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Valuation Mod-9 Oil and Gas Field Services. Chris Jennis 3 /24/2014. Agenda Abnormal Growth Model Module 9 Summary Analyst Forecast Equity Valuation Adjusting Value Estimates Sensitivity Analysis Questions. Abnormal Enterprise Income Growth Model. Module 9 Valuation of Equity

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Presentation Transcript
slide2
Agenda

Abnormal Growth Model

Module 9 Summary

Analyst Forecast

Equity Valuation

Adjusting Value Estimates

Sensitivity Analysis

Questions

slide4
Module 9
  • Valuation of Equity
  • VEnt- VD = Veq
  • Valuation Formulas for Equity
  • Dividend Discount Model
  • Residual Income Model
  • Use of Analysts’ forecasts
  • Provided earnings and dividends can indicate value
  • Adjusting Valuation to Valuation Date
  • Value today, not at date of last balance sheet
  • Assuming payoffs occur evenly during year
  • Sensitivity Analysis
  • Refine analysis with different inputs
slide8
Equity Valuation using Residual Income Model

=72.08 (assuming g=3%)

When Veq=87.76 (PriceLine) g=5.4%

Analysis:

slide9
Long-term Growth in Earnings/Sales

g=5.4%

1.054= CI(t+1)-.01052*53.93

3.91

CI(t+1)= 10.110

1+gincome= 10.110/8.96 = 1.129 (growth rate outside of horizon)

slide10
Adjusting Value Estimate

1st Adjustment: Adjusting Date

[VJan2014*(1+r)^79/365]

[124,347*(1.1004)^79/365]

$130,887

2nd Adjustment: Mid-Year Adjustment

(1+rEnt)^.5

(1.1004)^.5

1.0502

126,948*1.0502= $133,626

slide11
Sensitivity Analysis

Market Value= $128,964

Enterprise Value > Market Value: Market Undervalued, Buy

Enterprise Value < Market Value: Market Overvalued, Sell

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