Company Valuation Report (50%)
The assessment is submitted as a group assignment
You are required to analyse Accent Group Limited (AX1.AX) and prepare an investment
recommendation report. The report provides an assessment of the company’s current
position and future prospects, incorporating the use of various valuation techniques to arrive
at estimates of the intrinsic value of the company’s shares.
Your report should make a case for the company’s shares to be rated in one of the following
ways:
The final submission should fulfil the following minimum requirements
Company Analysis
Provide an overview of the company’s history, operations and any structural changes it has
undergone since it began. This is to understand how the company got to where it is today
and what may occur in the future.
Also, discuss the ESG factors relevant for the company, including analysis of the company’s
contribution to the conservation of the natural world, consideration of people and
relationships and standards for running a company.
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Industry Analysis
Analyse the structure of the industry in which the firm operates and whether it is
domestic-focussed or has a global nature. Identify the industry’s major companies and
where they operate.
Evaluate the relative historical financial performance of the company among its peers
• identify the firm’s major competitors and discuss why they have been selected
• identify, and explain the relevance of, five financial ratios of your choice (not to
include ROE, Net Profit Margin, Total Asset Turnover or Financial Leverage) for the
company and its peers over a historical period of five financial years.
• explain the performance of the company compared to its peers using this analysis
analyse and explain the reasons for changes in these ratios over the past five years
and compared to the average of the past five years
do not simply describe the changes in the ratios
Estimate the ROE of the company and three major competitors for the most recent
five years using the DuPont ROE approach.
• DuPont Analysis should be done using the 3-step procedure
• 3 steps: Net Profit Margin, Total Asset Turnover and Financial Leverage
• analyse the company’s and your selected peer companies’ ROEs over the period
• show your own calculations for each component over the previous five years for
the company and its three selected competitors
• compare the DuPont ROE of the company with its three peer group companies
analyse and comment on the reasons for the change in ROE for the firm and its
competitors with reference to the difference in the three components over five years
relevant charts/graphs should be used to illustrate these figures
Analyse the company’s/industry’s current issues and explain the effect of these
issues on the company’s future earnings
a) At the Macroeconomic Level
• general factors that apply for the industry (GDP, employment, growth of the
industry, regulation, global factors, supply, demand, prices of inputs and
outputs, etc.)
b) At the Microeconomic Level
• the company- and industry-specific factors (operation, financials, objectives,
competition, etc.)
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c) As a SWOT analysis
• detail the Strengths, Weaknesses, Opportunities and Threats to the company
d) As either a PESTEL or a Porter analysis
• analyse the company’s position in its industry using one of these techniques
Intrinsic Value Estimation
Start your valuation analysis with the estimation of expected return using CAPM
You need 3 inputs to calculate the CAPM expected return
- An Estimate of the company’s Beta
Use the daily closing price data for the company and the market index (provided on Canvas)
to calculate daily holding period yields for the most recent five years. Using this data, you
can estimate raw beta by using regression analysis from functions in Excel. Attach details
of your work as an Appendix.
Adjust the Raw Beta using the formula: Adjusted Beta = (0.67) x Raw Beta + 0.33 - The Risk-Free Rate of Return
Use the 10-year Australian Government bond yield as a proxy for the RFR. This yield can
be found on Eikon page AU10YT=RR. Take the current Bid yield (do not use the bond price) - The Market Return
Please use this estimate of the market return E(Rm): 9.85% (Source: Bloomberg)
The CAPM required return should be used as the discount rate in your valuation models
Estimate the intrinsic value of the company’s shares using the dividend discount
model (DDM)
• you must use a 3 Stage DDM. Follow the methodology discussed in the Equity
Valuation slides
• justify the number of years used for each of your growth periods
• determine the growth rate for Stage 1 using the Retention Ratio and ROE formula
• estimate the growth rate for Stage 2 using your discussion in the
company’s/industry current issues section
• estimate the terminal (Stage 3) growth rate using a proxy that represents the
long-term growth rate and calculate the terminal value
• calculate the present value of each future dividend and the terminal value, then
add them to calculate the intrinsic value of the company
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provide justification and reasoning if you use a different growth rate than the one
calculated for Stage 1
provide justification and reasoning for your growth rate assumptions for growth in
Stage 2 and Stage 3
Estimate the intrinsic value of the company’s shares using the Free Cash Flow to
Equity (FCFE) model
• you must use a 3 stage FCFE model to calculate the intrinsic value of the stock
• source the components for FCFE from the company’s financial statements using
Eikon
• calculate the FCFE per share over the past six years using the formula below:
FCFE = Net Income + Depreciation Expense – Capital Expenditures – Change in
Working Capital – Principal Debt Repayments + New Debt Issues
• estimate the growth of FCFE for Stage 2 using your macro and microanalysis
• estimate the terminal (Stage 3) growth rate using a proxy that represents the longterm growth rate and calculate the terminal value
• calculate the present value of each future year’s FCFE to calculate present value,
then add them to calculate the intrinsic value of the company
provide justification and reasoning if you use a different growth rate than the one
calculated for Stage 1
provide justification and reasoning for your growth rate assumptions for growth in
Stage 2 and Stage 3
are your estimated Stage 2 and Stage 3 growth rates same as that used for your
DDM model or different? Why?
Apply Relative Valuation techniques to ascertain the valuation of the firm
• compare multiples such as Price-to-Book, Price-to-Earnings and Price-to-Cash
Flow or Price-to-Sales for the company and its peers
• determine the relative valuation of the firm using these multiples (do not attempt to
calculate the share price)
analyse and comment on the relative valuation of the firm in comparison to its peers
is it overvalued or undervalued using this methodology?
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Using relevant charts, evaluate the company’s share price performance over the last
five years
• compare the relative performance of the company to the S&P/ASX 200 Index
• compare the relative performance of the company to its peer group
comment on these charts, referencing reasons for any significant changes you
have identified
common-based charts from Eikon give the best view of these relationships
Perform a technical analysis of share price movements over the last five years
• use 50-day vs 200-day moving average lines and volume analysis to identify
Buy/Sell/Hold signals
show, and comment on, these analyses with reference to charts sourced from
Eikon
use volume analysis to confirm your price signals
draw support and resistance lines to indicate price trends and channels
Evaluate your findings
• Why do the intrinsic values you have calculated differ from the current/recent
share price?
• How does this difference inform your investment recommendation?
• What is your investment decision based on your evaluation?
• Is your recommendation to Buy, Sell or Hold shares in this company?
• Is it different from the signal obtained from the technical analysis? Why?
• Does your qualitative analysis agree with your quantitative analysis? If not, why
not?
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Important points regarding Valuation Models
• Explain any assumptions you have made in implementing your models.
• Where appropriate, explain how you arrived at the variables you are using. For
example, it is not enough to say you are assuming a 2% growth rate. You will be
expected to provide justification for your 2% growth rate.
• It’s not enough to simply describe the financial ratios. You must find reasons why
they are changing, especially if there are significant changes year-to-year. This
will require in-depth research.
• You must use Refinitiv Eikon Online and IBISWorld as major data sources. These
can be supplemented with data from the companies’ annual reports and other
sources you have found.
Presentation of Report
The report is to be presented in the form of a stock analyst’s investment report. It should
have an Executive Summary, outlining the main findings, at the beginning. The remainder
can be structured in line with the above points. Attach details of your working and
calculations, and any other relevant information, as an Appendix. DO NOT send a separate
Excel file. Don’t include all the data for the beta calculation, just the regression statistics
from Excel.
• Illustrate your arguments with relevant charts and diagrams.
• Relate all the information in your analysis to your investment recommendation.
• Build a case for your recommendation by using your findings from each of the
points above.
• Your report should look professional, with charts and diagrams as required to
illustrate your points. Charts copied from Eikon should be easily readable,
meaning that the scale, data points and annotations should be clear and not
blurred or distorted.
• DO NOT attach information you have used in compiling the report (annual
reports, newspaper articles, etc.) to the report.
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How to Write an Executive Summary
An executive summary is often written for leaders in a business or organisation, such as
CEOs, department heads, or supervisors, so they can get critical information quickly to
decide a course of action. An executive summary should summarise the key points of the
report. It should restate the purpose of the report, highlight the major points of the report,
and describe any results, conclusions, or recommendations from the report. It should include
enough information so the reader can understand what is discussed in the full report, without
having to read it. Do not state your methodology in the Executive Summary.
References and Citations
Use proper citations and references and include a list of references you use in your report.
Failure to do so will result in a lower grade. RMIT provides a web site which explains the
use of the Harvard reference system. Please consult it here:
https://www.lib.rmit.edu.au/easy-cite/
Suggested Format for your assignment - RMIT Assignment Cover Page, signed by all team members
- Professional first page with major details such as recommendation, price targets,
price chart (see example submission on Canvas) - Executive Summary
- Table of Contents
- Introduction
- Main body of your report
- Conclusion and restatement of recommendation
- References
- Appendices