Valuation Theory and

Implementation (cont.)
and Revision
Seminar 11
Content taken from different sources

1
Topic objective

Final wrap up of forecast and valuation

Valuation of Australian biotech firms
GMO – valuing equities in financial crisis
Example of analysts report
Revision 1
Discussion questions
Presentations
 Valuation of a start-up biotech (or mining)
company that is still in the development stage
Valuation will depend on the type of business of a biotech/mining company

Start-up biotech/mining company is different from an established company

Start up (exploration stage) mining companies

Fortescue Metals Group

Mantle Mining Ltd – they found 1-2billion tonne of brown coal in Bacchus Marsh in 2011.
• $60per tonne X 1.5b tonne = $90billion
• Current value = $6.96m
• Profit? Value?
 One of the approaches for a start up
or R&D company or start up mining company

Think of a biotech (mining) company as a collection of one

or more experimental drugs (mines)
Each portfolio representing a potential market opportunity.
The idea is to treat each promising drug (mine) as a mini-
company within a portfolio.
Using DCF we can determine what someone would be
willing to pay for that drug (mine) portfolio
Add together the net present value of each portfolio
Examples of ASX listed developing coal companies: UNV,
TCM, NCR, ICX, GNM, CES, CCC, AJC, AAL
Relationship between exploration results,
mineral resources and ore reserves

5
Comparable valuation multiples: Gold producers
(Source: Credit Suisse)

6
Valuing equity during financial crisis
Separate GMO white paper by Inker uploaded on Moodle

Economic problems – European financial crisis, US debt ceiling crisis, Ukrainian crisis
Long view of US GDP

8
Operating profit margin of S&P 500 companies

9
Analyst report
Food Empire Holding (Singapore Stock Exchange)
Telstra analyst report (Shaws Stock Broking)
ConocoPhillips valuation – Trefis Analysts

11
Crude oil – price change and value of ConocoPhillips

12
 Your valuation of ConocoPhillips gives a difference of $3.0
from $65 (current) to $68 (my valuation)
What will you do?
• Invest/not invest?
• What options are available to the investors?

13
 Revision-first 6 weeks
• Capital market analysis
• determine the impact of disclosure and information asymmetry on capital market
performance, abnormal return calculation
• Analysis of the information environment

• Business analysis
• Macroeconomic analysis
• Industry analysis: Porters five force model
• Understanding business strategy of a company

• Management Quality and Corporate Governance Analysis

• Accounting analysis
• Accounting strategy, disclosure quality, earnings quality, distortion and accounting
analysis implementation
 Past Exam-Capital Market Analysis

Presentation title 15
 Past Exam-Capital Market Analysis

Presentation title 16
 Past Exam-Business Analysis

Presentation title 17
 Past Exam-Business Analysis

Presentation title 18
 Past Exam-Management Quality Analysis

Presentation title 19
 Past Exam-Accounting Analysis

Presentation title 20
 Past Exam-Accounting Analysis

Presentation title 21
 2nd Part Report

• Management quality and corporate governance analysis

• CEO quality, corporate governance analysis, including the independence of audit
committee, accounting/financial expertise of audit committee, remuneration
committee and nomination committee

• Accounting analysis
• Key accounting policies, accounting flexibility, disclosure quality, red flag identification
and accounting analysis implementation

• Financial analysis
• understand profitability, asset management, financial management, Liquidity,
solvency, cash flow analysis and credit analysis

• Forecasting
• Forecast of financials including scenario analysis

• Cost of capital
• Cost of equity and WACC calculation

• Valuation
• Any two valuation models/approaches, including scenario analysis
Assignment Part 2 due in week 12 on Friday (Oct 22nd) by 4pm
Soft copy (word only single attachment and eVal. On the cover page, please list out the
seminar stream you are attending (Monday 10am), the names, emails and student
IDs of your group members): chen.chen2@monash.edu
Marked reports will be made available at the end of SWOTVAC week
Feedback and marks will be delivered by email
Students must also submit the reflection on group work on Moodle at the same time, due
in SWOCTVAC on Monday (Oct 25th) by 3pm, every group member must hand in
their own one before the due day. Otherwise, their group assignment will not be
marked.