the different
valuation techniques to arrive at an estimate of the company’s share price. A marking rubric is available on
Canvas.
The final submission should include
Part 1: Financial Performance and Current Issues
In this section, students are expected to meet these objectives:
1) Evaluate the company’s overall financial performance by analysing the company’s share price
performance, financial statements and other relevant news during the last five years.
Price movement
• look for three major sensitive public announcements and the effect of these announcements
on the company’s share price
• technical analysis (50-day vs 200-day moving average lines) to identify buy/sell/hold signals
2) Peer group comparison/industry analysis (compare a minimum of five financial ratios of FXL
with competitors)
• you can get the ratios from Eikon/DatAnalysis
• you can select the most relevant ratios for your analysis.
3) Analyse the company’s/industry’s current issues and explain the effect of these issues on the
company’s future earnings (you can consider a SWOT and PORTER or PESTEL analysis)
1. At the Macro Level – Global and Domestic
• General factors that apply for the industry (GDP, employment, growth of the industry,
regulation, etc.)
2. At the Micro Level
• The company-specific requirements (operation, level of debt, objectives, competition, etc.
4) Estimate the ROE of the company for most recent five years using the DuPont ROE approach.
• DuPont Analysis can be done using the 3-step procedure
o 3 steps: Profit Margin, Total Asset Turnover and Financial Leverage
• Show your own calculations of each component, using numbers from financial statements
• Compare the individual component of DuPont ratios of FXL with its industry peer group
companies
BAFI1042 Investment
Part 2: Valuation Models
Part 2 consists of 3 objectives:

1. An Estimate of the company’s Beta (β)
You can estimate beta by using regression analysis or by manual calculation. This is your
Raw Beta. Attach details of your work as an appendix.
For both approaches you should use the stock price data of the company and S&P/ASX 200 to
estimate return for the most recent five years.
Adjust the raw beta using the methodology
Adjusted Beta is: (0.67) x Raw Beta + (0.33) x 1.0.

Please use this estimate of the market return E(Rm): 9.826% (Source: Bloomberg)
Once you estimate the CAPM required rate of return — E(Re) — you can use this return (also known as
cost of equity, ke) in your valuation model.
2) Estimate the intrinsic value of the company’s shares using a
• 3 stage dividend discount model (DDM),
• 3 stage free cash flow to equity model (FCFE)
FCFE = Net Income + Depreciation Expense – Capital Expenditures – ∆ in Working
Capital – Principal Debt Repayments + New Debt Issues
• and relative valuation techniques
3) Evaluate of the value/price of the company.
• Why does the intrinsic value of the company differ from the current/recent share price?
• Which is the most appropriate model for valuing FXL and why?
• And, more importantly, what is your investment decision based on your evaluation?
• Is your recommendation to Buy, Sell or Hold shares in this company?
• Is it different from the signal obtained from technical analysis? Why?
BAFI1042 Investment
Important points to be covered in Part 2
• Explain any assumptions you have made in implementing your model.
• Where appropriate, explain how you arrived at the variables you are using. For example, it is not
enough to say you are assuming a 2% growth rate. You would be expected to provide justification for
your 2% growth rate.
• Provide an indication of the sensitivity of your valuations to changes in the assumptions. Perform
sensitivity analysis for the model.
• You are required to use Refinitiv Eikon, DatAnalysis and IBIS World as your major data sources.
Presentation of Report
The report is to be presented in the form of a business report. It should have an executive summary, outlining
the main findings, at the beginning. The remainder can be structured in line with the above points. Attach
details of your working and calculations as an appendix. DO NOT send a separate Excel file.
References/Resources
Some useful resources for this assignment include
Reilly, Frank K., Keith C. Brown and Sanford Leeds, Investment Analysis and Portfolio Management
(11th Edition), Thomson South-Western, 2019.
Damodaran, Aswith, Investment Valuation [2nd Edition]. Available online here:
You should also conduct your own analysis using the company’s web site, annual reports, Refinitiv
Eikon and any other sources you consider to be relevant for your report.
BAFI1042 Investment
Assignment submission procedure
• All assignments must be submitted online through the course Canvas Turnitin for the plagiarism
check. They must be accompanied by an assignment cover sheet.
• Student procedures and account setup
• Turnitin student information page
Penalties for late submission
All assignments will be marked as if submitted on time then the mark awarded will be reduced by 10% each
day (or part of a day) it is late.
Assignments that are late by 7 days or more will not be marked and will be awarded zero marks. Please note
that your result will be delayed if your assignment is not submitted on time.
Other information
Use proper citations and references in your report. Include a list of references you use in your report. Failure
to do so will attract a lower grade of your work.
DO NOT attach information you have used in compiling the report (annual reports, newspaper articles, etc.) to
the report.
An Important Note on Plagiarism
What is Plagiarism?
Plagiarism is the presentation of the work, ideas or creation of another person without appropriate referencing,
as though it is one’s own. Plagiarism can occur in oral and written presentations and is not acceptable. The
use of another person’s work or ideas must be acknowledged. Failure to do so may result in charges of
academic misconduct, which carry a range of penalties including cancellation of results and exclusion from
the course.
Students are advised to acquaint themselves with the University policy on plagiarism.

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