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Advanced Corporate Finance AFIN3053

Assignment

Context

You’re an equity analyst that was recently head-hunted by a hedge fund seeking your expertise in a particular stock. The hedge fund has hired you on a short-term contract to:

1. Construct a 3-statement integrated discounted cash flow (DCF) valuation spreadsheet model with a 10-year horizon on the stock in which you specialise. They’ve given you a standardized template to complete. This is your individual assignment.

2. Team up with fellow analysts to devise and present a video recording of your investment thesis with a single buy recommendation for the stock most likely to benefit and a single sell recommendation for the stock most likely to suffer from the event, theme or catalyst that you forecast. There’s no need to provide portfolio advice such as weightings, risk and so on. The hedge fund will handle this. They’re only interested in your group’s corporate finance top-down and bottom up analysis. This is your group assignment.

Individual Component (10%)

Due midday Tuesday 10 May 2022

Value a publically listed firm of your choice anywhere in the world. Complete the spreadsheet template and submit it to ilearn.

This will be a fun exercise, made more pleasant by the quality financial statement data provided by S&P Capital IQ which you have access to.

Your teacher will demonstrate a valuation of Flight Centre (ASX:FLT) in recorded consultations to show you the process. Please do not pick Flight Centre as your selected firm. The assignment consultation times will be announced on ilearn and you’re very welcome to join in the Zoom call, ask questions and speculate.

Your submission will be marked using spreadsheet formulas. Only general feedback will be provided. Individual feedback will only be provided in consultation.

The purpose of making the valuation model and constructing the graphs and tables is to make sure that all group members have content ready to discuss and contribute when deciding on an investment thesis and the impact it will have on your chosen firm, whether it’s a buy or sell recommendation.

Group Assignment (15%)

Due midday Tuesday 24 May 2022

Make a group of 3 to 4 people who valued different companies and record a video (5 minutes maximum) with at least 5 slides where every group member speaks for at least 30 seconds to detail your:

· Investment thesis with some justification. Note that the investment thesis should be something that the market does not expect, otherwise your hedge fund bosses won’t be able to take speculative positions since the event or theme would already be priced in;

· Buy recommendation for a single one of your group members’ stocks; and a single

· Sell recommendation for another of your group members’ stocks.

Not all group members’ individual stock valuation models will be used in the group presentation, only two will. This is fine, there’s not enough time to present everybody’s model and the hedge fund bosses are only interested in the two firms best- and worst-affected so they can long and short these stocks.

The group members’ whose stock models are ignored, since their firm is less-affected, may want to present details and justifications for the event, theme or catalyst that underlies the investment thesis, rather than the individual stock impacts.

But the hedge fund bosses will leave it up to you to come up with the best format and structure to do your best work.

One thing that’s important – state your investment thesis event, buy and sell recommendations on the very first slide. This is called ‘front-focus’, where the most important details are shown first.

Administrative requirements - group assignment

Group size of 3 to 4 people who must value different companies.

5 minutes maximum video recording.

At least 5 slides.

Every group member speaks for at least 30 seconds.

Feel free to record your video using Zoom or other custom software.

Please make sure that the video recording link is available for the markers to view on Youtube or elsewhere.

Make groups yourselves and elect a group leader. Groups may consist of members from different tutorials, but keeping the group within a tutorial where you meet each week is a good idea.

It’s important for each group member to contribute substantially to the final presentation.

The responsibility of the group leader is to upload the assignment video link to ilearn. Only the group leader should upload the assignment.

The group leader is expected to maintain a weekly journal, registering the contribution of each team member during the week. The journal must be submitted along with the assignment on ilearn.

Example

Students Nita, Simon and Keith submitted their individual assignments valuing Tesla, BHP and Flight Centre respectively.

They form a group, elect Simon as leader, and decide that the catalyst of their investment thesis is that China’s current COVID-zero policy will unfortunately fail, leading to a nation-wide outbreak, temporary health crisis and recession in China.

They forecast that the Chinese government will attempt to support the economy during the crisis by boosting fiscal spending on infrastructure such as buildings, rail and hospitals and slashing interest rates, leading to a boost in demand for steel and iron ore. They plan to show graphs, statistics and quotes about China’s past COVID infections over time compared to other countries to justify the thesis. They will briefly detail China’s and other countries’ past fiscal and monetary policy response to COVID outbreaks to support their forecasts. The group believe that:

· Simon’s firm BHP stands to benefit the most due to rising iron ore prices. Simon will make adjustments to his model to find the impact of higher iron ore prices on BHP’s share price.

He’ll present a buy recommendation for BHP, supported by some graphs and tables showing the impact of the Chinese outbreak on BHP’s stock price;

· Nita’s firm Tesla will be the worst-affected due to higher metals costs, less government support for green-energy cars within China due to the health crisis taking priority and the possibility that the Chinese Communist Party (CCP) may seek to divert attention from the crisis by stoking geopolitical hostilities with the US and encouraging a domestic boycott of US-based Tesla.

She’ll present a sell recommendation for Tesla.

· Keith’s firm Flight Centre will only be slightly affected so Keith’s valuation will be ignored and not shown at all in the presentation. Instead, Keith will present the investment thesis section, showing the graphs and tables that he and the whole team helped prepare about the forecast COVID outbreak in China.

They record their 5 minute investment thesis video using Zoom and post it on Youtube. Group leader Simon uploads the video link to ilearn, and submits the brief journal detailing each members’ contributions.

They’re quite proud of their work and even include a link to the Youtube video on their CV’s!

They’re conscious of the suffering caused by COVID outbreaks and recessions which are implied in their forecasts, so they each volunteer to give blood at the local blood bank and make a small student-sized donation to an international charity to help people less fortunate. When they get hired by a hedge fund and earn the big bucks, they intend to help more.

Group assignment marking

The hedge fund executives will assess your presentation similarly to the way Citi Bank executives judge them:

- Persuasiveness of the recommendation;

- Distinctiveness and memorability of the presentation;

- Materials presented in a clear, concise, logical and sequential form;

- Presentation stayed within time frame;

- Conveyed confidence and professionalism;

- Exhibits excellent verbal communication skills;

- Stimulated and maintained the judge's interest; and

- Evidence of teamwork and cooperation.