You are required to analyze Flight Centre Travel Group Ltd (FLT) and prepare a report. The report provides an assessment of the company’s current position and future prospects, and incorporates the use of the dividend discount model to arrive at an estimate of the company’s share price. A rubric is available on Canvas.
The final submission should include:
Part 1: Financial Performance and Current Issues
In this section, students are expected to meet these objectives:
O1) Evaluate the company’s overall financial performance by analyzing the company’s share price performance, financial statements and other relevant news during the last five years.
• Price movement [past 5 years] – look for 3 major sensitive public announcements and the impact of announcements – technical analysis (50-day vs 200-day moving average lines) to identify buy/sell/hold signal
O2) Peer group comparison/industry analysis (compare the ratios (five ratios) of FLT with competitors’) • Webjet Ltd (WEB), Helloworld Travel Ltd (HLO) • you must demonstrate the calculation of the ratios. You can select any five ratios O3) Analyse the company’s/industries current issues and explain the impact of these issues on the company’s future earnings (you can consider a SWOT or PEST analysis) 1. At Macro Level – general factors that apply for the industry (income, growth of the industry, govt. regulation etc.) 2. At Micro Level – the company specific requirements (operation, level of debt, directions/goals, competition etc.)
O4) Estimate the ROE of the company for most recent five years using the DuPont ROE approach. – DuPont Analysis can be done using the 3-step procedure – 3 steps: Profit Margin, Total Asset Turnover and Financial Leverage – show your own calculation – Compare the DuPont ratios of FLT with its peer groups
[Approximately 1500 – 2500 words!]
Part 2: Valuation Models
Part 2 consists of 3 objectives:
O1) Start your valuation analysis with the CAPM estimation. You need 3 variables to calculate the CAPM: – Estimate Beta (β): You can estimate beta by using regression analysis Or manual calculation. Follow Topic 4 lecture notes and relevant chapters (Chapters 6 and 7) of the recommended textbook to estimate the beta of the company and attach details of your work as an appendix. For both approaches you need to use the stock price data of the company and ASX/S&P200 to estimate return for the most recent five years Then adjust the raw beta using appropriate methodology (refer to topic 4 ). – Risk-Free Rate of Return: Use the 10 year Govt. bond yield rate as a proxy for RFR – Risk Premium: It is the difference between expected market return [E(Rm)] and RFR We have provided E(Rm)= 9.826% [source: Bloomberg]
Once you estimate the CAPM required rate of return denoted as E(Re) following the steps above, you can use this return (also known as cost of equity, ke) in the valuation model
O2) Estimate the share price using the dividend discount model (DDM) to estimate the intrinsic value of the company discussed in Topic 7:
Dividend Valuation Model (DDM): Follow the formula discussed in Chapter 8 – Use CAPM return – Estimate the growth rate (g = Retention ratio x DuPont ROE) – Forecast dividends (if applicable) – Make assumptions if necessary – Estimate intrinsic value
O3) The evaluation of the value/price of the company. Why does the intrinsic value (you estimated) of the company differ from the current/recent share price? Is the dividend discount model appropriate and why? And more importantly, what is your investment decision based on your evaluation? Is it different from the signal obtained from technical analysis? Why?
[Approximately 2000 – 2500 words!]
Important points to be covered in Part 2:
• Explain any assumption(s) made in implementing the model. • Where appropriate, explain how you arrive at the variables you are using. E.g., it is not enough to say you are assuming a 2% growth rate. You would be expected to provide justification/motivation of how you arrive at 2% growth rate. • Provide an indication of the sensitivity of your valuations to changes in the assumptions. E.g. perform sensitivity analysis for the model. • Your are required to use Eikon Online and IBIS World as your major data sources.
Maximum word limit for the Company Valuation Assignment is 5,000 words.
Reilly, Frank K. , Keith C. Brown and Sanford Leeds, Investment Analysis and Portfolio Management (11th Edition), Thomson South-Western, 2019.
Damodaran, Aswith, Investment Valuation [2nd Edition], available online at: http://pages.stern.nyu.edu/~adamodar/
Assignment submission procedure
• All assignments must be submitted online through the course Canvas Turnitin for the plagiarism check. They must be accompanied by an assignments cover sheet. • Student procedures and account setup, http://www.rmit.edu.au/academicintegrity/studentprocedures • Turnitin student information page, Student Quick Guide – How to submit an assignment through Turnitin available from the ADG webpage; http://www.rmit.edu.au/bus/adq • Turnitin will assess your work in approximately one minute, and return a colour coded response for the originality of the text.
Use proper citations and references in your report. Include a list of references you use in your report. Failure to do so will attract a lower grade of your work.
DO NOT attach information you have used in compiling the report, ie. annual reports, newspaper articles, etc. to the report.
What is Plagiarism?
Plagiarism is the presentation of work, idea or creation of another person, without appropriate referencing, as though it is one’s own. Plagiarism can occur in oral and written presentations and is not acceptable. The use of another person’s work or ideas must be acknowledged. Failure to do so may result in charges of academic misconduct, which carry a range of penalties including cancellation of results and exclusion from the course.
Students are advised to acquaint themselves with the University policy on plagiarism.
Presentation of Report
The report is to be presented in the form of a business report. It should have an executive summary, outlining the main findings, at the beginning. The remainder can be structured in line with the above points. Attach details of your work as an appendix. DO NOT send a separate Excel file.
Penalties for late submission
All assignments will be marked as if submitted on time then the mark awarded will be reduced by 10% each day (or part of a day) it is late.
Assignments that are late by 7 days or more will not be marked and will be awarded zero marks. Please note that your result will be delayed if your assignment is not submitted on time.