You are required to select and analyze one of the following companies listed on ASX.

As an analyst, your task is to perform a financial analysis of your selected company as a suitable stock for selection in an investment portfolio. In this assignment, your ultimate goal is to make an investment recommendation to potential investors on the stock of the chosen company based on the current stock price (Assume current stock price is set as of 1 March 2023).

Part 1 – Estimate the growth rate of the firm’s revenue. (3 marks)

Conduct an analysis of the economy, industry and firm that informs an estimate of a short-   term growth rate (i.e., the annual growth rate from the previous year) for the firm’s revenue you have chosen. You have the discretion to decide the length of the short-term window       based on lecture examples and analysis. Specific guidelines are shown below:

(i)         Compile a profile of the selected company including a recent history of its  business activities and its business model by discussing the demand for the company’s products and the supply chain followed in the production and   distribution process.

(ii)        Strategically analyse the industry to which your selected company belongs and

operates in from the perspective of how attractive it is for offering your company prospects of sustained profitability. Identify a peer group of companies that are   engaged in similar business activities as those of your company to enable               comparison with the business of your company. For your company, discuss the    competitive strategies in place and how well it is executing them.

(iii)       Outline the economic factors that drive the growth of the firm and the industry it

operates in.

Hints: Use information on your chosen companies’ web site (strategy and annual reports); industry reports and economic and population projections to estimate the growth rate for your chosen company. Morningstar DatAnalysis provides up-to-date firm information too. Explain in detail why you decide on the estimate.

Part 2 – Estimating Cost of Debt through rigorous market research and financial statement analysis (2 marks)

i)           Demonstrate skills to gather reliable data and estimate cost of debt independently;

ii)          Demonstrate skills to cross-check the estimates of cost of debt through alternative approaches.

Part 3: Estimate Cost of Equity Capital (6 marks)

Use the two approaches, Capital Asset Pricing Model (CAPM) and dividend discount model, to estimate cost of equity capital for the firm.

i)     Demonstrate skills to gather reliable data and estimate cost of equity independently;

ii)    Demonstrate skills to cross-check the estimates of cost of equity through alternative approaches.

Part 4. Develop the inputs that will be used to estimate the value of the company that you have selected. Specifically: (5 marks)

(iv)       Construct  a  pro-forma  statement  as  an  integrated  model  of  your  company’s

financial  statements.  The   key  in  this  task  is  to  justify  with  evidence  the assumptions  imposed  on  other  key  input  variables  including  COGs,  operating expense, CAPEX, depreciation, net working capital and tax.  It is acceptable to use arguments employed in Part I if needed.

(v)        Use the pro-forma to derive cash flows that can be used in a Discounted Cash Flow based valuation of the company.

(vi)       Estimate weighted average cost of capital

Part 5 (2 marks)

(vii)      Estimate the intrinsic value of your company based on the pro-forma constructed

in previous questions.   Make a recommendation for stock investors from the following relative to the company’s share price as of 1 March 2023:

(a) Strong buy

(b) Buy

(c)  Hold

(d) Underperform

(e) Sell

Part 6. Report writing quality (2 marks)

Please refer to the marking rubric on Part 6 for detail.

Notes:

a.   You should directly answer each of the listed questions; formulating a formal strategic business report is not required;

b.    Use the annual reports, but not interim reports, in the financial analysis;

c.   This assignment emphasizes on your group’s independent research efforts and skills  of collecting and processing information. It is about you and your teammates               crunching numbers and pitching a convincing story together to potential stock             investors using credible references. Using industry opinions drawn from other research sources such as IBISWorld, Bloomberg’s analyst reports is considered          inadequate evidence for justification. Instead, vigilant investors should always be       doubtful and have independent thinking based on evidence given that any                    information, once become known knowledge, will be incorporated into stock price in an efficient market.

d.   Written assignments submitted after due time (5:00 pm 3 May) but before the        closing date (5:00 pm on 10 May), will incur penalties based on the number of days the work is submitted after the due date. No marks will be awarded for an                 assignment submitted after the closing date.

e. Submitting the written report in PDF: One cover page PLUS a 4-page limit on the main text of the report (excluding references and appendices); your name and student ID number must be clearly stated on the cover page. Font size should be set to 12.

f.    Given the page limit, you can relegate detailed calculation steps for complex tasks such as  pro-forma statements, and CAPM estimation to appendices.  In fact,  using appendices  is  much  better than omitting the  calculation  steps completely  in your report.  Professional  analysts  should  ensure  the  accuracy  and  reliability  of  their forecasts!  If you decide to include supplementary information in appendices,  note that marking process focuses on the 4-page main text. The markers will only look at the appendices if they are referenced in the main text.

g.   Plagiarism is not allowed. Turnitin is enabled for this assignment to ensure academic integrity and equity across class.