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Module 9 – Equity Valuation Junichi Hara

Module 9 – Equity Valuation Junichi Hara. Agenda. Debt and time adjustments Sensitivity analysis Analyst forecast. 1. Debt and time adjustments. Current Valuation. Calculated Enterprise Value: $329,446. Current Valuation. Two adjustments: FV adjustment of NFL Time adjustment.

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Module 9 – Equity Valuation Junichi Hara

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  1. Module 9 – Equity ValuationJunichi Hara

  2. Agenda • Debt and time adjustments • Sensitivity analysis • Analyst forecast

  3. 1. Debt and time adjustments

  4. Current Valuation • Calculated Enterprise Value: $329,446

  5. Current Valuation • Two adjustments: • FV adjustment of NFL • Time adjustment

  6. FV Adjustment of NFL • Note 7. Fair Value Measurement • Debt not reported at FV • Difference: $6,683

  7. Current Valuation • Equity falls by same amount: $6,683 • $2.07 per share fall

  8. Time Adjustment • Original EV valuation: $329,446 • Represents value as of 1/31/2014 • Need to bring it up to today (3/21/2013)

  9. Time Adjustment • Valuing at 3/21/2014 • 49 days after 3/1/2014 • Absent new info. EV expected to increase rent • $329,446 x (1.0734)49/365= $332,595

  10. Combining both • Original: $81.08 • Actual (3/21) : $76.10

  11. 2. Sensitivity Analysis

  12. Market Estimate of EV • Market price: $76.10 • Back out market’s estimate of EV: • Market: $313,297 • Mine: $332,595 • Big difference!

  13. Assumptions • Sales g%: 2.34% • EPM: 4.05% • EATO: 3.45 • WACC 7.34% Are these correct?

  14. Sensitivity Analysis • g and rent • EPM and EATO

  15. g and rent Market estimate of EV: $246,564 rent g

  16. EPM and EATO Market estimate of EV: $246,564 EATO EPM

  17. 3. Analyst Forecast

  18. Value Line

  19. Value Line Assumptions • EPS g: 8.85% • Div g: 6.32%

  20. Value Line Projection

  21. Value Line: DCF

  22. Residual Income Model Assuming g of 3%

  23. Other analysts • Three other analysts: • S&P Capital • Reuters • CNN Money • Able to get average g of 8.65% • No dividend projections

  24. Dividend projections • Made own projections based on past results • Projected dividend based on payout ratio • Dividend Payout Ratio = Dividend Per Share / Earnings Per Share

  25. Payout Ratio Trend

  26. Value Line Assumptions • EPS g: 8.85% • Dividend payout ratio g: 5.72%

  27. Value Line Projection

  28. Value Line: DCF

  29. Residual Income Model Assuming g of 3%

  30. Backing out g • g of 3% too high

  31. Backing out g • Back out g needed to achieve target sales price

  32. Backing out g • Negative g for residual income make sense? • g for income in line with my assumptions • Mine: 2.34%

  33. Questions?

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