Advanced Corporate Finance AFIN3053 Assignment

Context

Youre 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 an integrated 3-statement discounted cash flow (DCF) valuation spreadsheet model on the stock in which you specialise. Theyve given you a standardized template to complete. This is your individual assignment.

1. 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 and which should be a surprise to the market. Theres no need to provide portfolio advice such as weightings, risk and so on. The hedge fund will handle this. Theyre only interested in your groups corporate finance and macro-economic top-down and bottom up analysis. This is your group assignment.

Individual Component (20%)

Due Monday 21 April 2025 at 23:55

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 some listed firm in recorded consultations to show you the process. Please do not pick the same firm as your teacher. The assignment consultation times will be announced on ilearn and youre 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 its a buy or sell recommendation.

Group Assignment (15%)

Due Monday 26 May 2025 at 23:55

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, a shock, otherwise your hedge fund bosses wont 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, theres not enough time to present everybodys 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.

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

• State the surprising event that you forecast to occur (investment thesis), and your buy and sell recommendations with the current market and model-estimated share prices in a clear table on the very first slide. This is called front-focus, where the most important details are shown first.

• Include a screenshot of the top section of your individual assignment spreadsheet for each of the stocks you recommend buying and selling, just like Canaccord do on page 19 of their valuation of Think Childcare (2016). The hedge fund bosses (your markers) will take a dim view of your presentation if critical figures such as the estimated share price, WACC, perpetuity growth rate, terminal value, sales growth rates and multiples valuations are not shown for each of the two stocks.

• Introduce the next speaker in the presentation, a small courtesy that makes your team look professional.

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.

Its 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 (from August 2024)

Students Chloe, Simon, Tandy and Keith submitted their individual assignments valuing Tesla, BYD, Uber and Ford respectively.

They form a group, elect Chloe as leader, and decide that the catalyst of their investment thesis is that Tesla will shortly develop the safest and most capable self-driving car technology that is embraced by regulators, a decade ahead of competitors.

They forecast that Tesla will have to run their existing factories at full capacity to satisfy rapidly increasing demand. They also forecast the launch of a fleet of self-driving Tesla taxis around the world. They plan to show graphs, statistics and quotes about the ride-sharing (taxi) market, electric vehicle market, and the state of self-driving technology and laws over time to justify their thesis. The group believe that:

• Chloes firm Tesla stands to benefit the most. Chloe and team will make adjustments to her individual model (that didnt originally contain the shock) to find the impact of the self-driving technology shock on Teslas share price.

Shell present a buy recommendation for Tesla, supported by some graphs and tables showing the impact of the shock on the stock price;

• Tandys firm Uber will be the worst-affected due to its relatively higher-cost service that requires a human driver and is not self-driving.

Shell present a sell recommendation for Uber after adjusting her model (with her teams help) to reflect the shock.

• Keith and Simons firms will be less affected so their valuations will be ignored and not shown at all in the presentation. Instead, Keith and Simon will present the investment thesis section, showing the graphs and tables that they and the whole team helped prepare about the forecast shock and the ride-hailing taxi and electric vehicle industry. They also help with the modelling, graphing, presentation or special cinematic effects.

They record their 5 minute investment thesis video using Zoom and post it on Youtube. Group leader Chloe uploads the video link to ilearn along with the names and student numbers of her group members, and submits the brief journal detailing each members contributions.

Theyre quite proud of their work and even include a link to the Youtube video on their CVs!

Experts from industry may help judge the winning video presentations. In past semesters weve been lucky to have Hamid Yahyaei from NGS superannuation, Dan DSouza from Macquarie Bank and Justin Turner from Suncorp as judges!

The share of the workload should be fair and members should complete the work by the leaders deadlines. Feel free to boot out non-participating members and tell them to make their own group. Be sure to email them this news at least 5 days prior to the due date and CC keith.woodward@mq.edu.au

Group assignment marking

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