Verðmat banka - Afkomuspár o.fl.
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Transcript of Verðmat banka - Afkomuspár o.fl.
Verðmat banka- Afkomuspár o.fl.
Haraldur Yngvi PéturssonFramkvæmdastjóri L.S.B.Í.Sérfræðingur í eignastýringu Arion banka
Introduction
Haraldur's Personal Introduction
Academic:University of Iceland – Cand. Oecon
ProfessionalDeloitte – Accounting – 3 years
Preparations of financial accountsAuditing of financial accounts
Kaupthing Bank – Equity Research – 4 yearsFocus on the Icelandic marketPart of Kaupthing Scandinavian equity research from 2006
IFS Research – Equity Research – 1 yearFocus on Icelandic equitiesSelected Scandinavian companiesS&P 500 selected sectors
Arion banki – Asset Management – Since September 2009MD of L.S.B.Í. Pension Fund
Goal of Presentation
Discuss company valuation generally and main obstacles
Review in some detail the main currently employed valuation methods
Don't worry if you don't fully understand everything saidTo most ordinary humans this is entirely foreign materialValuation and Equity Research is very much "on site training"
Hopefully you'll enjoy picking up some of the terminology
and the next valuation presentation you sit through should be slightly more bearable
Reasons for Valuing Companies
Key to successful trading in (and managing) corporations
Ability to estimate their value
Understanding the sources of their value
Investors do not buy corporations for aesthetic or emotional reasons – but for their expected future cashflows
Inherent value of a company based on forward-looking estimates and judgements
Valuation is fundamental for any decision & negotiations relating to e.g.
Company investments
Mergers
IPO / rights issues
Management project evaluation
Portfolio valuation
Valuation – Basics
Valuation a science or an art? A bit of both
Science:
Certain methods are based on solid mathematical pillars. Has (and is) being researched by
entire university departments, thousand's of professors/PhD's/market practitioners
Foundation of the world's financial system
Art:
Modelling and forecasting of the future (?!?)
• management/key employees, tastes/fashion/sentiment, disruptive technologies…
Material role of fickle (and difficult to model) behavioural issues and biases
overconfidence, overreaction, loss aversion, herding, regret, misestimating of probabilities..
Fact remains – companies need to be valued and the following methods are the best tools currently available
Valuation - Reservations
Assumptions and inputs into the models are of paramount importanceGarbage in -> Garbage out
Several "difficult-to-model" factors hugely important
Is it for sale? Is there a buyer? Sale under distressed circumstances? is funding available?
Output from valuation models ≠ current price
Additionally some types of companies are tremendously difficult to value analyticallyStart-upsBiotech/pharmaceutical researchHighly cyclical companiesCompanies with large "real options"
Rights to unexplored oil-fields / miningOnline companies (social networking, search engine..)
Valuation Methodologies
Discounted Cash-flow (DCF)Free Cash Flow to Firm (FCFF), FCF to Equity, Adjusted Present Value (APV)
Multiples / ComparablesP/E, EV/EBITDA, EV/Sales etc.
Other methodsInvested capital, VC Capital Method, Option Pricing, Last round of financing, Break-up value and Dividend Models
..and then the more "sketchy" methodse.g. Technical Analysis
Balance between model relevance, complexity and number of assumptions
Usually at least two methods used in any valuation exercise
Valuation Method:
Multiples / Comparables
Multiples / Comparables (comps) - Introduction
The idea is to approximate a company's value by comparing it to companies with known value
Source of figures
Comparable public company multiples
Recent private company transactions
Important to only compare relative value of similar companies (apples with apples)
Similar Industry Scope
Similar Growth
Similar Risk
Similar Results (ROE)
Multiples / Comparables (comps) - Introduction
Many benchmarks can be used (usually industry specific)
Enterprise Value / EBITDA
Enterprise Value / Sales
Price / Earnings (I: V/H) – (Often used for banks)
Price / Book (I: Q-hlutfall) – (Often used for banks)
Price / Net Asset Value (NAV) – (Often used for banks)
Monthly Rent Multiple
Funds under management – (... for e.g. asset management)
# subscribers, # patents, # employees, #website hits / Enterprise Value
etc.
Multiples / Comparables (comps) – Introduction cont.
PositivesQuicker and easier than analytical methods (DCF)Reflects current market conditions (investor sentiment, bargaining power..)Helpful in "reality-checking" DCF valuations
DisadvantagesAre the comparable companies similar enough?
E.g. public vs. private, future prospects, sector, management quality, market position, capital structure, tax-scheme…
Doesn't capture value of different scenarios/"what-ifs"E.g. post acquisition cost-cutting is successful, synergies are achieved, pending lawsuit goes one way or the other..
Disconnect between a multiple and inherent firm value. Hence does not capture systemic under-/overvaluation of companies by the market
Price / Earnings (PER or P/E)
Price Earnings (I: V/H) ratio shows how much accounting profit its owners are entitled to
Example: Stock price = 20, EPS= 2 => PER= 20/2 = 10
Compared to companies similar in risk and prospects PER is an indicator of whether a particular stock is under or overpriced
Several variantsTrailing PER or forward PER (using forecasted earnings) Primary shares outstanding or diluted number of sharesAverage price over period
Generally: High PER (>16) indicates that the market believes significant growth is on horizonLow PER (<8) indicates that the market believes current profit levels are unsustainable
IncomeNet ValueEquity
Shareper EarningsPrice ShareEarnings Price
Price/Book (P/B) and Net Asset Value (NAV)
Price / Book = Value of Equity / Book Value of Equity (I: Q-hlutfall)
Purpose of ratio is to show the market premium to the accounting equity
P/B is used for valuing investments whose value is derived primarily from the underlying value of their tangible assets
Holding companiesReal estate companiesBanksCompanies up for liquidation (solvency value)
Net Asset Value (NAV) is a significantly better measure than book equityCalculated by correcting the value of assets & liabilities in the accounts
Book value of associatesBook value of fishing quotaGoodwill justified?Deferred tax liability going to be paid in the near future (Real Estate)? etc.
Some examples from the “real world”
DnB NOR report - Feb 2010
Some examples from the “real world”
Historical development (short term though)
Some examples from the “real world”
Interesting to take a closer look at the DnB NOR report For further view on the DDM To see different methods of valuation, in use on the marketTo better get the “feel” for professional valuation... and many other things
Questions and Answers
Q & A