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MSC FINANCE (CORPORATE FINANCE) EXAMINATION

7SSMM613 - FINANCIAL ANALYSIS AND VALUATION

Time allowed: 2 hours + 20 mins reading time for case study

The paper will be available for 2 hours plus 20 minutes reading time. You will have an additional 30 minutes to upload your paper to the submission window.

INSTRUCTIONS TO CANDIDATES:

· All questions are equally weighted.

· Upload one Excel file and one Word file. Pdfs are not accepted.

o The Excel file should clearly display all calculations. Use different sheets for different questions and label each sheet correctly with the corresponding question number.

o Upload only one Word file with questions correctly labelled.

· You may supplement the case with your own research if you need to. Please indicate any external sources used at the end of your xx.doc file under the heading: ‘References’

· The time stamp on your file should be for 2 hours 20 minutes after the exam starts.

· You can use ratios from financial databases such as S&P Capital IQ (CIQ), and clearly indicate the source in the Excel file OR You can calculate your own ratios from the Annual report too. Remember to show all figures in excel.

· You can use any pre prepared formats and templates such as the Fitch or S&P debt rating framework (week 8); relative valuation template (week 9) or DCF template (weeks 10 and 11) discussed in class or use your own.

· Note: figures from CIQ and annual report will differ due to standardisation in databases. Please indicate source in your excel file clearly. You can use any source.  Please clearly reference where the data is from.

· Source for company financials : https://www.tescoplc.com/media/u1wlq2qf/tesco-plc-annual-report-2023.pdf

ONLINE SUBMISSION INSTRUCTIONS: 

1. You should submit your work via the Turnitin submission link on the module KEATS page. 

2. Ensure your document is submitted through Turnitin with the title CANDIDATE ID – MODULE CODE- e.g. AE12345-7SSMM613.

3. Once submitted please check you are satisfied with the uploaded documents (excel+ word) via the submission link. 

4. If you experience technical difficulties and are unable to upload your assessment by the deadline, please collate evidence of the technical issue and submit a mitigating circumstances form (MCF). Remember that the evidence must clearly show timestamps and proof that you attempted to upload your assessment before the deadline.

Question 1: Debt Rating and Debt Analysis

a. Comment on the usefulness of debt ratings in capital markets.

b. Using the debt rating framework discussed in class, assess the creditworthiness of Tesco and assign a debt rating. Provide a detailed explanation of the factors considered in determining the debt rating and support your analysis with appropriate financial ratios and other relevant data.

Note: The current S&P debt rating of Tesco is BBB-. While you can refer to this rating, the primary focus should be on deriving your own debt rating and giving reasons why your rating fits Tesco. The competitive position of Tesco is very strong, country risk 2 (S&P) and industry risk 2 (S&P)

Question 2: Relative valuation

Imagine you are advising an investment firm that is considering acquiring Tesco. Your task is to conduct a relative valuation analysis to determine an appropriate acquisition price.

a. Discuss which peers do you find suitable and why?

b. Discuss in depth the multiples chosen and the methods applied to obtain the enterprise (entity) valuation.

Note: please use sheet 1 of the excel file uploaded for data (peers data).

Question 3: Discounted Cash flow analysis 

You are a financial analyst tasked with conducting a Discounted Cash Flow analysis for Tesco. Please derive an enterprise (entity) valuation and state your analyst recommendation. 

a. Discuss the key assumptions made and the rationale behind them.

b. Provide insights into the sensitivity of the valuation to changes in assumptions, such as growth and discount rates.

Note: please use sheet 2 of the excel file uploaded for data (projections).

PEER SET – See attached excel file, sheet 1- ‘peers’

All the chosen companies have some degree of similarity in terms of their main line of business as well as their scale in the markets in which they operate.

Relevant sources suggested for DCF valuation (not limited to- please indicate your source clearly in the uploaded excel and word files; all sources will be accepted- the focus should be on your justification of choices made.)

Risk free rate : https://tradingeconomics.com/united-kingdom/government-bond-yield

Market risk premium:  http://www.market-risk-premia.com/gb.html

Beta : https://www.infrontanalytics.com/fe-en/GB00BLGZ9862/Tesco-PLC/beta

See attached excel file, sheet 2- ‘projections’ for DCF