Equity Valuation Concepts and Basic Tools (CFA) CH 10

8/18/2019 Equity Valuation Concepts and Basic Tools (CFA) CH 10

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EQUITY VALUATION:CONCEPTS AND BASIC

TOOLS


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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


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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


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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


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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


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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


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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;


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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


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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


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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


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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:


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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


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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;


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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


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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


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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#


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Prie1t+1Sales ?ati+ Data -+r Ma.+rAut+m+2ile Manu-aturers 4977K6


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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;


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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


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-+r Nine Ma.+r Minin(

C+m#anies

Source: )));minin(nerds;+m


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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


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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


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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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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

Equity Valuation Concepts and Basic Tools (CFA) CH 10

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