Valuation of MonsantoXinyu JiJialing ZhuRuiqi LiuUsman RiazZhifan Li

General Company analysis • Background:• Monsanto Company is an agricultural company which operates in two segments,

Seeds and Genomics, and Agricultural Productivity. • Five forces :• Competitive rivalry: There are several large players and many smaller firms in the

biotech industry, specifically in agriculture products including seeds, genetics, and herbicides.

• Power of customers: Demand for products depends on public acceptance of genetically modified foodstuffs, a highly regulated and controversial topic.

• Power of suppliers: The chemical manufacturing industry is not very concentrated, with many firms having fewer than 20 employees. , if one supplier is no longer desirable others can easily be found.

• Threat from substitutes: The biotechnology industry is highly regulated and has very highly valued intellectual property making substitute products difficult to produce.

• Threat from new entrants: . Barriers to entry are increasing as the industry matures and more regulations come about.

• FCFE model used: leverage is relatively stable, and expect not to change in the future.

GrowthGrowth Drive

Business Growth•Global business portfolio drives gross profit expansion

Return Value to shareholders•2 billion, 3- year buyback program•Dividends remain a priority

FY 2013 Ongoing Earnings Growth of >20%

ObstaclesBelow the line•R&D grow slower than historically

Worry of GM food•Genetically modified foods are not accepted by some countries

Economic Downturn

14.00% Bullish8.40% Bearish

Current Hight Growth Stable GrowthRatio Analysis 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E

Sales growth 3.2% -10.4% 12.6% 14.2% 10.0% 5.9% 6.5% 9.8% 9.3% 8.3% 6.9% EBITDA growth 10.8% -39.5% 41.0% 21.0% 11.0% 8.9% 8.5% 18.1% 13.5% 12.0% 10.5% EPS growth 4.97% -47.11% 47.26% 28.04% 21.37% 20.00% 19.00% 18.00% 17.00% 16.00% 14.00% Bullish

6.00% 6.400% 6.800% 7.200% 7.600% 8.40% BearishGross margin 57.7% 48.4% 51.4% 52.2% 51.5% 52.2% 51.2% 51.7% 51.8% 51.7% 51.7% EBIT margin 26.5% 15.3% 21.2% 23.3% 24.0% 22.1% 21.2% 22.3% 22.6% 22.4% 22.1% EBITDA margin 31.1% 21.0% 26.3% 27.9% 28.2% 26.9% 26.1% 27.1% 27.2% 27.1% 26.9% Tax rate 28.5% 24.8% 30.2% 30.2% 26.7% 30.6% 27.2% 31.1% 27.6% 31.6% 30.0% Net margin 18.0% 10.6% 13.6% 15.1% 16.7% 15.3% 15.4% 15.4% 16.3% 15.4% 15.5%

Return on equity (ROE) 20.8% 10.9% 13.7% 17.0% 19.5% 16.4% 17.0% 17.6% 18.2% 18.8% 20.0% Bullish17.0% 16.2% 15.3% 14.5% 13.7% 12.0% Bearish

Payout Ratio 26.2% 52.0% 37.5% 31.4% 32.3% 35.9% 34.9% 33.9% 32.9% 32.0% 30% Bullish35.9% 34.9% 33.9% 32.9% 32.0% 30% Bearish

Retention Ratio 73.8% 48.0% 62.5% 68.6% 67.7% 64.1% 65.1% 66.1% 67.1% 68.0% 70.0% Bullish 64.1% 65.1% 66.1% 67.1% 68.0% 70.0% Bearish

Beta & Cost of EquityBeta calculated through regressionAnalysis for the years 2006 to 2013: 1.0234 Estimated Risk Premium throughGordon Growth Model:

↑

70% bullish E(R)+30% bearish E(R)

Cost of EquityHigh Growth Period: 17.96%Stable Period: 17.61%

-0.15 -0.1 -0.05 0 0.05 0.1 0.15

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

f(x) = 1.02342203756924 x + 0.000550395268129199R² = 0.371606251038441

Series1Linear (Series1)

value of stock 104.88

expected dividend 1.900772

expexted growth rate 0.1580

Rf (high growth) 2.65%

Rf (stable) 4.65%

b(high growth) 1.0234

b(stable) 1.0000

E(Rm) 17.61%

FCFEFree Cash Flow to Equity Current

High Growth Stable Growth

(Year Ending August 31) 2009A 2010A 2011A 2012A 2013A 2014E 2015E 2016E 2017E 2018E 2019E Net Income $2,109 $1,109 $1,607 $2,045 $2,482 2978.4 3544.3 4182.2 4893.2 5676.1 6470.8 bullish 2630.9 2799.3 2989.6 3204.9 3448.4 3738.1 bearishAdd: Depreciation 548 602 613 622 615 3.00% 633.45 652.45 672.03 692.19 712.95 734.34Less:Capital Expenditures 916 755 540 646 741 2.00% 755.82 770.94 786.36 802.08 818.12 834.49

Inventory, net 2,934 2,739 2,591 2,839 2,947 Total Current Assets 7,883 7,122 8,809 9,658 10,077 Cash and Cash Equivalents at End of Period 1,956 1,485 2,572 3,283 3,668 Accounts payable 676 752 839 794 995 Income taxes payable 79 66 117 75 91 Dividends payable 145 151 161 200 228 Customer payable 307 83 94 14 12 Non-Cash Working Capital 7,654 7,324 7,617 8,131 8,030 102% 8150.4 8272.7 8396.8 8522.7 8650.5 8780.3Less:Change in Non-Cash Working Capital (330) 293 514 (101) 120.45 122.26 124.09 125.95 127.84 130.00

Short-term debt proceeds 75 75 84 30 22 Long-term debt proceeds 0 0 299 499 32 Short-term debt reductions (45) (101) (74) (42) (29) Long-term debt reductions (71) (4) (193) (629) (2) Plus: Net Cash Inflow from Borrowings ($41) ($30) $116 ($142) $23 ($15) ($15) ($15) ($15) ($15) ($15)FCFE $1,700 $1,256 $1,503 $1,365 $2,480 $2,721 $3,289 $3,929 $4,642 $5,428 $6,226 bullish

$ 2,373

$ 2,544

$ 2,736

$ 2,954

$ 3,200

$ 3,493 bearish

CONCLUSION

Components of ValueBullish(70%)

Bearish(30%) Actual Target price

Cash Flow (High Growth) $ 11,837.04 $ 8,433.33

Terminal Price (Stable) $ 69,811.10 $ 16,848.67

Total Value $ 81,648.14 $ 25,282.00

Shares Outstanding 539.70 539.70

Total Value per Share $ 163.83 $ 46.84 $105.15 128.74

Potential Appreciation 55.8% -55.45% 22.75%

Recommendation BUY