Post on 06-Jul-2018
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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EQUITY VALUATION:CONCEPTS AND BASIC
TOOLS
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Estimated Value and MarketPrie
Under!alued:
Intrinsi!alue "market#rie
$airl%!alued:
Intrinsi!alue &market#rie
O!er!alued:
Intrinsi
!alue 'market#rie
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Dealin( )it* Unertaint%
C+n,dene inintrinsi !alue
estimate
Unertaintiesrelated t+
m+dela##r+#riateness and t*e
+rret !alue+- in#uts
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Ma.+r Cate(+ries +- E/uit% Valuati+nM+dels
P r e s e n t ! a l u e m + d e l s
• D i ! i d e n d d i s + u n t m + d e l s
• $ r e e a s * 0 + ) m + d e l s
M u l t i # l i e r m + d e l s
• S * a r e # r i e
m u l t i # l e s • E n t e r # r i s e
! a l u e m u l t i # l e s
A s s e t 1 2 a s e d ! a l u a t i + n m + d e l s
• A d . u s t m e n t s t + 2 + + k ! a l u e
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Present Value M+dels
Value +- an in!estment resent !alue +- e3#eted-uture 2ene,ts
$uture2ene,ts &di!idends
$uture2ene,ts &-ree as*
0+)
∑∞
= +=
1
0)1(t t
t
r
DV ∑
∞
= +=
1
0)1(t t
t
r
FCFE V
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Pre-erred St+k Valuati+n 4N+n1alla2le5N+n1+n!erti2le S*ares6
Per#etual
Maturit% attime
#eri+dn
67.91$06.0
50.5$00 ≈==
r
DV
78
89
7 898
4 8 6 4 8 6
:BP9;77 :BP97;77 :BP
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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T*e E>et +- O#ti+ns +n t*e Prie +- aPre-erred S*are
Call +#ti+n
Ma% 2ee3erised
2% t*e
issuer
L+)ers*are #rie
?etrati+n4#ut6
+#ti+n
Ma% 2ee3erised
2% t*ein!est+r
@i(*ers*are #rie
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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T*e +rd+n r+)t* M+del
EUR13004.008.0
.04)0EUR5.00(1
)1(
)1(
)1(
0
1
100
0
=−
+=
−=−
+
=+
+
=∑
∞
=
V
g r
D
g r
g D
r
g D
V t
t
t
Assum#ti+ns:• Di!idends are t*e +rret metri t+ use -+r
!aluati+n #ur#+ses;• T*e di!idend (r+)t* rate is -+re!er: It is
#er#etual and ne!er *an(es;
• T*e re/uired rate +- return is als+ +nstant +!ertime;
• T*e di!idend (r+)t* rate is stritl% less t*an t*ere/uired rate +- return;
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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M+del M+st A##r+#riate -+r
Valuin( E/uit%Di!idend1#a%in(
+m#an%
Insensiti!et+ t*e
2usiness
%le
Mature
(r+)t*#*ase
Use t*e
+rd+n(r+)t*m+del
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Estimatin( a L+n(1Term r+)t* ?ate
Earnin(s
retenti+n rate
4b6
?eturn+n
e/uit%4?OE6
Di!idend
(r+)t*rate
4g)
7;=7 8;77 ;77
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Multista(e Di!idend Dis+unt M+del
Use
multista(edi!idenddis+untm+del
?a#idl%(r+)in(+m#anies
C+m#an%
)ill #asst*r+u(*di>erentsta(es +-(r+)t* r+)t* is
e3#eted t+im#r+!e +rm+derate
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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T*e T)+1Sta(e Di!idend Dis+untM+del
( )
( ) ( ) LnS n
L
nn
n
nn
t t
t
S
g g D D
g r
DV
r
V
r
g D
V
++=
−=
+++
+
=
+
+
=∑
11
)1()1(
1
01
1
1
0
0
Di!idends (r+) at rate gS -+r n %ears and rate gL
t*erea-ter:
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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T*e T)+1Sta(e Di!idend Dis+unt M+del4+ntinued -r+m #re!i+us slide6
68.59$
)15.01(
8775.69$
)15.01(
655.6$
)15.01(
05.6$
15.01
50.5$
8775.69$05.015.0
98775.6$
98775.6$)05.01()10.01(00.5$
655.6$)10.01(00.5$
05.6$)10.01(00.5$
50.5$)10.01(00.5$
0
3320
3
3
4
3
3
2
2
1
≈
+
+
+
+
+
+
+
=
=
−
=
=++=
=+=
=+=
=+=
V
V
V
D
D
D
D
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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P+#ular Prie Multi#les
• S t + k # r i e F e a r n i n ( s # e r s * a r e
Prie1t+1earnin(s
rati+ 4PGE6
• S t + k # r i e F 2 + + k ! a l u e # e r
s * a r ePrie1t+12++k
rati+ 4PGB6 • S t + k # r i e F s a l e s # e r s * a r ePrie1t+1sales
rati+ 4PGS6
• S t + k # r i e F a s * 0 + ) # e r s * a r e
Prie1t+1as*0+) rati+4PGC$6
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Tele-Hnia and Deuts*e
Telek+m
Sources: C+m#an% )e2sites: )));tele-+nia;es and
)));deuts*etelek+m;+m;
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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usti,ed Value +- a Multi#le
$undamentals +r as*0+) #rediti+ns
Dis+unted as* 0+)m+del
usti,ed !alue +- amulti#le
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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usti,ed $+r)ard PGE -+r NestlJ
?e/uired ?ate +- ?eturn & 89 #erent
9.12085.012.0
45.0/ 11
1
0algebra
10 ≈
−
=
−
=
−
=⇒
−
=
g r
p
g r
E D
E
P
g r
D P
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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T*e Met*+d +- C+m#ara2les
Met*+d +-+m#ara2le
s
Time seriesanal%sis
C+m#aris+nt+ #ast +ra!era(e!alues
Cr+ss1seti+nalanal%sis
C+m#aris+nt+
2en*mark+r #eer(r+u#
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Prie1t+1Sales ?ati+ Data -+r Ma.+rAut+m+2ile Manu-aturers 4977K6
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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PGE Data -+r Can+n
Sources: EPS and PGE data are -r+m Can+ns )e2site:)));an+n;+m; PGE is 2ased +n s*are #rie data -r+m t*e T+k%+St+k E3*an(e;
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Enter#rise Value Multi#les
Marketa#italiati+
n
Market!alue +-
#re-erredst+k
Market!alue +-
de2t
Cas* ande/ui!alent
s
Enter#rise!alue
Enter#ri
se !alue4EV6 EBITDA
EVGEBIT
DA
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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-+r Nine Ma.+r Minin(
C+m#anies
Source: )));minin(nerds;+m
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Asset1Based Valuati+n
Market !alue +- e/uit% & market!alue +- assets market !alue +-
lia2ilities
Market !alue +- assets andlia2ilities
Estimati+n #r+ess +r #r+esses
B++k !alue +- assets and lia2ilities
d l i
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Asset1Based Valuati+ns:P+tential Pr+2lems
Diulties determinin(market 4-air6 !aluesB++k !alues di>er
si(ni,antl% -r+m market
!aluesIntan(i2le assets
@%#er1 +r ra#idl% risin(in0ati+n
8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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1!ersus Dis+unted Present
Value A##r+a*esValuati+nin#uts
Valuati+n
a##r+a*es
C+m#an% t+ 2e!alued
Airline in,nanialdistress
Present !aluem+dels
Airline st+##edt*e di!idendand is l+sin(m+ne% and
2urnin( as*
Asset12ased!aluati+n
?+utes5 0i(*ta(reements5
e/ui#ment5 andairra-t *a!e
!alue
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8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10
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Summar%
•
O!er!alued5 -airl% !alued5 +r under!aluedseurities
• Ma.+r ate(+ries +- e/uit% !aluati+n m+dels
• Present !alue m+dels: di!idend dis+unt m+dels
and -ree as* 0+) m+dels• Multi#lier m+dels: #rie rati+s and enter#rise!alue rati+s
• Asset12ased !aluati+n
• Ad!anta(es and disad!anta(es +- e/uit%!aluati+n m+dels