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Navitas Limited (NVT.AX) despite having only being listed in ASX for a few years, the company was included in the ASX200 index last year. It is one of the few companies listed in ASX which specialises in business of education.
As a company analyst for DEBANAWAZA Stockbroker Ltd, you are expected to prepare an analysis on the company. Your report should be brief, but concise, and should be within the limit of 2000 word or no more than 8 pages. Your report should contain the following sections.
PART A (20 marks)
I. Estimate the value (per share) of the company using the Free-Cash-Flow-to Equity (FCFE) method. (15%)
II. Compare your results from FCFE method with the Dividend discount model. Also a brief comment on the dividend policy of the firm (5%)
PART B (10 marks)
Using economic, industry and firm based analysis, estimate the potential and growth of the sector as well as NVT. Is the business model of NVT unique? Are they able to achieve growth under the current economic climate?
PART C (10 marks)
You are required to make commendation if your clients should either BUY/ SELL/ WAIT/ HOLD/ OVERWEIGHT or UNDERWEIGHT. Please provide some justifications to your recommendations. (10%)
Some general advice:
1. It is not about getting the most accurate estimate. There is no one value otherwise the market price for all the companies will be static. It is about how you build your ?story”. State your assumptions and cite your references.
2. Part A (i), you are only required to look up FCFE for the firm over the last year. The biggest challenge is finding the appropriate ?discount rate?. Revise your LBC208/LBC202 on the relevant topics early (i.e. internal based models such as Weighted Cost of Capital, WACC or Risk based models such as
Capital Asset Pricing/Market models are fine).
3. Part A (ii), you are only required to look up dividend paid by firm over the last 2 years. It is also a good exercise using the dividend discount model to investigate the multiples the market was over the last few years.
4. Part B, instead of merely stating facts about the economy, industry and the firm, provide some analysis. Make a judgement call on how these facts will affect the company?s operation, profitability and most important of call, cashflows.
5. You should state your outlook horizon in your justifications.
– Use the most recent financials available (Q3 2011 or Q4 2011). When estimating your growth, you are only expected to use 2 years worth of historical data and forecast 1 year ahead.
6. Your clients are usually very busy people. As such:
– Use the marks allocated to guide you for the allocation of words.
– A picture pains a thousand words. Use graphs where necessary, but remember to link your discussions to/from the graph.
7. Some good starting points:
– For issues on applying FCFE, look up Ashworth Demodaran for his books or his website.
– FinAnalysis for financials and DatAnalysis for all signal Q on the company. Both these database
are available from the library
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