Equity Valuation
22-24 November 2010 London, The City
This intensive computer-based 3 day course will equip you with skills required to effectively evaluate companies and assets. Run by the former Head of European Equity Team in one of the main City organisations, the course starts with an overview of different equity valuation methods and explains fundamental framework. You will have a chance to go through various ratios analysis including cash flows, discount rates and periods, capital structure and more. Finally, you will explore more advanced aspects of DCF valuation including calculation of APV and treatment of hybrids.
Each session is concluded with a practical exercise which will help to immediately apply the theory into practice.
By the end of this course you will be able to:
- Differentiate and apply the main types of equity valuation from absolute (DCF, EVA, APV) to relative (P/E, EV/EBIT. EV/EBITDA) methods
- Evaluate balance sheet as well as profit and loss accounts and cash flow statements
- Use comparative company valuation and calculate multiples in practice
- Have an understanding of DCF model structure and how it is used to value a company in practice
- Learn the fundamentals of future cash flow valuation
- Calculate the cost of capital and understand the basics of discounted rates and periods
- Be able to use a DCF model to build a total value of the firm with core and non-core assets
- Understand the basics of discounted rates and periods
- Build the bridge between enterprise and equity valuation
Prerequisites. To attend this course delegate should:
- Have intermediate knowledge of accounting
- Have basic modelling skills using Excel
- Have an understanding of financial forecasting and the basics of corporate finance
Delegates are expected to bring a laptop with Microsoft Excel and a calculator. If necessary, we can provide one for an additional fee.
Main Topics Covered During This Training
- The core valuation approaches: enterprise and equity value
- Analysing operating and non-operating items in the financial statement
- Valuation tools in practice: CDF, EVA, APV, P/E, EV/EBITA, EV/EBIDTA
- Calculation and interpretation of key ratios
- Relative valuation multiples in practice: equity and enterprise based, PEG ratios
- APV vs DCF valuations
- Comparative company valuation
- Valuing and identifying correct cash flows
- Cost of debt and equity
- Calculating discount rates and periods
- Using CAPM in calculating cost of equity
- Cost of capital and capital structure analysis using WACC
- Calculating APV
- Treatment of different hybrids
- Terminal value approach: stable growth, liquidation value and multiple approach
Who Should Attend
From Corporates, Investment Banks, Private Equity, Consulting, Accounting and Legal Companies:
- Equity Research, Analysts and Sales
- Equity Capital Markets
- Investment Managers
- Members of M&As Departments
- Corporate Financial Managers
- Corporate Development
- Corporate Finance Lawyers
Participants who want to:
- Understand and apply multiple based valuation and comparable company analysis
- Have mastered the basic two stage approach to DCF valuation and require more complex modelling approach
- Participants who require a more sophisticated approach to terminal valuation in a DCF model to analyse the inherent assumptions in their models and allocate value via the APV methodology
- Participants who have an intermediate or advanced understanding of corporate valuation should attend this course.
should attend this course
Teaching Method
This is a highly practical course with many real life case studies and exercises. Tutor will be focused on teaching practical strategies that can be taken back to your business and put into immediate effect.
You will benefit from comprehensive take away course documentation.
In order to help us establish your individual and business concerns, you will be asked to fill pre-course questionnaire.
Because of the nature of the course the number of places is limited and will be filled on first come, first accepted basis. We advise to book in advance in order to avoid disappointment.
Delegates are expected to bring a laptop with Microsoft Excel and a calculator. If necessary, we can provide one for an additional fee of £60 + VAT per day or £150 + VAT for 3 days.
Equity Valuation and Analysis- 3 Day Programme
DAY 1: Principles of Valuation & Financial Analysis
DAY 2: Introduction to DCF Analysis
Day 3: DCF Analysis – Cost of Capital, the Value Driver Approach to Terminal Value and Adjusted Present Value Analysis
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DAY 1: Principles of Valuation & Financial Analysis
Fundamental framework
- Returns and capital, consistency and interaction
- The core valuation approaches
- Enterprise value – value to the firm
- Equity value – value to the shareholder
- The bridge between enterprise and equity value
Valuation to operations
- The accounting and market-based approaches
- Calculating enterprise and equity values
- Non-operating items
- Operating items in the financial statements
- Financing items in the financial statements
- Definitions of non-equity finance
Non-operating (non-core) items
- Typical non-operating items
- Treatment of non-operating items
- Non-operating items in the financial statements
- Incorporating non-operating items into a valuation
- Cleaning the numbers
Valuation tools in practice
- Absolute valuation tools overview (DCF, EVA, APV)
- Relative valuation tools overview (P/E, EV/EBIT, EV/EBITDA)
- Market-based valuation approaches
Case study: Participants calculate various types of valuation using a set of accounts
Financial analysis
- Calculation and interpretation of the key ratios which highlight the principle operating and financial dynamics/risks/flexibility of the business
- EPS derivation and interpretation (including dilution)
- How to interpret the value drivers of a business, its operating performance and business and financial risk
- Company specific transactions, including share issues, purchase of own shares, capital reduction
Case study: Participants calculate and interpret the key ratios for a quoted company
Relative Valuation: Comparative Company and Multiple Analysis
Relative valuation explained
- Relative valuation vs. absolute valuation
- Types of relative valuation
- Pros and cons of relative valuation
- Relative multiples in practice
- Equity-based multiples
- Enterprise-based multiple
- PEG ratios
- Industry-specific multiples
Case study: Participants calculate various multiples for a case company
Comparative company valuation process
- How to standardise multiples
- The factors that determine the peer group to be used
- Cleaning the numbers: comparing like with like
- Determining the valuation: how the various multiples are applied
Case study: Participants complete a comparative company case study determining the peer group, the multiples to be used and arrive at a relative valuation for the business
Other factors
- Other issues: dilution, timing issues
Case study: The participants calculate the dilution effect using various methodologies
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Day 2 - Introduction to DCF Analysis
Principles of valuing cash flows
- Discounted cash flow theory and rationale
- Absolute and relative valuation
- Basis of DCF
- Earnings compared to cash flows
- DCF in context
Case study: Case studies testing participants knowledge and modelling skills
Identifying the correct cash flows
- Understanding which cash flows are discounted in valuing a corporate
- Core assets vs. non-core assets
- Free cash flow and NOPAT
- Forecasting free cash flows
- Mid cycle earnings, coping with cyclicality
Case study: Participants calculate NOPAT and FCF from an income statement
Discount rates
- Cost of capital in context
- Why is the cost of capital important?
- What do we mean by capital?
- Cost of debt
Case study: Which cost of debt?
Cost of equity
- Dividend discounting
- The Capital Asset Pricing Model (“CAPM”)
Case study: Calculation of the cost of equity using both the dividend discounting and CAPM approaches
Capital structure analysis
- Weighted Average Cost of Capital (“WACC”)
- Calculation
- Target capital structure
Case study: Calculation of a WACC of a case study with a target capital structure
Understanding issues surrounding identifying the correct discount rate
- Which rate to discount at?
- What is WACC?
- Discounting the free cash flows
Case study: Participants calculate the cost of capital for a case company
Terminal values
- Gain understanding of key issues surrounding the terminal value in a discounted cash flow forecast
- How long should the forecast period be?
- What is the terminal value and is it important?
- Terminal value approaches
- Stable growth
- Liquidation value
- Multiples approach
- Terminal value issues
Case study: Participants model the stable growth and multiple approaches to terminal value
Discount periods
- Modelling cash flows that arise outside of a period end
- Intra-period discounting
Bring it together
- Using the discounted cash flow model to build a total value of the firm
- Dealing with core and non-core assets
- Building the bridge between enterprise and equity valuation
Case study: Participants calculate the bridge to link the enterprise value of operations to the total equity value of the firm
Case study: A forecast of case study cash flows is used to calculate the value of a business using the techniques learnt in previous sessions
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Day 3: DCF Analysis – Cost of Capital, the Value Driver Approach to Terminal Value and Adjusted Present Value Analysis
Cost of Capital - Developing the CAPM model
- What role do betas play in CAPM?
- Betas and gearing
Case study: Calculation of an un-geared and re-geared WACC of a case study company
Hybrids – a revised capital structure
- Treatment of different hybrids
- Convertible bonds, calculating cost of debt portion and equity portion
Case study: Calculating the cost of a convertible bond for a case company
Cost of capital and capital structure in practice
- Determinants of capital structure in practice
- Cash flow profile
- Asset base
- Investor requirements
- Debt finance
- Equity finance
- What are the problems with a CAPM approach?
Case study: Bringing it all together, calculating the cost of capital for a complex capital structure
The Value Driver Approach to Terminal Value
- Competitive advantage and terminal valuation
- Incorporating growth and returns into a terminal value
- More complex terminal value approach
- Value driver formula
Case study: Participants model the stable growth and value driver approaches to terminal value
Determining the Source of Returns – Adjusted Present Value (“APV”)
- The three components of an APV valuation
- Unlevered value
- Value of the tax shield
- Direct and indirect cost of leverage
- How APV compares with a DCF valuation approach
Calculating APV
- The process of calculating APV in a steady state
- Unlevered value – how to calculate and key issues
- Value of the tax shield – which discount rate?
- Direct and indirect costs of leverage – bankruptcy costs, indirect costs and how they can be incorporated
Case study: Calculating APV in a steady state
Coping with growth
- Calculating APV in a steady growth environment
- The value of the tax shield – key assumptions that have to be made
- Equivalence between DCF and APV – how is it achieved?
- Case study: Valuation of a company using DCF and APV for equivalence
- APV vs. DCF in practice and conclusions for valuation
- The key assumptions to be made in practice with APV
- When are costs of leverage included?
- How is the tax shield discounted?
Mike Corless
The course director is a qualified chartered accountant who begun his career in Grant Thornton International and since 1986 worked in Ernst & Young as a senior manager in the corporate advisory team, working on major acquisitions, disposals, IPOs and insolvency/restructuring transactions.
In 1989 he joined Threadneedle Asset Management as an analyst, becoming a fund manager specialising in income funds in 1991. In 1996 he joined Scottish Widows Investment Partnership as a director in the UK Equity team, again specialising in income funds. On becoming head of UK Equities in 1998, he introduced a new investment process incorporating cash flow based corporate valuation techniques. In 2000 he was appointed head of UK Equities when Scottish Widows was acquired by Lloyds Bank and he led the integration of the UK Equity teams.
In 2001 he joined HSBC Asset Management as European Head of Equity Research, managing a team of analysts in Paris and London tasked with developing a new research team and research process.In 2004 he was appointed Global Head of Equity Research, responsible for 60 global equity research analysts and 40 global credit analysts. He developed a global valuation and research process, training local analysts in Europe, the US and Asia in its use.
In 2006 he joined BG Consulting Group, a professional training company, as the head of investment banking and investment management managing a team of 12 trainers. His experience at BG included managing major graduate programmes for investment banking and investment management clients, training graduate to managing director level participants and advising clients on their training requirements for accountancy, corporate finance and valuation, investment management and private wealth training.
His clients have included HSBC, Morgan Stanley, Deutsche Bank, Citigroup, Allen & Overy, JP Morgan, Barclays Bank, Barclays Wealth, Morgan Stanley Investment Management and Schroders.
22-24 November 2010 London, The City - A 3 Day Course
Price before 31 August: £1850 + VAT
Regular Price: £1995 + VAT
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DISCOUNTS
- 2 people - 5% discount, 3 people - 10% discount. Delegates have to be from the same company and register at the same time.
- If you book for 2 courses at the same time you will receive 10% off the full value of the cheaper course.
IN-HOUSE TRAINING
If you have a team of 4 or more this course can be customised and organised in-house at your convenience. Contact one of our advisors to find out more.
Call us now on +44 (0) 207 193 5035
