Question

Choose one Absolute Valuation Model and one Relative Valuation Model to value both companies, justifying the selection of the models chosen.

As can be seen in the content of the module:

The Absolute Valuation Models are:

• Present valuation models:

• Dividend Discount Models
• Free Cash Flow to Equity
• Free Cash Flow to Firm
• Residual Income

• Asset Based Models

The Relative Valuation Models are:

• Price Ratios:

• Price to Earnings Ratios
• Price to Book Value Ratios
• Price to Cash Flow Ratios

• Enterprise Value Multiples

(ii) Provide a brief introduction to global, local economy and industry performance over the last five years.

(iii) Compare the performance of the two companies with each other and the overall performance of the local economy and the industry.

(iv) Evaluate trends in the companys financial position and stock price over the last five years;

from a shareholders point of view, such financial analysis will help predict future earnings, dividends and the firms stock price.

(v) Summarise the key findings of the equity analysis in a format and structure suitable for presentation to the shareholders.

(vi) Compare your valuations with the current market stock price and analyse any over-pricing and under-pricing of the stock price.