equity valuation masterclass - redcliffe training

The Banking and Corporate Finance Training Specialist

Equity Valuation Masterclass

A Two Day Course

This course is presented in London on:

24-25 January 2019, 28-29 October 2019

If you have 5 or more participants it may be cost effective to have

this course pesented in-house either on your premises or via live webinar

http://redcliffetraining.com [email protected]

+44 (0)20 7387 4484

Course Overview

Participants will: Be introduced to the main equity valuation methodologies Discuss the different valuation methodologies and the differences between Enterprise

Value (EV) and equity value Study Discounted Cash Flows (DCF), specifically computing the Free Cash Flows and

the Weighted Average Cost of capital (WACC). Review the trading and transaction multiples

Further enhance their understanding of Equity Valuation Review the five steps of DCF valuation and the key issues affecting terminal value,

WACC and enterprise value to equity reconciliation

Get an overview of advanced discounted cash flow valuation and fast growing companies and the use of multi-period terminal value and fade rates

Have explained to them stock options expenses including the essentials of stock based compensation accounting and the multiples adjustments (EV/EBIT)

Gain an understanding of the non-controlling interests and associates

Get to grips with the differences between operating and financing / capital leases and the fundamentals of operating and financing / capital lease accounting

Be introduced to Moody’s multiple method and present value of non-cancellable lease Get an overview of fundamentals of pension accounting and the defined benefit vs.

defined contribution plans

Understand better the finer details of weighted average cost of capital (WACC)

Day One

Session 1 - Valuation fundamentals The session lays the foundations to build a solid understanding of corporate valuation in

the context of investment banking. The most common valuation methodologies are introduced, explaining the difference between a company's fundamental value, and how

much an acquirer would pay for the business. The concepts of enterprise value and equity value are explained, using simple but rigorous exercises. Finally, the basics of multiple valuation and discounted cash flow valuation are introduced. Case studies are used

throughout the session based on real European companies.

Key topics: The importance of valuation in the investment banking industry Fundamental vs. transaction value

Overview of the major valuation methods Discounted cash flow analysis

Trading comparables analysis Transaction comparables analysis

Enterprise vs. equity value Book values vs. market values Derivation of enterprise values using market values

Derivation of enterprise values using a fundamental valuation approach

Session 2 - Discounted Cash Flows

Course Objectives

Course Content


+44 (0)20 7387 4484

Participants learn how to build a discounted cash flow valuation model. The session starts with an overview of the valuation methodology, and the steps required in setting up a valuation model. We then focus on the calculation of free cash flow. A detailed ratio

analysis is used to establish the reasonableness of the forecasts and to identify when the target company reaches steady state. We analyse the weighted average cost of capital,

calculate terminal values, using both the exit multiple method and the perpetuity growth method. We discount the free cash flows to arrive at enterprise values and calculate the

implied share price. Once the valuation is complete participants perform several checks on the analysis using key ratios, and sensitivity and scenario analysis.

Key topics: Calculating unlevered free cash flows

Drivers of cash flow Ratio analysis

Weighted average cost of capital

Optimal capital structure using peer analysis Establishing the company’s forward looking cost of debt

Cost of equity: understanding the risk free rate, the equity risk premium and beta Unlevering and relevering the beta Calculating WACC for the case company

Calculating the terminal value Perpetuity growth (Gordon Growth model) method

Exit multiple method Building a discounting model

Mid-year adjustments

Calculating enterprise and equity values Sanity checks

Reinvestment rate and ROIC Implied multiples and growth rates Percentage of value in the terminal period

Session 3 - Trading Comparables

Participants are introduced to preparing multiples using real company data and a case study including a range of international companies. We focus on how to select comparables, where to find data in published financials and equity research reports, how

to clean the raw data, and how to document and check the output. The most commonly used multiples are explained and complexities such as normalizing for non-recurring

expenses / income are also covered. The session ends with practical exercises on the application of multiple analysis to value a company.

Key topics: Screening companies to identify a suitable comparable set

Calculating the company’s value Number of shares and value of share options Equity value

Net debt calculations Minority interests and equity method investments

Enterprise value Calculating the earnings numbers


+44 (0)20 7387 4484

Cleaning non-recurring items from earnings and resulting tax adjustment

Calendarization issues Last-Twelve Months (LTM) analysis Calculating a range of forward looking and historical earnings multiples

Revenue EBITDA

EBIT P / E P / E / G

Industry-specific multiples Calculating and using operating and credit ratios

Troubleshooting and checking the output Applying the results

Session 4 – Transaction comparables Participants are introduced to preparing a transaction multiples matrix using LTM

earnings. The rationale and components of control premium and its impact on valuation are discussed. A comparable transaction analysis is performed on a recent transaction.

Key topics: Difference between trading multiples and multiples from precedent transactions

Selection of transactions and information gathering Change of control issues

Share capital and equity linked instruments Control premium and synergies Bottom up calculation of enterprise and equity value multiples

Practical issues with transaction comparables Analysis and summary output

Day Two

DCF and Multiple Valuation Reminder Reminder of the five steps of DCF valuation

Review of trading multiples Discussion of key issues affecting Terminal Value, WACC and Enterprise Value to

Equity reconciliation

Advanced DCF Valuation

Fast growing companies and the use of multi-period terminal value and fade rates o Two-stage terminal value (growing annuity followed by a perpetuity growth

rate)

Valuation of Net Operating Losses (NOLs) Normalised steady-state cash flows to avoid abnormal terminal value

o Use of target RoIC vs. WACC returns Effective and marginal tax rates Mid-year discounting on cash flows

Flexible valuation dates

Case study I – Modelling of two-stage terminal value


+44 (0)20 7387 4484

Modelling of NOLs, flexible deal dates and mid-year discounting

Weighted Average Cost of Capital (WACC) Review of capital asset pricing mode (CAPM)

How to think about cost of equity for private companies How betas are derived – regressing company and market returns Which beta to choose for company valuation?

Why unlever betas? How do we unlever betas? Use of Damodaran industry betas

Optimal capital structure and gearing risk Case study II – Unlever and relever betas for a food manufacturing company

Enterprise Value to Equity Value Issues

Stock Options Expenses Essentials of stock based compensation accounting

o Expensing to the income statement over the vesting period Intrinsic value of stock based compensation

o Treasury method of accounting for stock based compensation Restricted stock and performance stock units

Multiples adjustments (EV/EBIT) o Fully diluted market capitalisation in EV o EBIT post stock option expense

DCF adjustments o Stock option expense to be included in FCF

o Diluted share count to compute equity Case study III – Analysing the stock options of Linkedin

Non-Controlling Interests and Associates

Accounting for NCI NCI valuation

o Book values

o Market values o P / E multiples, Price to Book multiples

Adjustments of NCI to multiples (EV/EBIT) o Include NCI at market value in EV o EBIT to include both parents and NCI earnings

Adjustments of NCI to DCF o Deduct NCI at market value from EV to reach Equity

Accounting for equity affiliates / associates Equity affiliates and core, consolidated and total EV Equity affiliate valuation

o Book values/Market values/Multiples Adjustments for equity affiliates to DCF and multiples

o Depends on definition of EV (core, consolidated or total) Case study IV – Nestlé and l’Oréal as associate

Nestlé and NCI


+44 (0)20 7387 4484

Operating Leases Differences between operating and financing / capital leases

Fundamentals of operating and financing / capital lease accounting Moody’s multiple method and present value of non-cancellable lease arrangements

Operating leases adjustments to multiples o Capitalised operating leases to be added to EV o Rental expense to be allocated between interest expense and depreciation

Operating leases adjustments to DCF o Free cash flow post rental expenses

New accouting rules to abolish difference operating vs. finance leases

Case study V – Computing Easyjet adjusted EV/EBITDAR

Pensions

Fundamentals of pension accounting Defined benefit vs. defined contribution plans Funded vs. unfunded plans

Pension deficits and surpluses Pension adjustments to multiples

o Add pension deficit to enterprise value o Only service costs to remain in EBIT

Pension adjustments for DCF

o Only service cost in EBIT/free cash flow o Deduct pension deficit from EV to equity

Case study VI – Analyse the pension deficit of British Telecom

On day one of this course, participants are introduced to the main equity valuation methodologies. The participants start with the valuation fundamentals where the different

valuation methodologies are discussed and the differences between Enterprise Value (EV) and equity value is explained in detail. The participants will then look at the Discounted Cash Flows

(DCF) and specifically at computing the Free Cash Flows and the Weighted Average Cost of Capital (WACC). Finally, the participants will review the trading and transaction multiples and

compute several EV and equity multiples and get the intuition between the market view of the multiples. During the sessions participants look at case studies and financial models of real European companies.

Day two covers the more advanced areas of Equity Valuation. Participants discuss complex

issues such as a two-stage terminal value, valuation of net operating losses, WACC for private companies and issues in the reconciliation between enterprise and equity value (associates, non-controlling interests, operating leases, pension deficits).

Much of the course work involves Excel modelling and analysis, equipping

participants with the tools to further enhance their understanding of valuation issues:

Building up from partially-complete models on real case scenarios

Each participant should bring a laptop to the course to facilitate modelling work.

Course Overview


+44 (0)20 7387 4484

09:30-17:00

London

Standard Price: £1,995 + VAT

Membership Price: £1,596 + VAT

In-House Training

Delivering this course in-house for 5 or more participants could be very cost effective.

The venue and timing can be agreed to suit the client, as well as the selection of the trainer and the

precise contents of the seminar.

Tailored Learning

All of our training courses can be tailored to suit your company’s exact training needs.

We will work closely with you to help develop a training programme with content that is unique for your organisation.

Please email us on [email protected] for more information

E-Learning This course can also be presented as a bespoke e-learning programme created by you to fit your exact

requirements.

mailto:[email protected]

equity valuation masterclass - redcliffe training

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