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Investment BAFI 1042

Kevin Dorr 3195598

GOODMAN FIELDER LIMITED (GFF)

COMPANY VALUATION REPORT

GOODMAN FIELDER

LIMITED
COMPANY VALUATION REPORT

Scope

• The report looks at all publicly available data about the company via

the annual reports and publications

• An analyses of the company’s weakness and strength has been

conducted with detailed look at the fundamentals impacting the company

• The report outlines the ratios in relation to probability, return on

equity, using several modelling techniques

• There are charts and information used form the cash flow statement,

balance sheet and historical data sourced from the ASX

• The analysis of the company is compared to its competitors, industry,

sector and market it operates in.

• The report looks at stock price movement and all assumptions are

made available and are explained.

• Expert opinion and copyrighted material is used in the report and has

been appropriately

referenced.

REPORT

OUTLINE

This report attempt to

provide an analytical

evaluation of

Goodman fielder,

every attempt has

been made to make all

data accessible and

complete. This report

contains financial data,

historical analysis,

forecasts and

estimates based on

best available and

most up to date

information. The aim is

for the reader to be

able to make an

informed decision

about the fair value of

GFF stock and

compare it to GFF

peers in the industry. It

should give reader the

ability to form an

opinion on Goodman

fielder as an

investment based on

financial information

analytics.

Executive summary

Goodman fielder is one of the largest producers of food in Australia and it supplies product in many categories,

however it is first or second in every food category it participates in. It owns brands such as such as Nature’s

Fresh, Helga’s, Praise, Wonder White, Quality Bakers, White Wings, and Meadow Lea with offerings in consumer

brands such as Fresh milk, Meadow White Wings cake mixes, Praise salad dressings, and Leaning Tower frozen

pizza (Yahoo Finance 2012). It reaches over 30000 outlets in and around Australia. There are several major

shareholders of the company such as J. P. Morgan Nominees Australia Limited which owns 19%, HSBC Custody

Nominees (Australia) Limited that owns 17% and National Nominees Limited the owners of 22% of the

company(ASX 2012.)

On 19 August 2011 Goodman Fielder announced a net loss of $166.7 million for the year ended 30 June 2011,

this was attributable to a non-cash impairment charge of $300 million. Revenues from ordinary activities were

$2.56 billion, which is down 3.9% from the year before The New CEO of Goodman Fielder Limited Chris Delaney

is going to implement a strategic review which is focused on improving the performance of the company. There

are significant opportunities to increase efficiency, improve supply chain structure and innovation in the retail

product portfolio (New York Times 2012). There may be potential for significant improvement in all of these

areas, however it remains that GFF is in a cyclical business in a cyclical industry with major structural challenges

(Dym

2009).

A point of strength for GFF is that it has so many different brands it can protect itself against fluctuation in

commodity process or volatilities in energy prices and branded consumer products generate higher returns.

There are some areas that GFF has a good point of advantage, it has an advantage in materials due to its

purchasing power which enable it to enter long term contracts and receive volume discounts, it has complex

products that can earn high returns if the market is stable, it is able to protect its market share and grow some

market positions due to the size of its investments and it can hold off competitors because it has already become

quite established in so many markets. It is likely to hold to its market share by focusing on retail brands by

increasing internal efficiencies, bolt-on acquisitions and implementing growth strategies such as product

innovation. Price recovery of commodity cost increases will also help GFF’s bottom line in the forthcoming 2012

reporting period (Withers 2010).

Shares Outstanding: 1,955,559,207

Market Cap: $1.3 billion

The chief financial officer is Shane Gannon and the chief executive officer and managing director is Chris Delaney

(Yahoo Finance

2012).

Operating environment for GFF is quite fluid with input cost volatility, food price inflation and currency translation

which are key sensitivities that impact GFF oppressions, and Overall, the firm experiences a very competitive

business environment characterised by aggressive discounting from competitors (Phillips 2009).

GFF appears to be an aggressively geared company. The company owns some good brands but has too much

debt, the reported debt/total capital ratio is 45%, and the debt significantly outweighs the tangible assets. The

reported net debt balance was less than $1bn throughout the year. There seems to be some use of off balance

sheet leverage to manipulate the balance sheet. The company has sold assets and leased them straight back

under long-term leases. An indicator of this issue is the increase in committed lease payments from $70 million

in 2006 to $222 million at year end 2011. This does not appear on the annual reports, but it significantly

increases the operational leverage of the company.

Struggling business + High debt = Write-downs + Capital raising

Then it should be of interest that on June 17, 2010 Goodman Fielder Ltd raised $A350 million in the US to reduce

some of its bank debt followed by a $259 million capital raising to strengthen its balance sheet on 28 September

2011. The company had a $500m bank debt and $955m debt at the end of June prior to this capital raising. As of

28 February 2012 Goodman Fielder carries a $770 million debt load (ASX 2012).

Recent and over time financial performance

For the following tables and Graphs in this particular section:

All data captured and valid on Friday, April 20, 2012

The red line represents the price GFF

The blue line represents the price or value of the ASX 200 Index

The dark green bars represent the turnover for GFF

GFF prices 5 WEEKS

We can see that the stock has fell almost 35% of the time but hasn’t changes 30% of the time during trading. It

has risen quite a few times at almost 28% of the time during this trading period. If a $1000 was invested in this

stock 5 weeks ago it would have been valued at $964 at the end of the period demonstrated below, and that is a

loss of around $36 in this period.

(ASX

2012)

GFF prices 12 WEEKS

Looking at a longer period of trading we can see that if we had invested $1000 in this stock, it would have been

worth $1314 by the end of the period which translates to a gain of $314 over 12 weeks.

(ASX 2012)

GFF prices 2 YEARS

If the same investment amount of $1000 had been made 2 years prior, it would be worth $572 today, and that is

a massive loss of $492, during this period a dividend of $65 would have been paid on $1000 which we assume

was reinvested back in the stock for the purpose of this calculation.

The chart of monthly prices over 10 years for GFF and ASX 200 Index

If $100 had been invested in GFF stock 1 year ago plus invested initially plus capital gain plus dividends

reinvested.

(ASX 2012)

If $100 had been invested in GFF stock 3 years ago plus capital gain plus dividends reinvested.

(ASX 2012)

If $100 had been invested in GFF stock 5 years ago plus capital gain plus dividends reinvested.

(ASX 2012)

TOTAL RETURNS TO SHAREHOLDERS N PERIOD Capital gain plus dividends, compound per annum (%).

(ASX 2012)

Key Influences

The consumer confidence in Australia and New Zealand is weak at the momenta and this is mainly due to the

global economic condition and the impact it has had on the Australian economy. Consumers seem to be looking

for cheaper alternatives and this has caused the company to lose its edge in a luxury market, this has impacted

the profitability of the company. The company has had a flat performance in most of its divisions; one example

would be the loss of a baking contract that has cause the baking operation to lose volume without any other

source to compensate for the lost contract. As a result of higher commodity costs the Company’s cost base has

increased while price discounting has been forced upon the company due to fierce retail competition, this has

made cost recovery much harder to achieve. Another issue compounding the impact of discount pricing is the

competition from super market home brands, especially since many supermarkets have their own bakeries and

use cheap mixes to produce specialty breads (Mulcahy, 2009).

Furthermore, the Australian dollar is very strong and this has reduced the revenue that comes in from New

Zealand once the revenue has been converted to Australian Dollar (Investsmart 2011).

Market Share and sector

Goodman Fielder has a market capitalization of $1.3 billion which makes it ranked number 4 out of 39 listed

food, beverages, tobacco companies traded in Australia. In the food beverages tobacco sector it has the 3rd

highest revenues and 3rd highest total assets. Goodman Fielder has a revenue of $2.6 billion which is 9.4% of

$27.4 billion aggregate revenue of the food, beverage and tobacco sector, revenue is down from 11.3% of the

sector last year(Poitras 2005) (GFF 2011) .

There are 24 sectors in the Australian market and by market capitalisation the Food-Beverages-Tobacco

company sector is the 17th largest. It is made up of a combined market capitalisation of $19.7 billion with 39

publicly listed companies. The main players in the sector are GrainCorp, Treasury Wine Estates, Coca-Cola Amatil

and Goodman Fielder. From 2010 to 2011 the earnings for this sector grew by 45.8% (Yahoo Finance 2012).

Market risk

The changes in the market, such as changes in interest rates, or price of commodities, or the movements of the

exchange rate will impact the business negatively. This risk can even impact the value of financial products and

instruments that a firm holds such as options, futures or derivatives. Firms must engage in risk management in

order to protect themselves from these elements, there must be some parameters in place to guard against risk

and optimise profits (Peris 2011).

There are some natural offsets that can be taken advantage of, if it is not possible to take advantage of natural

offsets then companies need to enter into derivatives contract such as futures for commodities, swaps for

interest rates and forward contract for currency. These instruments enable companies to manage exposure to

risk. Such contracts may protect against unexpected movements in the exchange rates or price hikes in term of

commodities (Groppelli 2006).

There were several natural disasters last year that impacted Goodman Fielder, the most significant being the

earthquake in Christchurch which caused the dairy business to shut down and losses occurred as a result. This

also impacted distribution costs significantly (Siciliano 2003).

Commodity price risk

There have been several factors that have impacted the price of commodities in the recent years, the increase in

the general level of population, natural disasters such as the 2011 flood and the New Zealand earth quake and

the ever growing demand for bio fuels has contributed to the volatility in the price of commodities. Another factor

has been the purchasing of food stocks by speculators on the commodity markets which has further increased

prices (K. Reilly, 2008).

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Access to Natural Resources

The increase impact of climate change will have an impact on businesses and industries dependant on

agricultural commodities. The availability, quality and cost of agricultural commodities will be impacted by natural

disasters, hurricanes, floods and droughts. There is a clear operational material risk for companies as result of

the scarcity of agricultural commodities (Investor Centre 2011).

This could materialise in form of higher water cost due to water sacristy and further increase production costs

unless companies invest in water saving programs. Failure to implement water saving strategies will result in

smaller margins and the need to increase final product prices. This will obviously become a comparative

advantage issue, where as if water saving is a priority, it would result in cost savings and a comparative

advantage (Hight G. 2009).

State and federal governments are concerned with water scarcity and will continue to seek regulation to tackle

the issue. They will most likely require companies to implement water saving strategies or face penalties. This

will of significant importance of companies operate in water scarce regions, government may decide to impose

fines and fee or water withdrawal thresholds to force companies to invest in water saving technologies. This will

obviously cause disruptions to production cycles and may lead to site closure since water is a key component in

the food beverage and tobacco industry (Morningstar Methodology Paper. 2005).

Food, Beverage, Tobacco Sector

Key trends in the FBT sector include:

 Ethical food options

 The growth of consumer

 Product innovation in order to provide healthier demand

 An increase in global commodity prices

 New market segments

The FBT sector is a large contributor of greenhouse emission and it is a water intensive industry due to its

operations and products. There are some key issues regarding the environment in this sector such as waste

management, climate change and resource shortages. Furthermore there are some social issues such as

product quality and safety, how supply chain is managed and the standards towards the workforce. The

interactions of access to natural resources and the governmental regulatory system have always impacted the

value shareholders get from this sector. There is a strong link between the social performance and environmental

performance and share price performance of the FBT companies

(Poitras 2005).

Reputation and innovation are important factors in this sector, companies are able to mitigate their reputational

risk by implementing broad sustainability policies in order to differentiate themselves when facing consumers

(Arnott, 2008).

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Labour Force

The largest account for a company in the FBT sector is the labour account as a percentage of total operating

expenses. There are considerable costs at any level of the supply chain such as distribution to packaging and

even at the final point of sale. There is mounting pressure from retailors for producers to cut costs as much as

possible in order to secure better spots on the shelves, and hence one solution that has been implemented is to

outsource labour to cut costs in face of industry intensive competition. Instead of entering into permanent contact

with employees companies hire contractors and casual or temporary workers in order to cut wages and reduce

insurance and benefits that have to be paid out to full time employees. This can enable the sector to restructure

without having to make too many redundancy payments in the need arises (Roll, R. 1977).

There are however several challenges, class action law suits for compensation, labour disputes over employment

agreement and overtime pay often last long periods of time and sometimes lead to strike action by union.

Companies in this sector have been involved in some diversity controversies, working conditions and Job security

are quite different for temporary workers and contract agreements must be quite concise in relation to labour

standards since safety accidents and fatalities have been common in the industry (W.F. 1972).

Regulatory Environment

There is no doubt that the FBT is a highly regulated industry. Companies must comply with exiting legislation

whilst at the same time anticipating emerging legislations in order to safeguard their operations. There have

been a number of key social concerns that regulators have responded to in the last decade including issues such

as obesity, heart disease, diabetes, product safety, high blood pressure and slat content in food, environmental

concerns and toxicity (Cheng, P., and S.E. Roulac. 2007).

The lifestyle and consumption habit of consumers has resulted in an epidemic of obesity in Australia, according

to the world health organisation over 65% of Australians are overweight or obese. Hence the state and federal

government in Australia have looked into several regulations in relation to food production, and companies have

to become responsive and adapt their production methods to comply with the potential stricter regulation being

imposed on the food industry (Choueifaty, Y., and Y. Coignard. 2008).

It is clear that policy makers have now firmly ensconced the agenda to fight obesity and regulations and

legislation is only am matter time. Companies should take the initiative to reduce trans fats, saturated fats, salt

and sugar content of their products. This requires product innovation which is demanding in terms of research

cost and will ultimately need substantial investments in new processes, ingredients and machines. There is also

a need for these companies to provide detailed labelling for consumer in relation to all the ingredients in the

product. It would be beneficial for the companies to take a proactive approach and engage the government in

relation to potential legislation and labelling requirements and standards(Cooley, Hubbard, Walz. 2003) .

The other regulatory issue facing the FBT sector is the response of government to climate change by imposing

the carbon tax in Australia. This will require companies to invest in innovative technologies to offset their carbon

dioxide emissions and hence their tax obligation. Such investments would have considerable long term savings if

the carbon tax were to stay and not be removed by the alternative Liberal Government. However companies

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could potentially invest in technologies to capture methane from waste water as a source of energy which would

be unrelated to the carbon tax staying on or being removed (Dym 2009).

If the carbon tax is implemented and the Labour government is retuned after the next election then companies in

the sector would face higher costs and may need to invest in technologies to reduce emissions. The current

political instability in Australia is a source of much anxiety for businesses as they are unable to confidently plan

for the long term and Australia can be seen as substantial sovereign risk (Siciliano 2003)

The food beverage tobacco industry is quite energy intensive and will be impacted by rising energy prices, this

will result in increases in packaging cost and logistics in particular which in turn will result in higher prices on the

supermarket shelves. However this will give opportunities for price discounting to companies who invest in

emission reducing technologies to lower their production costs.

The Australian carbon tax has different impact on different industries. The Tax Rate for food, beverage and

tobacco industries is 20% higher than other sectors of the economy and this will have a direct impact on

Goodman Fielder (New York Times 2012).

Product Innovation

It is well known that customers do not spend too much time making decisions at the grocery store, in fact most

purchase decision at the self are made in only seconds and this is the challenge that producers have to over time

via differentiation of their product from their competitors. Consumers are demanding product that are healthy for

a balanced life style and producers and the FBT must respond to this ever increasing health conscious consumer

base. There has been a clear increase in unprocessed, whole-grain, vitamin fortified and soy products.

Furthermore, consumers are more socially aware and environmentally conscious, and they are willing to pay a

premium for organic, locally produced and fair trade products (Siciliano 2003).

Some companies have developed a comparative advantage by adapting their products supplying the ever

increasing demand for high quality, healthy products which are certified as organic or fair trade where there is a

clear trend. Any company that does not innovate in this filed by adapting their offerings to more sustainable and

healthy risk being at a comparative disadvantage in the FBT sector and losing their customers and revenue

source.

Another point of differentiation in this sector is innovation in packaging, this is because of easily identifiable and

marketable packaging appeal to customers. These strategies can have the added benefit of reducing storage

and transport costs (K. Reilly, 2008).

Reputation

One of the greatest risks a company in the food and beverage sector faces in the risk of a product recall, as they

receive heavy media coverage and may ultimately result in class action suits as a threat to consumer health.

Repetitive recalls may result in significant brand damage with little chance of recovery, and this would impact the

share price heavily. It is therefore imperative that companies in the sector have robust quality management

systems and be very proactive to any products health hazards or responsive to product controversies.

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Furthermore it is possible to use sustainable and safe business practices as a point of product differentiation.

Implementing these policies can enhance the reputation of a company and yield competitive market advantages.

Companies risk losing the support of their employee, consumers, suppliers, and contractors if they are named

and shames in the communities they operate in due to negative environmental and social performances. This

issue can easily jeopardise a company’s reputation, social licence to operate and significantly damage consumer

demand, their market share and ultimately their share price (Arnott, 2008).

Anatomy of Profits

Total Assets = Total Debt + Total Owner Equity (Zvi

Bodie, 2010)

We can demonstrate that assets come from two sources, either debt of equity. Furthermore, assets are

categorised into capital assets and short term assets. Long term investments are capital assets such as land or

machinery, they are never sold themselves for profit but they contribute to the profit making process. Inventory is

therefore inputs that can be sold for profit

(Mulcahy, 2009)

In the 1920s the DuPont Corporation invented and stared using a method of analysis that breaks down the

components of the profit making process and return on Equity into a complex set of equation that indicates the

causes of shifts in the ROE.

The DuPont system recognizes the equation above and beaks it down to 3 essential components:

1. Earnings (or efficiency),

2. Turnings (effective use of assets), and

3. Leverage (using debt to multiply earnings and equity) (Zvi Bodie, 2010)

This system allows a more detail analysis of where improvements need to be made in a company and from an

investor’s point of view they determine where the performance of the company is coming from, specific

measurements come from:

1. How efficiently inputs are being used to generate profits [Earnings]

2. How well capital assets are being used to generate gross revenues [Turnings]

3. How well the business is leveraging its debt capital [Leverage]

This analysis gives a string indication where the value of the company is coming from and how well management

is utilizing the company recourses. The number can be misleading and must be interpreted, although it is

valuable to measure the value of a stock whilst not taking too much risk analysis into account

(Groppelli 2006)

Further break down of the ROE gives us: ROE = net income / shareholder’s equity (Mulcahy, 2009)

More in-depth knowledge of ROE to avoid false assumptions:

Three-Step DuPont

ROE = (Net profit margin)* (Asset Turnover) * (Equity multiplier)

(Hight G. 2009)

 Operating efficiency – as measured by profit margin.

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 Asset use efficiency – as measured by total asset turnover

 Financial leverage – as measured by the equity multiplier

Asset Turnover

The amount of sales generated for every dollar’s worth of assets. It is calculated by dividing sales in dollars by

assets in dollars (Hight G. 2009).

Equity Multiplier

A measure of financial leverage, the equity multiplier is a way of examining how a company uses debt to finance

its assets (Poitras 2005)

Calculated as:

Total Assets / Total Stockholders’ Equity (Poitras

2005)

Profit Margin

This is a measure of how much out of every dollar of sales a company actually keeps in earnings. A ratio of

profitability calculated as net income divided by revenues, or net profits divided by sales.

Source for data: GFF 2011 Annual report, the three point Analysis

Since GFF had negative income for 2011 with a loss of 161m, the ROE is -12.40% and can intuitively be

interpreted as an unsatisfactory performance.

Five-Step DuPont

The five-step, or extended, DuPont equation breaks down net profit margin further. The five-step equation shows

that increases in leverage don’t always indicate an increase in ROE.

ROE = [(operating profit margin) * (asset turnover) – (interest expense rate)] * (equity multiplier) * (tax retention

rate) (Poitras 2005)

ROE = [(EBIT / sales) * (sales / assets) – (interest expense / assets)] * (assets / equity) * (1 – tax rate) (Poitras

2005)

Net Income -161300000.00 Revenue 2556200000.00

Revenue 2556200000.00

Assets 2,783,100,000.00

Profit margin -0.063101479

Asset Turnover 0.918472207

Assets 2,783,100,000.00

Total Stockholders’ Equity 1,300,300,000.00

Equity Multiplier 2.140352226 ROE -12.40483%

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In order to put this numbers in perspective analysis of Goodman fielder’s Peers need to be conducted from the

data available in their 2011 annual report:

Coca Cola Amatil Australia

5 step:

EBIT -13400000.00 Assets 2,783,100,000.00

Sales 2,556,200,000.00 Total Stockholders’ Equity 1,300,300,000.00

operating profit margin -0.005242156 Equity Multiplier 2.140352226

Revenue 2556200000.00 Tax rate 30%

Assets 2,783,100,000.00 1 – tax rate 0.7

Asset Turnover 0.918472207

interest expense 101400000

Assets 2,783,100,000.00

interest expense rate 0.036434192 ROE -6.180112%

Net Income 549300000.00

Assets 6029000000.00

Revenue 4856100000.00 Total Stockholders’ Equity 2,034,300,000.00

Profit margin 0.113115463 Equity Multiplier 2.963673008

Revenue 4856100000.00

Assets 6029000000.00

Asset Turnover 0.805456958 ROE 27.00192%

EBIT 868900000.00 Assets 6029000000.00

Sales 4856100000.00 Total Stockholders’ Equity 2,034,300,000.00

operating profit margin 0.178929594 Equity Multiplier 2.963673008

Revenue 4856100000.00 Tax rate 30%

Assets 6029000000.00 1 – tax rate 0.7

Asset Turnover 0.805456958

interest expense 118400000

Assets 6029000000.00

interest expense rate 0.019638414 ROE 25.824608%

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Australian Agricultural Company Limited

5 step:

Tassal Group Limited

5 step;

Net Income 10525.00

Assets 238,334

Revenue 549,016 Total Stockholders’ Equity 671,987

Profit margin 0.019170662 Equity Multiplier 0.354670552

Revenue 549,016

Assets 238,334

Asset Turnover 2.303557193 ROE 1.56625%

EBIT 45,748 Assets 238,334

Sales 549,016 Total Stockholders’ Equity 671,987.00

operating profit margin 0.083327262 Equity Multiplier 0.354670552

Revenue 549,016 Tax rate 30%

Assets 238,334 1 – tax rate 0.7

Asset Turnover 2.303557193

interest expense 31,067

Assets 238,334

interest expense rate 0.130350684 ROE 1.529300%

Net Income 30,280

Assets 460,543

Revenue 222,618 Total Stockholders’ Equity 275,681

Profit margin 0.136017752 Equity Multiplier 1.670564892

Revenue 222,618

Assets 460,543

Asset Turnover 0.483381573 ROE 10.98371%

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This comparison shows that Goodman’s competitors have made a positive return on equity whereas GFF has

made a negative return. The ROE was broken down to Net profit margin which indicated how much profit

company makes from its revenues, asset turn over to indicate how much the company uses its assets effectively

and equity multiplier to indicate the level of leverage in the company (Perold, A.F. 2004).

It can be said that if in a future evaluation, it is a very positive sign if the ROE increases due to increase in profit

margin and asset turn over. However if a future increase is due to an increase in the equity multiplier, then for a

company such as GFF that is already highly leveraged, it is simply a matter of making the company a much more

risky investment. This may have an impact on the share price as the stock may have to be discounted even

though ROE may have risen. Another risk factor is that if interest rate were to rise and the cost of borrowing

increase for GFF, this would appear as an increase in interest expenses on the balance sheet and would reverse

any positive effect of the leverage (Perold, A.F. 2004).

This effect can also be demonstrated in the fact that when comparison is made of peer companies and the

company that has a lower ROE is perceived much riskier by creditors and is being charged a higher interest rate.

ROE may also be lower due to poor management, higher production costs, or a decrease in net profit margin.

Either case the DuPont analysis allows us to identify the source of this low ROE and gain better knowledge about

the investment option (Perold, A.F. 2004).

International Peer analysis

Investors in Australia are quite easily able to invest their find in the international capital market or foreign equity

markets in foreign companies, therefore it is only appropriate to compare GFF to its international peers in the

food beverage and tobacco category (Cooley, Hubbard, Walz. 2003).

One appropriate method is the use of Enterprise Value EBITDA analysis, this is a method used to value a

company. This is an alternative to Price/earnings ratio to establish the fair value of a company. Below is a list of

what most investment publications consider to be peers of GFF in its sector on an international level, and the

currency $US is used for easier conversion of balance sheet data used to determine the below values from

different currencies. (Conversion rate based on foreign exchange rates on 28/04/2012) (Yahoo Finance 2012)

EBIT 47,332 Assets 460,543

Sales 222,618 Total Stockholders’ Equity 275,681

operating profit margin 0.212615332 Equity Multiplier 1.670564892

Revenue 222,618 Tax rate 30%

Assets 460,543 1 – tax rate 0.7

Asset Turnover 0.483381573

interest expense 6,752

Assets 460,543

interest expense rate 0.014660955 ROE 10.303938%

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Analysis

Goodman Fielder NPV shows an

EV/EBITDA

ratio of 6.77 for 2012 and if current trends continue 6.86 for the next

12 months. This is significantly lower than the average NPV for the food beverage and tobacco peer group which

stands at 9.29, accordingly Goodman Fielder NPV valuation is way below the market valuation of its peer groups.

The average NPV value for the food beverage and tobacco sector is 9.66, and once again GFF is significantly

underperforming in comparison to the market valuation for its sector (Siciliano 2003).

Capital Asset Pricing Model – CAPM

The relationship between risk and return is used in this model to price risky securities. The relationship is

described as:

(Phillips 2009)

CAPM is based on the assumption that if an individual invests their funds they expect to be compensated for the

time value of money and the level of risk their fund will be exposed to. The risk is measured by the amount of

compensation that the investor expects for taking on the risk, naturally the more risk involved the more

compensation will be expected. The measure of risk is Beta, this shows the relationship between the return on an

asset and the risk that is involved with the market as a whole. According to the model the rate that the investor

expects is the risk free rate of interest plus a premium for the additional level of risk that the investor is exposed

to. (Phillips 2009)

Enterprise Value

(in thousands USD) 2012 next 12 mth

Goodman Fielder NPV 2 286 509 6.77 6.86

Kerry Group 9 662 005 10.98 10.68

Almarai Co 8 643 204 13.11 12.34

Grupo Bimbo SAB de CV 14 770 958 10.71 10.26

Maple Leaf Foods 2 825 646 6.28 6.08

Canada Bread Co Ltd 1 172 324 6.48 6.2

Parmalat S.P.A 2 110 947 4.12 4.06

Goodman Fielder NPV Peer group

EV/EBITDA

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The risk free rate of interest is a theoretical rate and assumes the return for an investment that carries virtually

no risk whatsoever. One way to look at it is the rate that returns that one would receive for an absolute risk free

investment over a period of time with virtually no possibility of a loss occurring (Phillips 2009)

This report assumes the risk free rate of interest to be the: The 10-year government bond rate

There are several reasons for this assumption;

1. This is a valid and decent guide for the future movements in short term rates

2. This is typically viewed as an investor’s opportunity cost.

3. Essentially this is lending money to the government

4. The 10 year bond is often referred to and accepted by most financial institutions as the risk free rate of

interest

5. The 10 year bond rate has a “gravitational pull” on the share market

6. the higher the bond rate, the less a potential investor will be inclined to pay for shares

7. Hypothetical investor will demand a higher return from the share market to lure them away from the

safety of government bonds. (Groppelli 2006)

Bond prices and yields 27 April 2012

(Yahoo Finance

2012)

This makes the risk free rate of interest to be used in this model the yield of a 10 year Australian Government

bond of 3.65% as at 27/04/2012.

Australian Government Bonds COUPON MATURITY PRICE/YIELD TIME

10-Year 5.75 07/15/2022 117.73 / 3.65 Apr-27

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Beta

Beta is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a

whole.

Most financial analysts estimate Betas via regression analysis on the return of a stock against a stock index with

the slope of the regression referred to as the Beta of the asset. In this report the return on GFF is regressed

against the ASX 200 index. Assuming that we know the risk free rate of interest being the 10 year government

bond, the model only requires two inputs. The first input is the Bata of GFF and the second being the appropriate

premium for the factor in the model (Withers 2010)

Choice of a Time Period:

There is no theoretical justification to choose how long a time period in an analysis needs to be in relation to risk

and return relationship. Financial service providers use periods ranging from 2 to 5 years in estimating models. In

choosing the time period there are certain trade-offs

(Withers 2010)

The more we go back in time we have the advantage that we are exposed to more observation, the further back

we go the more observations we get. This however is offset by the further back in time we go the more the firm

would have changed and events of significance would have occurred. This could be a change in business

structure, mix of leverage, debt and equity ratios and similar other changes could have occurred in that period

which may have impacted the data. The objective of calculating the beta is not to estimate the best Beta for the

past but it is to achieve the possible beta that is reflective of the future and forward looking. So if a firm seems to

have stayed the same in terms of business composition and level of debt or leverage over time that we should be

able to go back much further in time. However we would use shorter estimation periods in the case of firms that

have restructured, changed their business composition of financial leverage over the years. In the case of GFF the

period of 6 years seems appropriate (Withers 2010)

Choice of a Return Interval

Another choice that needs to be made in the calculation for the beta is the return interval. The historical return

can be measured daily, weekly, monthly or annually. The shorter the interval the more the number of

observations will be for any given period. This also has a secondary impact, since assets do not trade in

continuous bases, when there is a non-trading period for an asset, the Beta is affected. The weekly data seems

to be the right fit for GFF’s analysis (Withers 2010).

Therefore we have;

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1

This indicates a beta of 0.568885094 for GFF.

Adjusted Beta

We adjust beta towards 1. The justification can be traced to numerous studies that indicate, overtime, the Beta of

all companies move toward one. This should come as no surprise to people familiar with finance, since; Firms

that survive in the market place tend to increase in size overtime, and as they get bigger they become more

diversified, gain more assets and produce larger cash flows. Therefore as they become more diversified, they

more they represent the entire market and push beta towards one. This makes intuitive sense (Withers 2010)

The efficient market theory is the cause of adjusted Beta. This theory states that as all information become

known to the market, it settle the market to its proper level as everyone has the same information and makes the

correct investment decisions. This implies that if the return and price of a stock is out of line, then the market will

rise of fall to bring it into line with the market, and hence the justification for the use of:

(Withers 2010)

The adjusted beta for GFF is: 0.711153013

Expected return of market

One way to estimate the expected return of the market is to: “Assume that expected return on the market

portfolio is related to a Macroeconomic variable, e.g., GDP. Then use the expected changes in the

macroeconomic variable, with appropriate probabilities to estimate expected return on the market portfolio”

(Reilly, 2002)

However this is not a realistic assumption since there are several other factors other than only macroeconomic

factors that impact the return of the market which require a very complex modelling (Reilly, 2002). Furthermore,

the “appropriate probabilities” of the macroeconomic variables would have little to no value, since there are no

bases to assign a probability weight to a rise of fall of the GDP. I am unable to accept an assumption of some

level of probability that market may rise or fall with limited information or computing power (Hight G. 2009). This

SUMMARY OUTPUT

Regression Statistics

Multiple R 0.306988732

R Square 0.094242082

Adjusted R Square 0.091429169

Standard Error 0.048263129

Observations 324

ANOVA

df SS MS F Significance F

Regression 1 0.078040411 0.078040411 33.50337849 1.68833E-08

Residual 322 0.750044126 0.00232933

Total 323 0.828084537

Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%

Intercept -0.001160366 0.002682631 -0.432547811 0.665632858 -0.006438063 0.004117331 -0.006438063 0.004117331

X Variable 1 0.568885094 0.098283418 5.788210301 1.68833E-08 0.375526367 0.762243821 0.375526367 0.762243821

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model would have no real life credibility, therefore I am basing my “expected return of the market” on the below

assumption:

(Hight G. 2009)
(Hight G. 2009)

Historical data enable us to look at a large number of observations, this also enables us to look at the market as a

whole in a chosen time horizon. We can give equal weight to each observation in shaping our expectation and

this can be done easily by conducting an arithmetic average (Hight G. 2009).

Kester (2009) surveyed the CEO and CFO of capital budgeting and financial services practices in Australia, and

several Asian countries in the region. The questions were directed at companies listed on the ASX in December

31, 2008. A total of 281 companies were invited to participate in the process and the survey did reveal that

according to 73% of respondents who used the CAPM model the average historical market return, the observed

market rate of return, is to be approximately 10.7% over the period 1958 to 2007. For this purpose 16 percent of

the surveyed reported 11.4% market return. A long term average of historical market return seems to be the best

source of a forward looking market return, and obviously the further back we look the more observation there are

and the better the result would be. There is data is recorded from 1883 and it is even more detailed as we get

closed to the present. A recent paper (Brailsford et al 2008) conducted a research into this available data and

concluded that, the historical market return over this period (1883 – 1957) was 10.1. KPMG (2005) also

conducted a similar survey and a market return of 10% has been widely used by companies, regulators and

financial institutions is Australia (Phillips 2009).

It is therefore my conclusion that the return on market equity that is expected to prevail over the regulatory period

2010 to 2014 is in the range 8% to 16% with this paper’s point estimate being a conservative 10% . (New York

Times 2012)

CAPM:

Required rate of return for an investor to invest in GFF is

8.1658%

Rf Beta Rm Rf

0.0365 0.711153013 0.1 0.0365

RE 0.081658216

8.1658%

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3

Dividend Discount Model – DDM

Investors buy stock that they pay what reflects the value of the stock. What investors pay for is the future cash

flows in form of dividends, therefore the value of a share is the present value of all the future cash flows it is

expected to produce. Shares never mature, so the current value is the present value of an infinite number of cash

flow to be paid

(Cheng, Roulac 2007).

The theory behind the dividend discount model is the time value of money, the price of a share is determined

based on the discounted value of the future cash flows. This is referred to as the intrinsic value of the share and

it is the value of the stock that is based on all available information. (Cheng, Roulac 2007).

The dividend growth rate needs to be determined for this model to work. Growth rate can be defined as the

amount of increase that a specific or particular variable has acquire or gained within a specified period of time

(Cheng, Roulac 2007).

It is appropriate to calculate the dividend growth rate for the exact same period that was used to calculate the

rest of the variables used in the dividend discount model (Cheng, Roulac 2007).. Therefore:

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4

According to the data available in relation to the dividend paid by GFF over the period we are interested in we can

estimated that the Growth rate for the dividend is -0.03224026

Hence using the entire estimated variables:

(Cheng, Roulac 2007).

According to this report assumptions and calculation the price of one share of Goodman Fielder via the dividend

discount model should be: $0.489578995

Ex Date Amount

22-Sep-11 0.025

3-Mar-11 0.0525 -0.523809524

29-Sep-10 0.055 -0.045454545

3-Mar-10 0.0525 0.047619048

30-Sep-09 0.06 -0.125

3-Mar-09 0.045 0.333333333

22-Sep-08 0.075 -0.4

3-Mar-08 0.06 0.25

24-Sep-07 0.075 -0.2

2-Mar-07 0.06 0.25

25-Sep-06 0.055 0.090909091

Growth rate -0.03224026

D1 0.024193994

R-g 0.049417957

P0 0.489578995

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Sensitivity report

In order to determine how sensitive a model is to changes in the value of its parameters a sensitivity analysis

must be conducted. This will build confidence in the model and gives perceptive to the potential uncertainties in

the model. A very simple sensitivity analysis is to vary two variables in a matrix to determine the impact of these

changes on the output of the model.

Analysing the potential for increase and decreases in the future dividend pay outs and the changes that may

bring about in the dividend growth rate gives us the above matrix. This enables us to take into account future

movements of the stock against changes in these parameters. Obviously this model won’t be of any value if no

dividend is paid (Arnott, 2008).

Beta 3.3500% 4.3500% 5.3500% 6.3500% 7.3500% 8.3500% 9.3500% 10.0000%

0.311 4.6919% 5.0029% 5.3139% 5.6249% 5.9359% 6.2469% 6.5579% 6.7600%

0.411 5.0269% 5.4379% 5.8489% 6.2599% 6.6709% 7.0819% 7.4929% 7.7600%

0.511 5.3619% 5.8729% 6.3839% 6.8949% 7.4059% 7.9169% 8.4279% 8.7600%

0.611 5.6969% 6.3079% 6.9189% 7.5299% 8.1409% 8.7519% 9.3629% 9.7600%

0.711153013 6.0324% 6.7435% 7.4547% 8.1658% 8.8770% 9.5881% 10.2993% 10.7615%

0.811 6.3669% 7.1779% 7.9889% 8.7999% 9.6109% 10.4219% 11.2329% 11.7600%

0.911 6.7019% 7.6129% 8.5239% 9.4349% 10.3459% 11.2569% 12.1679% 12.7600%

1 7.0000% 8.0000% 9.0000% 10.0000% 11.0000% 12.0000% 13.0000% 13.6500%

Market risk premium

Growth Rate 0 0.005 0.015 0.025 0.035 0.045 0.055 0.065

-0.07 0 0.3988603 1.196581 1.994301643 2.7920223 3.58974296 4.38746362 5.18518427

-0.06 0 0.2170077 0.6510231 1.085038566 1.51905399 1.95306942 2.38708485 2.82110027

-0.05 0 0.15004 0.4501201 0.750200193 1.05028027 1.35036035 1.65044042 1.9505205

-0.04 0 0.1152234 0.3456701 0.576116841 0.80656358 1.03701031 1.26745705 1.49790379

-0.03224026 0 0.0979158 0.2937474 0.489578995 0.68541059 0.88124219 1.07707379 1.27290539

-0.02 0 0.0794703 0.238411 0.397351747 0.55629245 0.71523315 0.87417384 1.03311454

-0.01 0 0.0690779 0.2072337 0.345389563 0.48354539 0.62170121 0.75985704 0.89801286

0 0 0.0612308 0.1836925 0.306154128 0.42861578 0.55107743 0.67353908 0.79600073

0.01 0 0.0704734 0.2114203 0.35236713 0.49331398 0.63426083 0.77520769 0.91615454

0.02 0 0.082714 0.2481421 0.413570186 0.57899826 0.74442633 0.90985441 1.07528248

0.03 0 0.0996937 0.2990812 0.498468624 0.69785607 0.89724352 1.09663097 1.29601842

0.04 0 0.1248253 0.3744759 0.624126578 0.87377721 1.12342784 1.37307847 1.6227291

0.05 0 0.1658337 0.4975012 0.829168634 1.16083609 1.49250354 1.824171 2.15583845

Dividend Pay out

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Free Cash Flow to Equity Model (FCFE Model)

The dividend discount model is that shareholders will receive

cash flow in form of dividends. The definition of is the cash flow

that is left over after all debt payments are paid, capital

expenditure and working capital needs and all financial

obligations are met by the firm (Zvi Bodie, 2010).

In order to come up with a number in relation to how much of the

cash flow can be returned to shareholders in form of dividends,

the process begins with net income (the accounting measure of

the stockholders earnings during the period) subtracting it from

the reinvestment needs and converting it to a cash flow (Zvi

Bodie, 2010)

The effects of changes in the level of debt of the firm must also

be taken into consideration. Repayment of existing debts are a cash outflow, however this may be finance in part

of wholly by issue of new debt which is a cash inflow. Therefore the analysis must look at the net repayment of

old debt and new debt to provide a measure of changes in the level of debt (Mulcahy, 2009).

The FCFE model can be defined as:

(Mulcahy, 2009)

Since debt repayments are financed with new debt issue to keep the debt ration fixed or sometimes this may be

used to manipulate a firm’s debt ratio, the net debt repayment is eliminated. If the target or optimal debt ratio of

the firm is used to forecast the free cash flow to equity we assume that a proportion of net capital expenditure

and working capital are usually financed with debt and in the case of GFF and its high level of debt, it is safe to

make this assumption. In analysing past periods, we can use the firm’s average debt ratio over the period.

(Mulcahy, 2009)

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7

(Mulcahy, 2009)

We assume that net earnings are represented by Net Profit After Tax (NPAT), Capital Expenditure and

Depreciation figures are taken from Goodman fielder’s annual reports as is, Debt Ratio is calculated as Debt/

Debt + Equity, Working Capital is calculated as Current Assets less Current Liabilities (Mulcahy, 2009).

Estimating the FCFE Growth Rate

Based on the factors discussed earlier in the report in relation to the future earning of GFF, it is predicted that;

CURRENT PHASE 2012: Negative growth rate of (30%) Current Phase

Negative effects of GFC, economic downturn and business restructure, the Greek crisis could unfold the entire

economy and even with the recent interest rate cut the non-mining sectors of the Australian economy do not

seem to be performing too well and there is no indication that the conditions will improve in any way for the

remainder of the year, combined with where GFF is sitting currently, the conservative -30% growth rate seems

appropriate.

2013 growth phase / growth rate of -10%

The consensus seems to be that current economic environment is likely to continue on to 2013 with no indication

that a significant growth phase is to be expected for 2013. Demand will remain the same, but GFF’s restructuring

NPAT -166.7

Capital Expenditure 103.6

Depreciation 67.6

(Cap Ex – Depreciation) 36

Debt Ratio 30.80%

(Cap Ex – Depreciation)*(1- Debt Ratio) 1 24.912

Change in Working Capital 80.4

Debt Ratio 30.80%

(Change in Working Capital)*(1 – Debt Ratio)2 55.6368

NPAT less (1) less (2) -247.2488

Number of shares on issue (Actual) 1955559207

FCFE per share in 2011 (cents per share) -12.643381

Year ended 30th June 2011, A$ in ‘millions

2011 2010 2009 2008 2007 2006

NPAT -166.7 161.1 175.7 27.7 239.8 383.2

Capital Expenditure 103.6 102.2 96.6 68.1 50.9 43.8

Depreciation 67.6 60.4 54.6 46.2 48.3 35.2

Debt Ratio 30.80% 26.70% 28.90% 29.90% 27.10% 24.30%

Change in Working Capital 80.4 -563.2 239.8 35.3 220.2 156.7

FCFE -247.2488 543.2862 -24.6598 -12.3972 77.3788 258.0679

Number of shares on issue (Actual) 1955559207 1371900000 1332500000 1325000000 1325000000 1325000000

FCFE (cents per share) -12.64338094 39.6010059 -1.850641651 -0.935637736 5.839909434 19.47682264

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and efficiency policies would be yielding results by the second quarter of 2013 and may reverse or slow down the

negative growth phase for the company.

PHASE 2- 2014 – 2016 Growth rate 120% – 45%

Operations, global economic recovery, increasing demand for food and beverage, the regulatory environments

with such issues as the carbon tax and its impact will have been settle by 2014. The global economy will be in

recovery and with low ineptest rates it is conceivable that GFF would recover and enter a growth phase. This

should spike growth to 120% in 2014 and settle at 45% for 2015 and 2016.

2017 – 2020 30%

It is likely that in the long term GFF would enter a stable growth rate of 30% with maturity of the restructure

programs currently being implemented and the assumption that food and beverage consumption will increase

with population growth and remains somewhat constant with the obvious seasonality’s.

My assumptions state that FCFE is likely to decrease over the next couple of years and return to positive growth

and recovery in the 5 to 10 year term.

Both half year and full year preliminary results for FY 2010-11 demonstrate that no positive growth can be

expected during this period. The growth rate for 2011-14 is explained by the lagging and slow global economic

recovery and full recovery from business restructure as well as by technical component of this value (i.e. large %

difference between negative and positive values). Relatively high growth rate for 2014 – 15 may be influenced

both positively and negatively by the strength of industry demand, pace of new joint venture development, rate of

growth for new products sales and improvement of Goodman fielder’s cost structure and efficiency. Replication

of production process, production optimisation and access to new products should help GFF to maintain stable

growth rate in phase 3 when the general outlook for the industry and the entire economy is positive (Phillips

2009).

Net present value of $1.8031

Actual Phase 1 Phase 2 Phase 3

Year end 30 June 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

FCFE growth rate -30% -10% 120% 45% 45% 30% 30% 30% 30%

FCFE (cents per share) -12.64338094 -16.4364 -18.08 3.616007 5.24321 7.602655 9.883451 12.84849 16.70303 21.71394

Annuity 4.33412

Time Period 0 1 2 3 4 5 6 7 8 9

Discounted FCFE (cents per share) -12.64338094 -15.1964 -15.4549 2.857783 3.831162 5.136081 6.173174 7.419681 8.917885 10.71861

Discounted Annuity 1.759737

NPV 1.8031$

Phase 5Phase 4

2
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Sensitivity Analysis

This model shows the inverse relationship between GFF’s value based on the beta and the market risk premium

and how that impacts the outcome of the FCFE model. As the market risk premium or GFF beta increases the

intrinsic value of GFF share value decrease and vice-versa. This is also consistent with the sensitivity of dividend

discount model computed earlier in this report (Phillips 2009).

Price earnings Ratio Analysis

The earning multiplier can be computed as follows:

(Peris 2011)

Beta 3.3500% 4.3500% 5.3500% 6.3500% 7.3500% 8.3500% 9.3500% 10.0000%

0.311 2.193078 2.143078 2.093078 2.043078 1.973078 1.903078 1.833078 1.763078

0.411 2.113078 2.063078 2.013078 1.983078 1.913078 1.843078 1.773078 1.703078

0.511 2.033078 1.983078 1.933078 1.923078 1.853078 1.783078 1.713078 1.643078

0.611 1.953078 1.903078 1.853078 1.863078 1.793078 1.723078 1.653078 1.583078

0.711153 1.873078 1.823078 1.773078 1.803078 1.733078 1.663078 1.593078 1.523078

0.811 1.793078 1.743078 1.693078 1.723078 1.673078 1.603078 1.533078 1.463078

0.911 1.713078 1.663078 1.613078 1.643078 1.613078 1.543078 1.473078 1.403078

1 1.633078 1.583078 1.533078 1.563078 1.553078 1.483078 1.413078 1.343078

Market risk premium

Forecase 2012 2011

Current market price $0.64

Dividend/EPS Growth rate -0.03224026

Earnings per share 0.76 0.81

Estimated P/E ratio 8.25 9.61

Date % Dividend PE EPS

Actual 8.24 0.11 11.1 0.12

2009 6.44 0.1 12.6 0.13

2008 10.15 0.13 61.6 0.02

2007 7.12 0.14 10.4 0.18

2006 2.48 0.06 20.2 0.11

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Referring back to our earnings forecasts I make note to a number of factors that will affect future EPS. Some, of

these factors include the economic outlook for the coming years, with GDP in Australia, a potential for a global

slowdown. It is also anticipated that new projects in 2011-2012 will increase efficiency at Goodman fielder. On

the basis of such factors, I propose NPAT for 2011-12 will be around -0.3773% growth and the number of shares

on issue will be approximately the same since it has not significantly changed over the past 5 years, the resulting

EPS value is $0.89, or 89c per share (Peris 2011). That gives us:

The only way to make sense of the PE ratio for good man fielder is to forecast it into the future and compare it to

GFF’s peers:

Sensitivity Analysis

0.89 9.61

Value 0.0855$

P/E (%)

Company Mkt Cap 2011 A 2012 F 2013 F 2011 A 2012 F 2013 F

Australian Agricultural Co (AAC) $379 M — — — 30.0995 — —

Goodman Fielder (GFF) $1,252 M -0.1602 -0.3773 0.2049 8.25 11.2084 9.3023

Tassal Group (TGR) $213 M -0.0152 -0.2261 0.1404 7.029 9.0824 7.9639

EPS Growth (%)

Earnings P/E Ratio

GFF 0.961

Market 0.86

Sector 0.82

Growth Rate -2.03224 -1.03224 -0.03224 0.96776 1.96776 2.96776

PE ratio 5.61 7.61 9.61 11.61 13.61 15.61

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1

Price/Book Value Ratio

(Groppelli 2006)
(Groppelli 2006)

2011 2010 2009 2008 2007 2006

Share price 0.64 1.25 1.1 1.3 2.25 2.4

Book Value 988730735 1423346250 1377805000 1987489400 4242736125 2176964400

Weighted average number of shares 1955559207 1371900000 1332500000 1325000000 1325000000 1325000000

Book value per share 0.5056 1.0375 1.034 1.499992 3.202065 1.642992

P/BV 0.79 0.83 0.94 1.15384 1.42314 0.68458

P/B Ratio

GFF 0.73

Market 1.38

Sector 0.84

Market Comparison

the price of stock in period t 0.64

The end of year book value per share for the firm. 988730735

Return on equity –12.8%

dividends paid per share 0.025

growth rate -0.0322403

required rate of return 0.08165822

P/BV 0.6312

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Discussion

Dividend Discount Model (DDM)

The DDM is based on the theory that the fair value of the firm at the present time is equal to all future expected

dividends. My results for the DDM calculation value Goodman Fielder stock at $0.48, and the current market

price is $0.67. This obviously could mean that the stock is overvalued by the market or that the assumptions and

calculation of this report have undervalued the stock by almost 39%. It must be taken into consideration that

there are many assumption made in order to come up with this calculation, and although I have made every effort

to conduct substantial research prior to the report to support these assumptions, they are at an undergraduate

level and in comparison with professional analyst, the beta, the ROE, required rate of return or the dividend

payout ratio could have been misjudged (Siciliano 2003).

One of the reasons for the inconsistency between the reports result and the market result may be the

determination of the dividend payout ratio. Since GFF’s dividends are not set and do not grow at a stable rate

with no defined patters other than each year’s company results and what is available to the company to pay out

as dividends. The best possible measure was taken to estimate the dividend payout and as it is detailed in the

DDM model section of the report, it was based on historical data from Goodman fielder and it is reasonability

close to market predictions. There is also the possibility that the forward earnings estimates are too pessimistic

in relation to the economic outlook, and the impact of the carbon tax on the food beverage sector. My analysis in

terms of the economic outlook is rather bleak as I am of the opinion that the Greek crisis could inflame Europe

and if that happens, the Australian economy will almost definitely suffer even if it is via secondary impact that

crisis will have on china. If china slows down the Australia slows down and if Australia slows down, Goodman

fielder will almost defiantly have another year of negative returns. But it may be the case that I have

overestimated this possibility and market analyst don’t quite see things that way and that’s why the market price

for GFF is much higher than my estimation via the DDM model. However, I am still of the belief that if Greece

leaves the EU, the Australian share market as a whole will incur significant losses (Withers 2010).

Other issues impacting the discrepancy of the market price and modelling price in this report could be the

required rate of return used in this calculation. As it has been shown in numerous academic papers, there is no

set period for calculation of the Beta of a stock and a different timeline would have given an analysis a different

beta and therefore a different required rate of return. The most important factor would be the market return

chosen for this model. The rate of return for the market that professional use are calculated based on a huge

amount of information and computer modelling, and that rate would be much more accurate. A different rate for

the return of the market would give us a different required rate of return for the investment and that would give a

different outcome when used in the DDM model (K. Reilly, 2008).

The DDM is a powerful tool for estimating; however the proper application of growth dividend needs a full

understanding of the fundamentals that impact the input. The ease of the calculations may make this model

appealing but the relationships are very sensitive and any misjudgement of the fundamentals would yield very

different results, and this paper is a good example of that.

The main point of difficulty with the model is the 3 main assumptions that need to be made initially: the rate of

return calculation, the time horizons assumptions, and risk adjustment procedures used. These calculations are

3
3

very complex and the simplicity of what is used or was available to be used for this report is ultimately the source

the discrepancy of the outcome and the actual market price (K. Reilly, 2008).

Even in a professional firm the most significant problem with the model is the inconsistency of assumption.

Free Cash Flow to Equity Model

The free cash flow to equity (FCFE) model determines the free cash flow available to shareholders after payments

to all other capital suppliers, and after providing for reinvestment of earnings required for continued growth of the

company. So this model is essentially about how much is left over in terms of “cash” after all obligations are

fulfilled. Just like the dividend payout, the cash flow or the “free cash” flow” at Goodman is erratic and at best

inconsistent. This is often due to high volatility in earning, changes in working capital the massive change in the

level of debt in the company especially in the recent years. The 2011 level of debt was over $900M. I predicted

that growth in the earning and hence any free cash would be in different stages and assigned each phase a value

via the best available information. With these modelling assumptions the NPA turned out to be $1.8031 per share

which is 3 times greater than the market value. The model is very sensitive to the growth rates used and it is

almost definitely severely impacted by the assumptions I made for the growth phases. These assumptions are

very much open to interpretation and I would imagine an analyst with professional experience would make very

different assumptions, however I have provided significant back ground information in the report for the

fundamentals of the economic outlook and justified what each choice was base on. The other very sensitive input

in the model is the cost of equity used. The issue that needs to be taken into consideration is that management

decisions and particularly future management decision will have significant impact on the cash flow of the

company and even a small deviation from the assumption made would yield very different results as

demonstrated in the sensitivity analysis conducted for this model. So, if the predictions turn out to be correct

about the future growth of the free cash then the stock is quite undervalued by the assumption turn out to be too

optimistic then the model may be way off point and nowhere close to market expectations (Reilly, 2002).

Another point to be made is one that I made earlier about the sensitivity of these models to time horizons

assumptions, in my modelling I have looked at the company potentially up to 2020 whereas that may be too long

of an investment term for short terms investors and that’s why the market price is so different from the modelling

outcome. So an investor who is interested in a long term investment may accept my assumptions and that would

make the stock undervalued for a time horizon of 2020 where as another investor with a 2 year horizon would

completely dismiss the model as it would not be relevant to them. That is why the most significant source of

discrepancy is the period one uses for forecasting (Hight G. 2009).

There is a certain constraint that is inherent in the DDM model that is not present in the FCFE model, because the

FCFE model relaxes the constraint on measuring cash flow. We have to estimate net capital expenditure and non-

cash working capital each year to get the cash flow, this may seem simple but as an analyst one must show how

much of the cash that the firm will raise will come from issuing new debt and how much of that is repayment of

old debt. This is extremely complicated for a firm that changes its ratios or is expected to change its ratios, which

is the clear case for Goodman Fielder and its substantial debts (Jones, C. 1998).

3
4

Price Earnings Ratio Model

PE ratio always has to be compared to something for it to have any meaning, whether it is compared to the

company’s historical PE ratios, or peer, industry, castor or market ratio, without comparison the ratio is

meaningless.

Unlike cash flow or dividends, a company’s earnings can be manipulated. This means that PE ratio can be

distorted, depending on how much a company chooses to account for any particular item. Varying accounting

standards can also be a factor in the data that is put into this model. Buffett argues “f using earnings as a single

indicator of a company’s profitability is risky then using P/E as an indicator for valuation is perilous without taking

other metrics into consideration.” (Poitras 2005)

A low PE ratio could be an indication that bad news is on its way about a stock and a very attractively priced

stock could go sour fast, or a high PE ratio could mean that there is future earning potential for the company and

the market has valued the company accordingly, however then there is the risk that a slip up by the company

could destroy market confidence and an investor would suffer significantly in the event of a price decrease

(Poitras 2005).

The most significant issue that I see with this model is that it focuses on price and market capitalisation, which

means that PE ratio ignores the impact of Debt. This could be a good enough reason to render this model inferior

to any model that takes cash flow into account. This point is well demonstrated with a company like Goodman

Fielder that is highly leveraged but if I was an analyst and only took PE ratio into consideration then I would be

ignoring the huge pile of debt that GFF has accumulated that impact that will have on the future of the company

(Arnott, 2008).

The PE ratio offers a straight forward value and that why is so popular and used so widely specially on the

internet stock buying strategy websites, It does not however account for growth and PE ratio by itself has very

limited meaning. This is also why this section of the report took up a substantial amount of my time where I had

to calculate PE rations historically as well as PE ratios for GFF’s peer, sector and market in order to give some

perceptive and meaning to it (Cheng, Roulac 2007).

Other issues to take into consideration may be that one off accounting entries can impact the ratio significantly,

Earnings by nature is a historic input and is derived from previous years data, therefore it cannot be always relied

upon as an indicator of future earnings potential. Growing companies would have higher PE rations and there are

quite a lot of new and growing companies in the food beverage and tobacco industry and this makes comparison

more difficult (Cheng, Roulac 2007).

In the end using PE ratio as the only measure seems like a short cut and you wouldn’t see somebody like Warren

buffet using it, therefore you should only use it in conjunction with other forms of analysis (New York Times

2012).

Price book value ratio

Book value is more stable than PE ratio or EPS, and it can be useful to value companies that are expected to go

out of business. One of the main disadvantages of this model is that it does not take into account intangible

assets such as brand names. There are several big brand names owned by Goodman Fielder and even its peers

3
5

own big names like “coca cola” but these huge assets are not taken into account as part of the valuation. The

P/BV ration can be misleading if there are substantial differences between asset intensity and production

methods of the firms being compared. As mentioned previously, differences in accounting method and standards

also have an impact on the value of the model and make comparison difficult (Dym 2009)

The most issue with this model is that it does not take into account technological advances and inflation into

account, that actual value of assets may be very different to the book value and the analyst would end up with a

ratio that does not reflect the actual position of the company (Dym 2009).

Final point

There is an inherent limitation to the models above, all of these can be applied only to companies with positive

dividends (k-g), If a company pay small dividends or no dividends at all, then the model cannot be used. Also if a

company has high ROE but pays small dividend or no dividend, the g will be greater than k or (k-g)<0. (Cooley,

Hubbard, Walz. 2003) The model is not usable in this situation either, which means that these models are not

very useful in terms of highly profitable or non-profitable companies and it makes it difficult to make comparisons

for the purpose of choosing one investment over another (Cheng, Roulac 2007).

The input and parameter used in this report are fundamental factors in nature, they cannot be used to explain the

day to day temporary fluctuations of a stock in the share market. These fluctuations need to be removed in order

to make sense of the model and this can be done by taking averages over “long term” windows.

This goes back to the point I have tried to make earlier in the discussion about what is a “long term window” or

what is the “time Horizon” used in the analysis. It can be said that the longer the period the better the better the

results will be (Roll, R. 1977).

So in conclusion and relying on this very important point, I would say that the preferred model of analysis would

be a combination of MDD and FCFE models. With the most important factor to take into consideration being the

time horizon taken into account for the analysis of input parameters and the timeline the investor intends to hold

the investment.

3
6

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4
1

Appendix

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.306988732
R Square 0.094242082
Adjusted R Square 0.091429169
Standard Error 0.048263129
Observations 324
ANOVA
df SS MS F Significance F
Regression 1 0.078040411 0.078040411 33.50337849 1.68833E-08
Residual 322 0.750044126 0.00232933
Total 323 0.828084537
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -0.001160366 0.002682631 -0.432547811 0.665632858 -0.006438063 0.004117331 -0.006438063 0.004117331

X Variable 1 0.568885094 0.098283418 5.788210301 1.68833E-08 0.375526367 0.762243821 0.375526367 0.762243821

Adjusted 0.711153013

Rf Beta Rm Rf

0.0365 0.711153013 0.1 0.0365 0.0635

0.045158216

RE 0.081658216
8.1658%

4
2

Ex Date Amount
22-Sep-11 0.025
3-Mar-11 0.0525 -0.523809524
29-Sep-10 0.055 -0.045454545
3-Mar-10 0.0525 0.047619048
30-Sep-09 0.06 -0.125
3-Mar-09 0.045 0.333333333
22-Sep-08 0.075 -0.4
3-Mar-08 0.06 0.25
24-Sep-07 0.075 -0.2
2-Mar-07 0.06 0.25
25-Sep-06 0.055 0.090909091
Growth rate -0.03224026

-0.000806006

0.081658216 0.96775974

D1 0.024193994
R-g 0.049417957
P0 0.489578995

4
3

Start 23/12/2005

End 9/03/2012

Frequency W

NameGOODMAN FIELDER – TOT RETURN IND (~A$)

Code A:GFFX(RI)~A$

CURRENCY A$ S&P/ASX 200 – TOT RETURN IND (~A$)Stock Return ASX return

23/12/2005 102.45 27734.1

30/12/2005 102.45 27943.1 0 0.007535849

6/01/2006 102.45 28105.56 0 0.005813958

13/01/2006 103.43 28373.86 0.009565642 0.009546154

20/01/2006 99.02 28477.69 -0.042637533 0.003659354

27/01/2006 108.33 28858.07 0.09402141 0.013357123

3/02/2006 113.24 28649.79 0.045324472 -0.007217392

10/02/2006 111.76 28608.82 -0.013069587 -0.001430028

17/02/2006 112.75 28189.11 0.008858268 -0.014670651

24/02/2006 113.73 28868.04 0.008691796 0.024084833

3/03/2006 113.73 28994.53 0 0.004381662

10/03/2006 109.8 28980.02 -0.034555526 -0.000500439

17/03/2006 110.29 29480.18 0.004462659 0.017258787

24/03/2006 106.37 29891.48 -0.03554266 0.013951747

31/03/2006 106.86 30466.57 0.004606562 0.019239261

7/04/2006 106.86 31081.91 0 0.020197219

14/04/2006 106.37 30751.03 -0.004585439 -0.01064542

21/04/2006 106.37 31194.44 0 0.014419354

28/04/2006 108.82 31246.03 0.02303281 0.00165382

5/05/2006 106.37 31226.31 -0.022514244 -0.00063112

12/05/2006 107.84 31671.24 0.013819686 0.014248562

19/05/2006 104.41 30350.41 -0.03180638 -0.041704398

26/05/2006 100.98 30081.69 -0.032851259 -0.008853917

2/06/2006 101.47 30300.79 0.004852446 0.0072835

9/06/2006 98.53 29664.48 -0.028974081 -0.020999783

16/06/2006 100.98 29694.99 0.024865523 0.001028503

23/06/2006 100 29670.88 -0.009704892 -0.000811921

30/06/2006 104.9 30405.08 0.049 0.0247448

7/07/2006 103.43 30773.1 -0.014013346 0.012103898

14/07/2006 103.43 29762.46 0 -0.03284167

21/07/2006 100.98 29729.73 -0.023687518 -0.001099707

28/07/2006 99.02 29715.57 -0.019409784 -0.000476291

4/08/2006 97.79 29702.29 -0.012421733 -0.000446904

4
4

11/08/2006 94.12 29697.99 -0.0375294 -0.00014477

18/08/2006 95.83 30374.2 0.018168296 0.022769554

25/08/2006 101.47 30268.01 0.058854221 -0.003496059

1/09/2006 103.92 30778.02 0.024145068 0.016849803

8/09/2006 109.31 30868.65 0.051866821 0.002944634

15/09/2006 108.82 30503.5 -0.004482664 -0.011829154

22/09/2006 104.41 30207.55 -0.040525639 -0.009702165

29/09/2006 105.88 31288.22 0.014079111 0.035774831

6/10/2006 107.35 31697.75 0.013883642 0.013088952

13/10/2006 99.53 32118.64 -0.072845831 0.01327823

20/10/2006 102.04 32416.46 0.025218527 0.009272497

27/10/2006 102.09 32561.11 0.000490004 0.004462239

3/11/2006 102.14 33008.72 0.000489764 0.013746767

10/11/2006 102.68 33121.99 0.005286861 0.003431517

17/11/2006 102.73 33056.65 0.00048695 -0.001972708

24/11/2006 101.31 33287.83 -0.013822642 0.006993449

1/12/2006 106.28 33144.61 0.049057349 -0.004302473

8/12/2006 103.88 33133.55 -0.022581859 -0.000333689

15/12/2006 110.33 34050.27 0.062090874 0.027667425

22/12/2006 108.41 34306.23 -0.017402338 0.007517121

29/12/2006 109.45 34711.37 0.009593211 0.011809517

5/01/2007 109.99 34112.52 0.00493376 -0.017252272

12/01/2007 114.49 34520.99 0.04091281 0.011974196

19/01/2007 117.01 34730.99 0.022010656 0.006083255

26/01/2007 116.07 35323.8 -0.008033501 0.017068618

2/02/2007 117.11 35700.94 0.00896011 0.010676654

9/02/2007 118.15 36317.48 0.00888054 0.017269573

16/02/2007 119.69 36483.07 0.013034278 0.004559512

23/02/2007 117.76 37058.48 -0.01612499 0.015771973

2/03/2007 110.44 35673.52 -0.062160326 -0.037372283

9/03/2007 114.01 36026.53 0.032325244 0.009895575

16/03/2007 117.59 36071.09 0.031400754 0.001236866

23/03/2007 118.2 36806.27 0.005187516 0.020381419

30/03/2007 121.29 37103.54 0.026142132 0.008076613

6/04/2007 123.39 37611.45 0.017313876 0.01368899

13/04/2007 123 37979.26 -0.00316071 0.009779203

20/04/2007 123.61 38433.04 0.00495935 0.0119481

27/04/2007 119.73 38087.36 -0.031389046 -0.008994344

4/05/2007 118.34 39041.26 -0.011609455 0.025045054

11/05/2007 120.95 38995.82 0.022055095 -0.001163897

18/05/2007 122.06 39161.64 0.009177346 0.004252251

25/05/2007 123.67 38808.28 0.013190234 -0.009023115

4
5

1/06/2007 125.29 39355.48 0.013099377 0.014100084

8/06/2007 119.38 38742.78 -0.047170564 -0.015568353

15/06/2007 116.98 39143.95 -0.02010387 0.010354704

22/06/2007 120.11 39696.45 0.026756711 0.014114569

29/06/2007 122.23 39119.09 0.017650487 -0.014544374

6/07/2007 124.35 39594.08 0.017344351 0.012142154

13/07/2007 127.99 39833.1 0.029272216 0.006036761

20/07/2007 131.63 40035.14 0.028439722 0.005072164

27/07/2007 127.2 37922.45 -0.033654942 -0.052770891

3/08/2007 124.28 37537.22 -0.022955975 -0.010158363

10/08/2007 122.88 37042.76 -0.011264886 -0.013172526

17/08/2007 115.4 35390.93 -0.060872396 -0.04459252

24/08/2007 122.62 38136.65 0.062564991 0.07758259

31/08/2007 131.87 39240.53 0.075436307 0.028945385

7/09/2007 131.5 39472.91 -0.002805794 0.005921938

14/09/2007 129.09 39727.5 -0.018326996 0.00644974

21/09/2007 127.19 40067.73 -0.014718414 0.008564093

28/09/2007 131.4 41424.1 0.033100086 0.03385193

5/10/2007 118.29 41662.56 -0.099771689 0.005756552

12/10/2007 117.4 42570.98 -0.007523882 0.021804229

19/10/2007 113.96 42306.01 -0.029301533 -0.006224193

26/10/2007 107.96 42270.07 -0.052650053 -0.000849525

2/11/2007 107.58 42261.55 -0.003519822 -0.000201561

9/11/2007 102.58 41413.28 -0.04647704 -0.020071909

16/11/2007 107.85 40939.91 0.051374537 -0.011430391

23/11/2007 101.82 40126.28 -0.055910987 -0.019873761

30/11/2007 100.67 41416.73 -0.011294441 0.032159722

7/12/2007 100.81 42191.17 0.001390682 0.018698724

14/12/2007 96.55 41160.38 -0.042257713 -0.024431415

21/12/2007 97.47 39700.73 0.009528742 -0.035462501

28/12/2007 99.15 40291.79 0.017236073 0.014887887

4/01/2008 95.66 40094.12 -0.035199193 -0.004905962

11/01/2008 86.97 38026.75 -0.090842567 -0.051562922

18/01/2008 85.81 36536.8 -0.013337933 -0.039181629

25/01/2008 90.63 37255.63 0.056170609 0.019674137

1/02/2008 92.59 37145.15 0.021626393 -0.002965458

8/02/2008 92.73 35969.5 0.001512042 -0.031650162

15/02/2008 95.48 35675.71 0.029655991 -0.008167753

22/02/2008 95.35 35449.84 -0.001361542 -0.006331198

29/02/2008 98.37 35673.6 0.031672784 0.006312017

4
6

7/03/2008 94.31 33835.06 -0.041272746 -0.051537832

14/03/2008 91.03 33493.67 -0.034778921 -0.01008983

21/03/2008 93.8 33006.7 0.030429529 -0.014539165

28/03/2008 93.41 34461.6 -0.004157783 0.044078929

4/04/2008 102.26 36202.18 0.094743603 0.050507812

11/04/2008 92.61 35046 -0.094367299 -0.031936751

18/04/2008 92.49 34985.34 -0.001295756 -0.001730868

25/04/2008 94.74 36001.23 0.024326954 0.029037591

2/05/2008 95.94 36731.52 0.012666244 0.02028514

9/05/2008 95.82 37241.36 -0.001250782 0.013880177

16/05/2008 95.69 38268.63 -0.00135671 0.027584116

23/05/2008 94.23 37262.05 -0.015257603 -0.026303006

30/05/2008 93.56 36604.8 -0.007110262 -0.017638589

6/06/2008 87.82 36223.05 -0.061351005 -0.01042896

13/06/2008 80.99 34837.81 -0.077772717 -0.038241948

20/06/2008 77.11 34255.73 -0.047907149 -0.016708283

27/06/2008 75.1 34015.75 -0.026066658 -0.007005543

4/07/2008 74.97 33009.99 -0.001731025 -0.02956748

11/07/2008 73.76 32346.32 -0.016139789 -0.020105126

18/07/2008 71.47 31439.92 -0.031046638 -0.028021735

25/07/2008 72.69 32285.47 0.017070099 0.026894152

1/08/2008 71.75 31854.31 -0.012931627 -0.013354614

8/08/2008 80.59 32387.98 0.123205575 0.016753463

15/08/2008 81.28 32390.54 0.008561856 7.90417E-05

22/08/2008 82.51 32143.35 0.015132874 -0.007631549

29/08/2008 81.02 33652.13 -0.018058417 0.046939102

5/09/2008 78.69 32074.32 -0.028758331 -0.046885888

12/09/2008 81.03 32274.75 0.029736942 0.006248924

19/09/2008 79.25 31655.94 -0.021967173 -0.019173193

26/09/2008 73.34 32342.71 -0.074574132 0.021694823

3/10/2008 81.2 30976.52 0.107172075 -0.042241049

10/10/2008 80.79 26130.31 -0.005049261 -0.156447851

17/10/2008 78.72 26198.23 -0.025621983 0.00259928

24/10/2008 83.85 25530.3 0.065167683 -0.025495234

31/10/2008 92.06 26514.52 0.09791294 0.038551055

7/11/2008 89.14 26883.41 -0.031718444 0.013912754

14/11/2008 87.61 24879.73 -0.017164012 -0.074532212

21/11/2008 79.94 22685.76 -0.087547084 -0.088183031

28/11/2008 75.33 24869.93 -0.057668251 0.09627934

5/12/2008 75.48 23191.26 0.001991239 -0.067497978

12/12/2008 71.97 23330.47 -0.046502385 0.006002692

19/12/2008 62.55 24033.05 -0.13088787 0.030114267

26/12/2008 71.15 23867.85 0.137490008 -0.006873867

2/01/2009 75.25 24744.55 0.057624736 0.036731419

9/01/2009 84.75 24890.82 0.126245847 0.005911201

16/01/2009 84.33 23659.81 -0.004955752 -0.049456386

23/01/2009 87.6 22272.27 0.038776236 -0.058645441

30/01/2009 87.47 23591.64 -0.001484018 0.059238237

6/02/2009 80.78 23148.85 -0.076483366 -0.018768937

13/02/2009 84.07 23750.93 0.040727903 0.026009067

20/02/2009 80.5 22767.7 -0.042464613 -0.041397537

27/02/2009 66.3 22512.84 -0.176397516 -0.011193928

6/03/2009 58.68 21298.05 -0.114932127 -0.053959874

13/03/2009 56.51 22666.2 -0.036980232 0.064238275

20/03/2009 61.84 23492.56 0.094319589 0.036457809

27/03/2009 59.66 24916.9 -0.035252264 0.060629408

3/04/2009 60.38 25354.57 0.012068388 0.017565187

10/04/2009 61.38 24922.8 0.016561775 -0.017029277

17/04/2009 68.51 25636.72 0.116161616 0.028645257

24/04/2009 66.31 25199.41 -0.0321121 -0.017057954

1/05/2009 69.37 25589.93 0.046146886 0.015497188

8/05/2009 72.14 26792.75 0.039930806 0.047003646

15/05/2009 73.45 25651.75 0.018159135 -0.042586147

22/05/2009 70.06 25627.7 -0.046153846 -0.000937558

29/05/2009 75.2 26011.84 0.073365687 0.01498925

5/06/2009 80.94 27101.64 0.076329787 0.041896306

12/06/2009 80.49 27727.97 -0.005559674 0.02311041

19/06/2009 78.85 26621.11 -0.020375202 -0.039918537

26/06/2009 76.02 26704.43 -0.035890932 0.003129847

3/07/2009 77.94 26187.03 0.025256511 -0.019375062

10/07/2009 77.18 25953.82 -0.009751091 -0.008905554

17/07/2009 77.62 27367.67 0.005700959 0.054475603

24/07/2009 80.45 27976.47 0.036459675 0.022245226

31/07/2009 82.98 29032.28 0.031448104 0.037739214

7/08/2009 83.42 29411.7 0.005302483 0.013068901

14/08/2009 93.17 30554.2 0.116878446 0.038845085

21/08/2009 86.39 29447.01 -0.072770205 -0.036236917

28/08/2009 97.67 30955.77 0.130570668 0.051236441

4/09/2009 93.57 30661.52 -0.041978089 -0.009505498

11/09/2009 99.12 31817.84 0.059313883 0.037712416

18/09/2009 98.34 32508 -0.007869249 0.021690976

25/09/2009 99.37 32654.23 0.010473866 0.004498277

2/10/2009 99.19 31890.13 -0.001811412 -0.023399725

9/10/2009 105.99 32942.4 0.068555298 0.03299673

16/10/2009 96.39 33523.62 -0.090574583 0.017643523

23/10/2009 99.55 33682.75 0.032783484 0.004746802

30/10/2009 98.15 32185.68 -0.014063285 -0.044446193

6/11/2009 94.61 31892.53 -0.036067244 -0.009108088

13/11/2009 94.74 32788.64 0.001374062 0.028097802

20/11/2009 93.94 32649.53 -0.008444163 -0.004242628

27/11/2009 91.92 31858.5 -0.021503087 -0.024227914

4/12/2009 97.87 32765.77 0.0647302 0.028478114

11/12/2009 95.23 32301.54 -0.026974558 -0.014168139

18/12/2009 95.97 32408.83 0.007770661 0.003321513

25/12/2009 97.32 33429.11 0.014066896 0.031481544

1/01/2010 100.53 33985.86 0.03298397 0.016654646

8/01/2010 97.88 34276.24 -0.02636029 0.008544142

15/01/2010 98.62 34188.74 0.007560278 -0.002552789

22/01/2010 97.2 33149.19 -0.014398702 -0.03040621

29/01/2010 96.7 31886.24 -0.005144033 -0.03809897

5/02/2010 95.59 31528.42 -0.0114788 -0.011221768

12/02/2010 97.58 31872.57 0.020818077 0.010915549

19/02/2010 93.97 32444.34 -0.036995286 0.01793925

26/02/2010 93.79 32576.06 -0.001915505 0.004059876

5/03/2010 93.3 33630.74 -0.005224438 0.032375923

12/03/2010 93.43 34004.17 0.001393355 0.011103829

19/03/2010 93.25 34394.66 -0.001926576 0.011483592

26/03/2010 94.64 34597.77 0.014906166 0.005905277

2/04/2010 92.58 34678.82 -0.021766695 0.002342637

9/04/2010 90.52 34963.98 -0.022251026 0.008222886

16/04/2010 90.97 35223.57 0.004971277 0.007424498

23/04/2010 91.74 34495.42 0.008464329 -0.020672237

30/04/2010 92.19 33973.06 0.004905167 -0.01514288

7/05/2010 90.75 31706.14 -0.015619915 -0.066726989

14/05/2010 90.57 32639.88 -0.001983471 0.029449816

21/05/2010 87.54 30535.25 -0.033454786 -0.064480323

28/05/2010 86.41 31619.72 -0.012908385 0.035515347

4/06/2010 85.59 31609.67 -0.009489642 -0.00031784

11/06/2010 86.05 32011.06 0.00537446 0.012698329

18/06/2010 87.46 32345.3 0.016385822 0.010441391

25/06/2010 85.68 31403.4 -0.020352161 -0.02912015

2/07/2010 85.82 30163.22 0.001633987 -0.039491902

9/07/2010 86.6 31285.31 0.00908879 0.037200604

16/07/2010 86.42 31473.36 -0.002078522 0.006010808

23/07/2010 86.24 31727.08 -0.002082851 0.008061421

30/07/2010 86.06 31977.25 -0.002087199 0.007885062

6/08/2010 83.94 32494.63 -0.024633976 0.016179628

13/08/2010 80.85 31770.55 -0.036812009 -0.022283066

20/08/2010 82.61 31656.11 0.021768707 -0.003602078

27/08/2010 83.39 31337.65 0.009441956 -0.010059985

3/09/2010 88.39 32618.94 0.059959228 0.040886601

10/09/2010 93.73 32840.69 0.060414074 0.006798198

17/09/2010 93.54 33449.3 -0.002027099 0.018532193

24/09/2010 92.04 33196.02 -0.01603592 -0.007572057

1/10/2010 85.97 33045.21 -0.065949587 -0.004543014

8/10/2010 89.38 33787.99 0.039664999 0.02247769

15/10/2010 92.13 33842.82 0.03076751 0.001622766

22/10/2010 96.53 33548.88 0.047758602 -0.008685446

29/10/2010 97.66 33659.48 0.011706205 0.003296682

5/11/2010 102.07 34722.4 0.045156666 0.031578622

12/11/2010 97.26 34078.3 -0.047124522 -0.018549985

19/11/2010 94.76 33621.84 -0.025704298 -0.013394447

26/11/2010 90.6 33399.21 -0.04390038 -0.006621589

3/12/2010 93.72 34096.74 0.034437086 0.020884626

10/12/2010 90.87 34475 -0.030409731 0.011093729

17/12/2010 90.68 34600.26 -0.002090899 0.003633358

24/12/2010 90.15 34751.48 -0.005844729 0.004370487

31/12/2010 89.62 34518.53 -0.00587909 -0.006703312

7/01/2011 88.09 34226.09 -0.017072082 -0.008471971

14/01/2011 90.57 34928.27 0.028153025 0.020515928

21/01/2011 86.69 34594.88 -0.042839792 -0.00954499

28/01/2011 88.17 34734.82 0.017072327 0.004045107

4/02/2011 84.62 35373.71 -0.040263128 0.018393359

11/02/2011 83.08 35534.51 -0.018199007 0.004545749

18/02/2011 83.89 36016.64 0.009749639 0.013567937

25/02/2011 85.38 35386.79 0.017761354 -0.01748775

4/03/2011 78.09 35706.2 -0.085382994 0.00902625

11/03/2011 77.22 34170.04 -0.011140991 -0.04302222

18/03/2011 78.04 34040.56 0.010619011 -0.003789284

25/03/2011 82.25 34926.74 0.053946694 0.026033062

1/04/2011 83.41 35808.44 0.014103343 0.025244268

8/04/2011 83.89 36390.68 0.005754706 0.016259854

15/04/2011 83.69 35740.79 -0.002384074 -0.017858693

22/04/2011 82.13 36194.98 -0.01864022 0.012707889

29/04/2011 73.71 35527.91 -0.102520394 -0.018429904

6/05/2011 71.1 34942.26 -0.035409035 -0.016484223

13/05/2011 71.59 34772.72 0.006891702 -0.004852004

20/05/2011 71.73 34999.19 0.00195558 0.006512864

27/05/2011 70.5 34649.2 -0.017147637 -0.009999946

3/06/2011 70.64 33959.18 0.001985816 -0.019914457

10/06/2011 69.75 33804.79 -0.012599094 -0.004546341

17/06/2011 73.71 33232.86 0.056774194 -0.016918608

24/06/2011 70.72 33459.54 -0.040564374 0.00682096

1/07/2011 74.7 34077.1 0.056278281 0.018456918

8/07/2011 72.75 34549.4 -0.026104418 0.013859747

15/07/2011 69.4 33204.34 -0.04604811 -0.038931501

22/07/2011 66.74 34164.3 -0.03832853 0.028910679

29/07/2011 63.37 32841.59 -0.050494456 -0.038716145

5/08/2011 60.69 30472.6 -0.042291305 -0.07213384

12/08/2011 61.55 31005.98 0.014170374 0.017503593

19/08/2011 54.6 30578.23 -0.112916328 -0.013795726

26/08/2011 54.39 31445.24 -0.003846154 0.028353832

2/09/2011 49.16 31846.26 -0.096157382 0.012752964

9/09/2011 47.49 31567.35 -0.033970708 -0.008758014

16/09/2011 45.1 31270.96 -0.050326385 -0.009389131

23/09/2011 43.77 29426.26 -0.029490022 -0.058990834

30/09/2011 37.13 30239.41 -0.151702079 0.027633481

7/10/2011 38.79 31405.66 0.044707783 0.038567221

14/10/2011 41.24 31729.47 0.063160608 0.010310562

21/10/2011 41.36 31248.43 0.002909796 -0.015160669

28/10/2011 43.82 32846.67 0.059477756 0.05114625

4/11/2011 41.98 32302.32 -0.041989959 -0.016572456

11/11/2011 40.92 32631.34 -0.025250119 0.010185646

18/11/2011 42.61 31733.38 0.041300098 -0.027518331

25/11/2011 36.8 30273.18 -0.136352969 -0.046014638

2/12/2011 42.46 32581.36 0.153804348 0.076245046

9/12/2011 41.79 31940.43 -0.015779557 -0.019671677

16/12/2011 40.71 31608.67 -0.025843503 -0.010386836

23/12/2011 34.84 31517.42 -0.144190617 -0.002886866

30/12/2011 34.96 30879.11 0.003444317 -0.02025261

6/01/2012 31.85 31274.64 -0.08895881 0.012808983

13/01/2012 34.4 31939.71 0.080062794 0.021265473

20/01/2012 40.6 32273.36 0.180232558 0.010446244

27/01/2012 41.13 32644.34 0.013054187 0.01149493

3/02/2012 43.28 32361.19 0.05227328 -0.008673785

10/02/2012 44.22 32341.05 0.021719039 -0.00062235

17/02/2012 43.12 31970.98 -0.024875622 -0.011442733

24/02/2012 41.6 32993.59 -0.035250464 0.031985569

2/03/2012 56.15 32887.44 0.349759615 -0.003217292

9/03/2012 55.03 32471.95 -0.019946572 -0.012633698

>Sheet

7.28

6.23

.03

–

(S$m)

–

043

–

																									FY 2	0	FY 2008	FY 2009	FY 2010	FY 2011	FY	2012
NPAT(S$m)																–	-1	3	–	4	1	5	95.02	131.67
Capital Expenditure(S$m)		-1.99		-15.54		-0.41	-1.63		-0.26
Depreciation (S$m)		1.61		0.22		0.326	0.339		0.46
Total Assets (S$m)	2,275.29	2,160.00	2310	2790	2840	2820
Change in Total Assets	-115.29	150.00	480	-20
Non-current Assets (S$m)	2,223.11	12.96	12.43	11.32	11.59	11.02
Plant and Equiment	2.259	2001	1980	2660	1.91	1.62
Current Assets	52.185	37.75	317.05	119.09	115.42	94.53
Total Liabilities	74							0.38	779.83	725.82	956.46	988.11	938.13
Change in Total Liabilities	39.446	-54.01	230.64	31.65	-49.98
Non-current Liabilities	657.531	665.99	619.55	833.59	866.13	849.38
Current Liabilities	82.853	113.85	106.27	122.78	121.98	88.74
	Debt Ratio (S$m)		0.32540175	0.3610324074		0.31420779	0.3428172	0.3479260563		0.33267021
Working Capital		-426.28	-76.1	21							0.78		-3.6	-6.56	5.79
	Change in Working Capital		350.18		89.196		112.6		-2.87		12.35

Sheet2

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

– -137.28 -46.23

95.02 131.67

– -1.99 -15.54 -0.41 -1.63 -0.26

– 1.61 0.22 0.326 0.339 0.46

– -3.6

Debt Ratio (S$m) 0.32540175

0.31420779 0.3428172

0.33267021

579221

–

36865408

39335879

Change in Working Capital – 350.18 89.196 112.6 -2.87 12.35
(1- Debt Ratio) 0.67459825 0.63896759 0.68579221 0.6571828 0.65207394 0.66732979

–

2,180.00

–

0.06

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

NPAT(S$m) –

Capital Expenditure(S$m) –

Depreciation (S$m) –

Total Assets (S$m)

Change in Total Assets –

Non-current Assets (S$m)

Plant and Equiment

Current Assets

Total Liabilities

Change in Total Liabilities –

Non-current Liabilities

Current Liabilities

Debt Ratio (S$m)

68841042

Working Capital -426.28

Change in Working Capital –

112.6

NPAT (S$m)	15		0.03
Capital Expenditure (S$m)
Depreciation(S$m)
(CE – Depreciation)	-15.76	-0.736	-1.969	-0.72
0.36103241	0.34792606
	(1- Debt Ratio)		0.67459825		0.63896759							0.68	0.6571828	0.65207394		0.66732979
(CE – Depreciation) x (1 – Debt Ratio)	-2.300283324	-10.8080852296	–						0.48	–					1.28	-0.4804774488
(Change in Working Capital) x (1 – Debt Ratio)	223.7536706662	61.1699219632	73.99878328	-1.8714522078	8.2415229065
FCFE	-358.7333873422	-96.5918367336	76.5149032608	98.1753857957	123.9089545423
Outstanding Shares	1,220.00	1,510.00		2,180.00	1,940.00
		FCFE Per Share	-0.29	–		0.06	0.04	0.05
311.3	319.7	26	3.2	315.5	359.3
-220	-219.5	-137.4	-195.1	-271.8
235.1	245.1	259.5	277.8	272.5
1,719.49	1,661.27	1732.6	1793.5	1723.1	1808.6
-58.22	71.33	60.9	-70.4	85.5
1,337.86	1,251.75	1206.2	1232.1	1188.3	1190.6
893.97	845.65	785.1	776	761.9	791.1
381.63	409.52	526.4	561.4	534.8	618
1611.833	1553.216	1606.8	1739.5	1700.5	1765.1
-58.617	53.584	132.7	-39	64.6
892.409	745.306	681.3	666.4	797.2	885.9
719.424	807.91	925.5	1073.1	903.3	879.2
0.9373901564	0.9349569907	0.9273923583	0.969891274							0.98	0.9759482473
-398.39	-399.1	-511.7	-368.5	-261.2
27.89	0.71	143.2	107.3

Sheet3

2012

6.40%

FCFE Per Share 0.06

0 1 2 3 4 5

–

58131488

0.7846649346

	Intrinsic Share Price	ACTUAL	FORECAST
	2013		2014		2015		2016	2017
	FCFE Growth Rate	25.00%		6.40%		6%
0.216573	0.228484515	0.245620853	0.252989479	0.260579163
	Annuity	3.3569406756
	Time Period
Discount Factor	0.9411764706								0.88	0.833706493	0.7846649346
	Discount FCFE Per Share	0.2038334118	0.2023945877	0.2047757	0.198511973	0.2044673319
	Discount Annuity	2.4617572833
	NPV	3.33

Sheet4

0.38 0.48

0.68 0.78 0.88 0.98

1.28

0.38 0.48 0.58 0.68 0.78 0.88 0.98 1.08 1.18 1.28 1.38

0.1259

0.1260

0.1261

0.1262

0.1263

0.1264

0.1265

0.1266

0.1267

0.1268

0.1269

0.1270

0.38 0.48 0.58 0.68 0.78 0.88 0.98 1.08 1.18 1.28 1.38 0.38 0.48 0.58 0.68 0.78 0.88 0.98 1.08 1.18 1.28 1.38

0.1259

632

0.1259

0.1260

0.1261

0.1262

0.1263

0.1264

0.1265

0.1266

0.1267

0.1268

0.1269

0.1270

0.38 0.48 0.58 0.68 0.78 0.88 0.98 1.08 1.18 1.28 1.38 0.38 0.48 0.58 0.68 0.78 0.88 0.98 1.08 1.18 1.28 1.38

0.1259

0.1260

0.1261

0.1262

0.1263

0.1264

0.1265

0.1266

0.1267

0.1268

0.1269

0.1270

0.38 0.48 0.58 0.68 0.78 0.88 0.98 1.08 1.18 1.28 1.38 0.38 0.48 0.58 0.68 0.78 0.88 0.98 1.08 1.18 1.28 1.38

0.1259

0.1260

0.1261

0.1262

0.1263

0.1264

0.1265

0.1266

0.1267

0.1268

0.1269

0.1270

g=	0.04645027	DPS=	0.15
SHARES	Annunity
							0.58								1.08								1.18							1.38
							0.1259	8.1021911773	4.8394164162	3.537811545	2.8350677684	2.3935642269	2.089422643	1.8664664618	1.6955250525	1.5599428936	1.4495153487	1.3576392569	9.0406485641	5.1402024486	3.5909453595	2.7592940843	2.2404200758	1.8858025844	1.628103586	1.4323674752	1.2786445141	1.1547190326	1.0526926721
							0.1260	8.0849324005	4.8323396047	3.5336159454	2.832144423	2.3913367987	2.0876271867	1.8649624733	1.6942297101	1.5588036436	1.4484969319	1.3567169628	9.0199901021	5.131761395	3.5859662494	2.7558468506	2.2378129824	1.8837185559	1.6263736216	1.43089179	1.2773596601	1.1535823384	1.0516741496
							0.1261	8.0677521809	4.825285881	3.5294318538	2.8292282634	2.3891144392	2.0858355852	1.8634615681	1.6929369245	1.5576665717	1.4474804095	1.3557963436	8.9994258366	5.1233480191	3.581000928	2.7524082196	2.2352119495	1.8816391285	1.6246473297	1.4294191422	1.2760773858	1.15244788	1.0506575961
							0.1262	8.0506499823	4.8182551317	3.5252592223	2.8263192628	2.3868971308	2.0840478256	1.8619637365	1.691646688	1.5565316712	1.4464657758	1.3548773945	8.978955125	5.1149621851	3.576049338	2.748978159	2.232616956	1.8795642869	1.6229246986	1.4279495226	1.2747976832	1.1513156506	1.0496430059
							0.1263	8.0336252735	4.8112472443	3.5210980036	2.8234173946	2.3846848561	2.0822638954	1.8604689687	1.6903589926	1.5553989359	1.4454530254	1.3539601107	8.9585773301	5.1066037578	3.5711114227	2.7455566369	2.2300279809	1.8774940161	1.6212057166	1.4264829217	1.2735205448	1.1501856438	1.0486303734
							0.1264	8.0166775283	4.8042621068	3.5169481504	2.8205226321	2.3824775976	2.0804837819	1.8589772551	1.6890738307	1.5542683592	1.4444421527	1.3530444875	8.9382918209	5.0982726033	3.5661871254	2.7421436214	2.2274450033	1.8754283009	1.6194903723	1.4250193304	1.2722459628	1.149057853	1.0476196928
							0.1265	7.999806225	4.7972996082	3.512809616	2.8176349489	2.3802753378	2.0787074726	1.8574885861	1.6877911945	1.5531399348	1.4434331525	1.3521305202	8.9180979718	5.0899685881	3.5612763899	2.7387390809	2.2248680023	1.8733671264	1.617778654	1.4235587393	1.2709739295	1.1479322717	1.0466109586
							0.1266	7.9830108466	4.790359638	3.5086823535	2.8147543188	2.3780780596	2.076934955	1.856002952	1.6865110764	1.5520136562	1.4424260191	1.351218204	8.897995163	5.0816915799	3.5563791603	2.7353429837	2.2222969572	1.8713104775	1.6160705503	1.4221011393	1.2697044374	1.1468088934	1.0456041651
							0.1267	7.966290881	4.7834420866	3.5045663166	2.8118807155	2.3758857456	2.0751662168	1.8545203433	1.6852334686	1.5508895171	1.4414207473	1.3503075344	8.8779827803	5.0734414472	3.5514953808	2.7319552987	2.2197318475	1.8692583394	1.6143660498	1.4206465211	1.2684374787	1.1456877117	1.0445993067
							0.1268	7.9496458205	4.7765468448	3.5004614591	2.809014113	2.3736983789	2.0734012454	1.8530407506	1.6839583635	1.5497675111	1.4404173317	1.3493985066	8.8580602147	5.0652180593	3.5466249962	2.7285759944	2.2171726526	1.8672106972	1.6126651409	1.4191948756	1.2671730459	1.14456872	1.0435963778
							0.1269	7.9330751619	4.7696738046	3.4963677352	2.8061544855	2.3715159423	2.0716400288	1.8515641643	1.6826857536	1.548647632	1.4394157668	1.3484911159	8.8382268631	5.0570212864	3.5417679514	2.7252050399	2.214619352	1.8651675362	1.6109678125	1.4177461938	1.2659111315	1.1434519121	1.042595373
							0.1270	7.9165784067	4.7628228583	3.4922850993	2.8033018071	2.3693384189	2.0698825544	1.850090575	1.6814156312	1.5475298735	1.4384160474	1.3475853578	8.8184821276	5.0488509993	3.5369241917	2.7218424042	2.2120719254	1.8631288417	1.6092740533	1.4163004664	1.264651728	1.1423372815	1.0415962866
Expected Return	Period 5 Discounted Annunity
0.063042		0.075	0.088222	0.100812	0.113402	0.125992	0.138582	0.151172	0.163762	0.176352	0.188942	7.0794235015	3.8399482208	2.5605826038	1.8790804282	1.4578789564	1.173153949	0.9687791381	0.8156307302	0.6970968671	0.6030136504	0.5268159603
0.06308	0.07568	0.08828	0.10088	0.11348	0.12608	0.13868	0.15128	0.16388	0.17648	0.18908	7.0622367103	3.8329581697	2.5564871019	1.8762692097	1.4557744937	1.1714912125	0.9674166353	0.8144847386	0.6961140112	0.6021579213	0.5260619629
0.063118	0.075728	0.088338	0.100948	0.113558	0.126168	0.138778	0.151388	0.163998	0.176608	0.189218	7.0451284659	3.825991191	2.5524030867	1.8734651496	1.4536750658	1.16983229	0.9660571681	0.8133412491	0.6951332716	0.6013040177	0.5253095648
0.063156	0.075776	0.088396	0.101016	0.113636	0.126256	0.138876	0.151496	0.164116	0.176736	0.189356	7.0280982323	3.8190471713	2.5483305105	1.8706682212	1.4515806551	1.1681771686	0.9647007268	0.8122002538	0.6941546417	0.6004519341	0.5245587612
0.063194	0.075824	0.088454	0.101084	0.113714	0.126344	0.138974	0.151604	0.164234	0.176864	0.189494	7.0111454783	3.8121259981	2.544269326	1.8678783977	1.449491244	1.1665258358	0.9633473016	0.8110617451	0.6931781152	0.5996016651	0.5238095473
0.063232	0.075872	0.088512	0.101152	0.113792	0.126432	0.139072	0.151712	0.164352	0.176992	0.189632	6.9942696776	3.8052275594	2.5402194858	1.8650956526	1.4474068152	1.1648782791	0.9619968829	0.8099257151	0.6922036857	0.5987532053	0.5230619185
0.06327	0.07592	0.08857	0.10122	0.11387	0.12652	0.13917	0.15182	0.16447	0.17712	0.18977	6.9774703085	3.7983517442	2.5361809432	1.8623199594	1.4453273513	1.1632344858	0.9606494612	0.8087921562	0.6912313468	0.5979065492	0.5223158701
0.063308	0.075968	0.088628	0.101288	0.113948	0.126608	0.139268	0.151928	0.164588	0.177248	0.189908	6.9607468541	3.7914984421	2.5321536515	1.859551292	1.443252835	1.1615944436	0.9593050268	0.8076610607	0.690261092	0.5970616915	0.5215713974
0.063346	0.076016	0.088686	0.101356	0.114026	0.126696	0.139366	0.152036	0.164706	0.177376	0.190046	6.9440988022	3.7846675433	2.5281375642	1.856789624	1.4411832492	1.15995814	0.9579635702	0.806532421	0.6892929152	0.5962186267	0.5208284958
0.063384	0.076064	0.088744	0.101424	0.114104	0.126784	0.139464	0.152144	0.164824	0.177504	0.190184	6.9275256451	3.7778589388	2.5241326353	1.8540349296	1.4391185766	1.1583255627	0.956625082	0.8054062294	0.68832681	0.5953773496	0.5200871607
0.063422	0.076112	0.088802	0.101492	0.114182	0.126872	0.139562	0.152252	0.164942	0.177632	0.190322	6.9110268797	3.7710725205	2.5201388188	1.8512871828	1.4370588003	1.1566966994	0.9552895526	0.8042824784	0.6873627701	0.5945378548	0.5193473875
0.06346	0.07616	0.08886	0.10156	0.11426	0.12696	0.13966	0.15236	0.16506	0.17776	0.19046	6.8946020074	3.7643081807	2.5161560691	1.8485463578	1.4350039034	1.1550715378	0.9539569727	0.8031611604	0.6864007893	0.593700137	0.5186091715
Period 4	Period 3
0.1981074312	0.1889938207	0.1803983057	0.1722859413	0.1646245013	0.1573842399	0.1505376756	0.1440593961	0.1379258827	0.1321153501	0.1266076024	0.2044626403	0.1973667971	0.1905955386	0.1841305158	0.1779546104	0.1720518396	0.1664072694	0.1610069348	0.1558377678	0.1508875301	0.1461447532
0.1980791071	0.1889600891	0.1803598514	0.1722433776	0.1645783779	0.1573350491	0.1504858584	0.1440053477	0.1378699567	0.1320578633	0.1265488383	0.2044407154	0.197340377	0.1905650668	0.1840963974	0.1779172155	0.1720115066	0.1663643077	0.1609616276	0.1557903737	0.1508382862	0.1460938761
0.1980507882	0.188926365	0.1803214074	0.1722008272	0.1645322707	0.1572858776	0.1504340636	0.1439513245	0.1378140591	0.1320004078	0.1264901083	0.2044187937	0.1973139616	0.1905346015	0.1840622873	0.1778798311	0.1719711863	0.1663213609	0.1609163373	0.1557429989	0.1507890637	0.1460430227
0.1980224743	0.1888926485	0.1802829735	0.1721582898	0.1644861796	0.1572367252	0.150382291	0.1438973268	0.1377581898	0.1319429836	0.1264314123	0.2043968751	0.197287551	0.1905041427	0.1840281858	0.1778424571	0.1719308785	0.1662784289	0.160871064	0.1556956433	0.1507398626	0.1459921928
0.1979941654	0.1888589395	0.18024455	0.1721157656	0.1644401047	0.157187592	0.1503305407	0.1438433543	0.1377023488	0.1318855905	0.1263727504	0.2043749596	0.197261145	0.1904736903	0.1839940926	0.1778050937	0.1718905834	0.1662355116	0.1608258077	0.1556483069	0.1506906829	0.1459413866
0.1979658616	0.188825238	0.1802061366	0.1720732546	0.1643940459	0.1571384781	0.1502788126	0.1437894072	0.1376465361	0.1318282287	0.1263141225	0.2043530472	0.1972347438	0.1904432445	0.1839600079	0.1777677406	0.1718503008	0.1661926091	0.1607805684	0.1556009896	0.1506415246	0.1458906039
0.1979375629	0.188791544	0.1801677335	0.1720307566	0.1643480032	0.1570893833	0.1502271068	0.1437354853	0.1375907516	0.1317708981	0.1262555286	0.204331138	0.1972083473	0.1904128052	0.1839259315	0.1777303981	0.1718100308	0.1661497214	0.160735346	0.1555536916	0.1505923877	0.1458398447
0.1979092692	0.1887578576	0.1801293406	0.1719882718	0.1643019767	0.1570403077	0.1501754233	0.1436815887	0.1375349955	0.1317135986	0.1261969687	0.2043092319	0.1971819555	0.1903823723	0.1838918636	0.177693066	0.1717697734	0.1661068484	0.1606901406	0.1555064127	0.1505432721	0.1457891091
0.1978809806	0.1887241786	0.1800909579	0.1719458001	0.1642559662	0.1569912512	0.1501237619	0.1436277173	0.1374792675	0.1316563303	0.1261384427	0.204287329	0.1971555684	0.1903519459	0.1838578042	0.1776557444	0.1717295286	0.1660639902	0.1606449522	0.1554591529	0.1504941779	0.1457383971
0.197852697	0.1886905072	0.1800525855	0.1719033415	0.1642099719	0.1569422139	0.1500721228	0.1435738713	0.1374235678	0.1315990931	0.1260799507	0.2042654291	0.197129186	0.190321526	0.1838237531	0.1776184332	0.1716892964	0.1660211467	0.1605997806	0.1554119124	0.1504451051	0.1456877085
0.1978244185	0.1886568433	0.1800142233	0.171860896	0.1641639936	0.1568931957	0.1500205059	0.1435200504	0.1373678963	0.1315418869	0.1260214925	0.2042435324	0.1971028083	0.1902911126	0.1837897104	0.1775811325	0.1716490767	0.1659783179	0.1605546261	0.1553646909	0.1503960535	0.1456370435
0.197796145	0.1886231869	0.1799758713	0.1718184636	0.1641180315	0.1568441967	0.1499689112	0.1434662548	0.137312253	0.1314847119	0.1259630682	0.2042216389	0.1970764354	0.1902607057	0.1837556761	0.1775438422	0.1716088696	0.1659355039	0.1605094884	0.1553174886	0.1503470233	0.1455864019
Period 2	Period 1
0.2021882555	0.1974828309	0.1929397756	0.1885517041	0.1843116461	0.180213019	0.1762496019	0.1724155122	0.1687051839	0.1651133473	0.1616350099	0.2037294858	0.2013448838	0.1990154582	0.1967393161	0.1945146497	0.1923397324	0.190212914	0.1881326162	0.1860973292	0.1841056078	0.1821560682
0.2021738012	0.1974652068	0.1929192106	0.1885284116	0.1842858247	0.1801848538	0.1762192655	0.1723831656	0.1686709773	0.1650774208	0.1615974946	0.2037222034	0.2013358992	0.1990048517	0.1967271637	0.1945010238	0.1923247016	0.1901965434	0.1881149677	0.1860784617	0.1840855773	0.1821349278
0.2021593485	0.197447585	0.192898649	0.1885051234	0.1842600088	0.1801566953	0.176188937	0.1723508281	0.1686367811	0.1650415061	0.1615599924	0.2037149216	0.2013269154	0.1989942463	0.1967150129	0.1944873998	0.1923096732	0.1901801756	0.1880973225	0.186059598	0.1840655511	0.1821137924
0.2021448973	0.1974299656	0.1928780906	0.1884818395	0.1842341982	0.1801285433	0.1761586162	0.1723184997	0.1686025953	0.1650056032	0.1615225032	0.2037076403	0.2013179324	0.198983642	0.1967028635	0.1944737778	0.192294647	0.1901638106	0.1880796807	0.1860407382	0.1840455293	0.1820926619
0.2021304477	0.1974123485	0.1928575355	0.18845856	0.1842083931	0.1801003979	0.1761283033	0.1722861804	0.1685684199	0.1649697119	0.1614850271	0.2037003595	0.2013089502	0.1989730388	0.1966907157	0.1944601576	0.1922796233	0.1901474485	0.1880620422	0.1860218822	0.1840255119	0.1820715363
0.2021159997	0.1973947338	0.1928369837	0.1884352847	0.1841825934	0.1800722591	0.1760979983	0.1722538702	0.1685342548	0.1649338323	0.161447564	0.2036930792	0.2012999688	0.1989624368	0.1966785694	0.1944465394	0.1922646019	0.1901310892	0.1880444069	0.18600303	0.1840054988	0.1820504156
0.2021015532	0.1973771215	0.1928164352	0.1884120138	0.1841567991	0.1800441269	0.176067701	0.172221569	0.1685001002	0.1648979645	0.1614101139	0.2036857995	0.2012909882	0.1989518359	0.1966664245	0.1944329231	0.1922495828	0.1901147327	0.188026775	0.1859841816	0.18398549	0.1820292998
0.2020871082	0.1973595115	0.19279589	0.1883887472	0.1841310102	0.1800160013	0.1760374116	0.172189277	0.1684659559	0.1648621083	0.1613726769	0.2036785202	0.2012820084	0.1989412361	0.1966542812	0.1944193086	0.1922345661	0.190098379	0.1880091464	0.1859653371	0.1839654856	0.1820081889
0.2020726648	0.1973419039	0.192775348	0.1883654849	0.1841052268	0.1799878823	0.1760071299	0.172156994	0.168431822	0.1648262639	0.1613352529	0.2036712415	0.2012730294	0.1989306375	0.1966421393	0.1944056961	0.1922195517	0.1900820281	0.1879915211	0.1859464964	0.1839454856	0.1819870829
0.2020582229	0.1973242986	0.1927548094	0.1883422269	0.1840794488	0.1799597699	0.1759768561	0.1721247201	0.1683976985	0.1647904311	0.161297842	0.2036639633	0.2012640512	0.19892004	0.196629999	0.1943920855	0.1922045396	0.19006568	0.1879738991	0.1859276595	0.1839254898	0.1819659817
0.2020437826	0.1973066957	0.192734274	0.1883189732	0.1840536761	0.179931664	0.1759465901	0.1720924553	0.1683635853	0.16475461	0.161260444	0.2036566857	0.2012550738	0.1989094436	0.1966178601	0.1943784768	0.19218953	0.1900493347	0.1879562804	0.1859088264	0.1839054985	0.1819448855
0.2020293438	0.1972890951	0.1927137419	0.1882957238	0.1840279089	0.1799035648	0.175916332	0.1720601996	0.1683294825	0.1647188006	0.161223059	0.2036494085	0.2012460972	0.1988988483	0.1966057228	0.19436487	0.1921745226	0.1900329923	0.187938665	0.1858899971	0.1838855115	0.1819237942

Sheet5

Intrinsic Share Price

2012 2013 2014 2015 2016 2017

FCFE Growth Rate

0.075 0.03 0.03

FCFE Per Share 0.06

Annuity

Time Period 0 1 2 3 4 5

Discount FCFE Per Share

Discount Annuity

NPV

0.0581669487 3.2

Actual	Forecast
0.465	0.0313	0.055
0.061878	0.06528129	0.0701773868	0.0722827084	0.0744511896
3.6040705747
Discount Factor [(1+r)^-1]	0.9400263207	0.8836494837	0.830653773	0.78083641	0.7340067776
	0.0581669487	0.0576857782	0.0582931111	0.0564409705	0.0546476778
2.6454122288
2.9359990372
0.10986

ADCORP AUSTRALIA

LIMITED COMPANY

VALUATION REPORT

Prepared by: Andrew Farrugia,

Yangsi Zhao and Guillaume Tsao Yee Kwai Pun

BAF I 10 42 –

Inve st ment

AAU Company Valuation Report Page 1

Executive Summary

Adcorp Australia Limited (AAU) was founded in 1981 in NSW and listed on the Australian Security

Exchange in 1999. Today, AAU is one of the leading locally owned companies in the media industry

in Australia and New-Zealand. Their main operations include advertising agency services, website

design and development and digital marketing services. They have segmented their activities into

retail, motor vehicles, real estate, government and employment.

The financial analysis has shown that AAU’s performance has highly fluctuated over the 5 year

period (2007-2011). However, they were not performing poorly. Rather, they had more expenses

due to restructures and acquisitions. Furthermore, the 2008 Global financial crisis deeply impacted

all their target markets thus reducing their sales. The Dupont analysis has shown that AAU best

performed financially in 2008 and that in the recent year 2010 incurred a loss due to strategic

repositioning. They saw a growth in all their ratios in 2011.

The valuation analysis consisted of the application of five models, namely: Dividend Discount Model,

Free cash flow model, Price earnings ratio, Price over book value ratio and Net tangible asset backing

model. We found that the latter model was more appropriate for this situation although the

outcomes were similar. Overall, our findings have shown that AAU stock is undervalued.

AAU Company Valuation Report Page 2

Table of Contents
Executive Summary …………………………………………………………………………………………………………….. 1

1. Company Analysis …………………………………………………………………………………………………………… 5

1.1 Overview ………………………………………………………………………………………………………………… 5

1.2 History ……………………………………………………………………………………………………………………. 5

1.3 Share Price Performance ………………………………………………………………………………………….. 6

1.4 Products and Services ………………………………………………………………………………………………. 8

1.4.1 Advertising Agency Services ……………………………………………………………………………….. 8

1.4.2 Website Design and Development ……………………………………………………………………… 8

1.4.3 Digital marketing Services ………………………………………………………………………………….. 8

2. Financial Analysis ……………………………………………………………………………………………………………. 9

2.2 Dupont Analysis …………………………………………………………………………………………………….. 10

5 Year Extended DuPont Analysis ……………………………………………………………………………………. 11

2.2.1 EBIT/Sales ………………………………………………………………………………………………………. 1

2.2.2 Sales/Total Assets …………………………………………………………………………………………… 12

2.2.3 EBIT/Total Assets…………………………………………………………………………………………….. 12

2.2.4 Interest Expense/Total Assets …………………………………………………………………………… 12

2.2.5 Net Before Tax/Total Assets …………………………………………………………………………….. 13

2.2.6 Total Assets/Common Equity ……………………………………………………………………………. 13

2.2.7 Net Before Tax/Common Equity ……………………………………………………………………….. 13

2.2.8 Tax Retention …………………………………………………………………………………………………. 13

2.2.9 Return on Equity (ROE) ……………………………………………………………………………………. 14

3. The Economic Environment …………………………………………………………………………………….. 14

3.2 Overview ………………………………………………………………………………………………………………. 14

3.3 Macroeconomic indicators ……………………………………………………………………………………… 15

3.3.1 Inflation …………………………………………………………………………………………………………. 16

3.3.2 Interest Rates …………………………………………………………………………………………………….. 17

3.3.3 Consumer Confidence …………………………………………………………………………………………. 18

3.3.4 Economic Outlook ………………………………………………………………………………………………. 19

3.4 The Australian media industry …………………………………………………………………………………….. 20

3.4.1 Overview …………………………………………………………………………………………………………… 20

3.4.2 Market Segmentation …………………………………………………………………………………………. 21

3.4.3 Level of Debt ……………………………………………………………………………………………………… 21

3.4.4 Organizational Goals …………………………………………………………………………………………… 22

AAU Company Valuation Report Page 3

3.4.5 Key Competitors …………………………………………………………………………………………………. 23

4. Valuation Assumptions ………………………………………………………………………………………………. 24

Required rate of Return(CAPM) ………………………………………………………………………………………….. 24

Risk-free rate (Rf) ………………………………………………………………………………………………………….. 24

Market returns (Rm) ……………………………………………………………………………………………………… 24

Market risk premium (Rm-Rf) …………………………………………………………………………………………. 24

Beta (β) ………………………………………………………………………………………………………………………… 24

Required Rate of Return (CAPM) Calculation: …………………………………………………………………… 25

4.2 Valuation Analysis ………………………………………………………………………………………………. 25

4.2.1 Dividend Discount Model (DDM) ………………………………………………………………………. 25

4.2.2 Dividend Forecast …………………………………………………………………………………………… 26

4.2.3 Intrinsic Share Price ………………………………………………………………………………………… 28

4.2.4 Sensitivity Analysis ………………………………………………………………………………………….. 28

4.3 Free cash Flow to Equity Model ………………………………………………………………………………… 30

4.3.1 Cash Flow Forecast………………………………………………………………………………………………… 30

4.3.2 Sensitivity Analysis ………………………………………………………………………………………….. 32

4.4 Price earnings ratio …………………………………………………………………………………………….. 33

4.4.1 Sensitivity analysis ………………………………………………………………………………………………… 34

4.5 Price/Book Value ratio (P/B) ………………………………………………………………………………… 34

5. Evaluation of value/price of the company …………………………………………………………………. 36

6. References ……………………………………………………………………………………………………………. 37

7. Appendices …………………………………………………………………………………………………………………… 39

Appendix 1: Beta calculation of AAU with ASX 200 index ………………………………………………………. 39

Appendix 2: Dividend forecast (DDM) …………………………………………………………………………………. 45

Appendix 3: DDM Beta and Risk Premium Sensitivity ……………………………………………………………. 46

Appendix 4: Dividend Growth Rate Sensitivity …………………………………………………………………….. 46

Appendix 5: Historical FCFE Growth rate ……………………………………………………………………………… 46

Appendix 6: Operating expenses history ……………………………………………………………………………… 47

Appendix 7: AAU’ share price FCFE model …………………………………………………………………………… 47

Appendix 8: discount sensitivity …………………………………………………………………………………………. 47

Appendix 9: FCFE growth rate sensitivity …………………………………………………………………………….. 48

Appendix 10: P/E Ratio forecast 2013 …………………………………………………………………………………. 48

Appendix 11: AAU book share value 2007-2011 …………………………………………………………………… 48

Appendix 12: STW book share value 2007-2011 …………………………………………………………………… 48

AAU Company Valuation Report Page 4

Appendix 13: DIG book share value 2007-2011…………………………………………………………………….. 49

Appendix 14: AAU NTA Backing Model history …………………………………………………………………….. 49

Appendix 15: STW NTA backing Model history …………………………………………………………………….. 49

Appendix 16: DIG NTA Backing Model history ………………………………………………………………………. 49

AAU Company Valuation Report Page 5

1. Company Analysis

1.1 Overview

Adcorp Australia Limited (AAU) is an Australasian company competing in the media industry. Their

headquarters are based in Sydney and they have offices across Australia and New Zealand. They are

the leading locally owned communications group as well as the largest supplier of non-campaign

advertisement to local, state and federal government (AAU Annual Report 2011)

AAU provides tailored marketing solutions to various organisations through specialized entities.

Their services encompass, but are not limited to, advertising, branding, PR, consultancy, marketing

research, marketing strategy and management. These are divided into three broad categories:

advertising agency services, web design and supplier of web-based products. AAU specialises in

employment marketing, government advertising, real estate, retail and motor vehicles.

1.2 History
Adcorp Australia Limited was founded in Sydney, New South Wales, in 1981 initially as Pabiko Pty Ltd,

later the same year they changed the company’s name to Adcorp Australia. They commenced

operating in the recruitment sector through the development of an advertising website in 1995.

Three years later, in 1998, AAU expanded its operations to Auckland, New Zealand. Finally in 1999,

the company, along with the acquisitions of Employment Opportunities from Australia Pty Ltd,

Meniscus Technology Pty Ltd and 50% interest in CareerMatch Pty Limited, was listed in the

Australian Security Exchange as Adcorp Australia Limited (IBIS World 2011).

In 2000, AAU saw its net profit after tax increase by 9.8% to $5.724 million (AAU AR 2000). It also

obtained an exclusive license and minority equity from the American based company Recruitment

Solutions International Corp. (AAU AR 2000). This allowed AAU to use the software in Australia and

New Zealand and also allowed them to buy more equity in the licenser company in the future (AAU

AR 2000). During that same year, they purchased the remaining 50% interest in CareerMatch Pty

Limited and acquired Lewis Advertising Limited- New Zealand’s second largest specialist recruitment

advertising agency (IBIS World 2011).

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Adcorp Australia Limited’s company history is filled with acquisitions. In 2001, the company acquired

Raisin & Lines Advertising Pty Ltd and expanded its activities to South Australia through the

acquisition of Iceberg Media a print advertising client base agency (AAU AR 2001). AAU undergoes

further diversification by acquiring leading retail motor vehicle advertising agency Donald & Donald

and boutique creative design company Green Advertising in 2002 (AAU AR 2002). Furthermore, AAU

successfully obtains a license agreement with News Interactive for the management of the

recruitment website CareerOne (AAU AR 2002). Despite an increase in profits between financial

years 2002 and 2003, Adcorp kept a low profile in terms of mergers and acquisitions in order to

better manage the several companies already acquired in the past few years (AAU AR 2003).

In 2005, the company resumed its acquisition strategy- after two years of internal growth and

increasing profits- lead by new CEO Peter James (AAU AR 2005). These acquisitions consisted of

dmark, Streetwise and Cuttriss Dye which complemented their existing portfolio (AAU AR 2005; AAU

AR 2006). In 2006, although their financial performance proved poorer, the company still added

Andrews Advertising to their portfolio (AAU AR 2006). In the following years Adcorp Australia

Limited took over Quadrant Creative Pty Ltd and founded Kelly Street Digital Pty Ltd in 2007 and

increased its ownership in Andrews Advertising Pty Ltd to 75% in 2008 (IBISWorld 2011).

In 2009, following the Global Financial crisis, AAU sold off Kelly Street Digital Pty Ltd and incurred an

operating loss during the financial year 2010/2011 (IBISWorld 2011; AAU AR 2011). The event that

marked 2010 the most was the expansion of their activities in the Northern Territory, obtaining the

NT government as a new client (IBISWorld 2011). Despite new customers, the crisis severely

impacted Adcorp Australia Limited reducing their profits and causing the loss of their clients in 2011

(AAU AR 2011). The new market conditions have caused Adcorp Australia Limited to now review its

strategy and plan a repositioning of the company (AAU AR 2011).

1.3 Share Price Performance

The following charts show the fluctuations of Adcorp Australia Limited’s share prices against all

ordinaries in the ASX. The first chart (figure 1) shows the historical share price performance over 10

years- from September 2002 to September 2012- so as to observe the company’s share price

performance prior to and after the GFC. It can be seen that prior to early 2005, AAU’s share price

performance was well above the all ordinaries index, with a share price estimated at $1.2. From

2005 onwards, the share price drastically depreciates and sustains a downward trend against market

expectations as seen in Figure 1. The most significant drop occurs in the first half of 2005, the

disparity between the all ordinaries index and AAU’s share price performance can especially be

observed in the period January 2006 to December 2007. In that period the All Ordinaries Index

AAU Company Valuation Report Page 7

indicate very favourable market conditions, however, AAU’s share price performance depreciates

instead. The performance of AAU’s share price follows the All Ordinaries Index with peaks and

troughs but not to the same extent (e.g. early and mid 2008). Following the GFC in the second half of

2008, AAU’s share price experiences another significant drop in early 2009, however not as much as

the All Ordinaries Index in that same time frame.

Figure 2 is a chart representing the recent share price performance of Adcorp Australia Limited over

the past year between September 2011 and September 2012. As can be observed, AAU’s share price

has highly fluctuated over the past year with a lowest price of $0.150 in September 2012 and a peak

of $0.215. It has somewhat followed the market trend as the prices appreciations and depreciations

coincide with the All Ordinaries index. It is also observed that the share price experience some

stability during the period December 2011 and August 2012, with the prices not falling below $0.166

and following a minor upward trend.

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1.4 Products and Services

1.4.1 Advertising Agency Services
AAU’s advertising agency services are one of their main activities and represent the majority of their

revenue. They specialise in human resources, government, retail, motor vehicle and education (AAU

AR 2011). Adcorp Australia Limited has first started as a human resources advertising company, it is

safe to say they are they are experts in that field managing websites such as CareerOne. Between

2001 and 2005, they began diversifying into other sectors as employment in Australia was facing

slower growth (AAU AR 2005). The very recent obtention of the Northern Territory as a customer

completes their customer portfolio in the governmental sector. Website Design and Development

1.4.2 Website Design and Development
They developed their first website for recruitment advertising in 1995. Since then they have

obtained licenses from external companies to operate similar websites locally -CareerOne and

Recruitment Solutions International Corp (IBISWorld 2011). These services include the development

and maintenance of websites and database support. An example of integrated capacities is the

development of a recruitment website aiming to rebuild Christchurch, New Zealand following the

earthquake in February 2011 (AAU AR 2011). This combined their expertise in recruitment

advertising, website design and marketing strategy consultancy.

1.4.3 Digital marketing Services
These services comprise consulting on digital marketing, the supply of web-based products and

strategic employment solutions (AAU AR 2011). Through this service they aim to educate their

clients about how new digital technologies will affect their business (AAU AR 2010). They inform

clients about arsing opportunities in the digital world and advise on how these new technologies can

be adopted and adapted to strategies (AAU AR 2010).

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2. Financial Analysis

Below are the financial statements and 5 year company analysis which has been prepared the

purposes of AAU’s company valuation. (Figure 6- 5 year financial snapshot)

Source: Morningstar Data Analysis 2012

AAU Company Valuation Report Page 10

2.2 Dupont Analysis

DuPont analysis essentially examines a given organizations ROE, return on equity. Under this model,

ROE is broken into three parts- profit margin, total asset turnover and financial leverage. These 3 key

areas will be examined as part of the AAU financial analysis.

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5 Year Extended DuPont Analysis

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Below, the five components which make up the extended DuPont system/model are detailed.

2.2.1 EBIT/Sales

This illustrates the company’s profitability. It is calculated by deducting expenses from revenue

(revenue – expenses), excluding tax and interest.

– For AAU, the EBIT margin was quite low in 2007 as seen in the extended DuPont analysis. In saying

this, it positively increased between 2008 and 2009. Despite a decline in 2010, it is clear that as of

2011, AAU has managed to perform extremely well in comparison to previous years.

2.2.2 Sales/Total Assets

The total asset turnover ratio basically is used to measure a given company’s ability to use its assets

efficiently to generate sales.

– Between 2007 and 2009, AAU was not as successful as its competitors in terms of asset turnover

which undoubtedly affected profitability. However, since 2010 AAU has done well in outperforming

both SGN and DIG when it’s come to using its assets to generate profit.

2.2.3 EBIT/Total Assets

With a focus on the Return on Assets (ROA) calculation/ratio, the result will show how profitable a

company is relative to its total assets.

– A higher ratio in this area would suggest that an organization has done well financially given its

resources. Despite negative growth in ROA in 2007 and 2010, AAU was able to improve its ROA in

2011 which surely must be a positive sign to investors. It should be noted that during the five year

period, SGN has been able to outperform AAU in the return on assets area. This is an area in which

AAU can uplift and improve on looking forward.

2.2.4 Interest Expense/Total Assets
This ratio reflects the interest rate that a company will have to pay on any debt that it is servicing or

has outstanding.

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– This is definitely an area in which AAU has improved in when examining the 5 year results/analysis.

AAU has been able to achieve an interest expense ratio of 3.6% as of 2011 which has dropped

significantly since 2007 when it peaked at 9.67%.

2.2.5 Net Before Tax/Total Assets
The level of return made on a company’s assets prior to tax can be calculated by using this ratio.

– AAU’s return on assets before tax appears to have stabilized at the end of the 5 year period. The

2010 result of negative 15% is a concern which suggests a poor return on assets before tax and thus

profit. However, the 2011 result is an improvement with the company lifting its return on assets

before tax to over 4% at the end of the financial year.

2.2.6 Total Assets/Common Equity
This particular ratio will determine the level to which a company has decided to use debt in order to

finance its assets.

– A decrease in this ratio would suggest an improvement in that AAU is relying on less debt and more

equity to fund assets. The analysis shows that over the five year period, the organizations ratio has

actually increased from 2.2% in 2007 to 5.3% in 2010. This is seen as a weakening in equity and

means that AAU has unfortunately had to use more debt than historically to finance asset purchases

in recent years.

2.2.7 Net Before Tax/Common Equity
The Net Before Tax/Common Equity calculation and ratio shows what equity holders will receive in

return prior to tax.

– The analysis suggests that AAU have been unable to consistently deliver to its equity holders when it

has come to return before tax. The 2011 year closed on a high however with AAU improving it

return

to equity holder some 26%. A concern nonetheless as for two of the five years there was a

reduction/negative result in return to shareholders before taxation.

2.2.8 Tax Retention
This particular retention ratio, the proportion of income before tax that is not paid is measured. In

addition, with this ratio, the higher a given company’s tax retention, the better it is for that company

as they are paying less tax.

AAU Company Valuation Report Page 14

– AAU has been fairly consistent across the five years in tax retention compared to SGN and DIG. For

2010, AAU was able to outperform both of this reports selected competitors with a tax retention

ratio of 1.4%. The company achieved an even more favourable result in 2009 when it retained 1.5

of income before tax . Tax retention appears to be strength of AAU’s based on the analysis.

2.2.9 Return on Equity (ROE)
ROE basically measures the amount of net income that has been earned as a result of using the

funds that the company’s shareholders invested. ROE is expressed as a percentage.

– Solely focusing on AAU’s ROE performance over the five year period, the organization has had an

ROE that has fluctuated up and down during this time. Comparing the 2007 ratio of 48% to that of

2010 which was 18%, AAU has a ROE challenge on its hands beyond this five year timeframe and this

is an area which should be addressed by management.

3. The Economic Environment
3.2 Overview

Since the beginning of the 2008 global financial downturn, the rising concerns of sovereign debt and

the debt crises experienced in Europe have negatively impacted on global economic sentiment

(Reserve Bank of Australia 2012). In saying this, for those in developed economies that are less

connected with the Euro region, growth is expected to rise by 1.4% through 2012 (IMF

2012).

In light of the fact that both the domestic Australian economy and global economy have been struck

by the onset of recent financial crisis’ (GFC of 2008 and ongoing euro debt crisis), there have been

positive signs of recovery. For the March quarter of 2012, data suggests that household

consumption increased 1.6% and 4.2% over the year (Reserve Bank of Australia 2012). In saying this,

strong business conditions have remained for those operating in the mining sector as evidenced in

Figure 1, but the news is not as promising for non-mining businesses. Based on the Reserve Bank of

Australia’s (2012) findings, the outlook for non-mining investment is forecasted to be weak for

2012/13 according to the ABS Capex survey.

Figure 1: Forecasted mining projects until 2016-17

AAU Company Valuation Report Page 15

The core of AAU’s business continues to exist in the property advertising and employment areas

specifically in mineral rich states, Western Australia and Queensland (AAU Annual Report 2011). This

has shaped the strategy that AAU’s management have implemented which specifically hones in on

furthering business Australia wide as well as reducing overall company costs for the purposes of

improving company profitability. It is very important that AAU keeps to their strategy as domestic

consumer and business sentiment will remain a key challenge to maintaining sales and margins.

Management at AAU see future business conditions as challenging, but according to the AAU Annual

Report (2011), will present a good opportunity at the same time for the company to improve.

3.3 Macroeconomic indicators

It is important to recognize the key macroeconomic indicators or factors that have an impact on

organizations that are operating in the Australian media and advertising industry. In this report, the

impact that inflation, interest rates and consumer confidence have on AAU will be discussed.

AAU Company Valuation Report Page 16

3.3.1 Inflation
In a financial sense, the concept of inflation refers to a general change in the cost of goods and

services over a period of time (Reserve Bank of Australia 2012). In Australia, the consumer price

index (CPI) measures inflation in Australia and each month the RBA provides an updated figure to

the public.

Something of interest to those in finance and economics is that the Australian CPI figure for the

second quarter of 2012 was 1.2% (Trading Economics 2012). As illustrated in Figure 2 pictured below,

in comparison to the past 4 years, the Australian CPI is at an all-time low and is well below the RBA’s

CPI target range of 2-3%. Whilst inflation in Australia is low, in contradiction, cost of living pressures

are at all time high and have become a significant political issue in recent months (Financial Review

2012).

Figure 2: Inflation rate of Australia over the past four years

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3.3.2 Interest Rates

As part of this macroeconomic indicator analysis, the impact that interest rates can have on

businesses in Australia needs to be examined. Fluctuations in interest rates bring about the idea of

‘interest rate risk’ and are a major cost for many businesses (NAB 2012). The most recent decision of

the RBA regarding interest rates was to leave the rate at 3.50% which was announced on the 4th of

September 2012 by Glenn Stevens (RBA 2012). According to the RBA (2012), decisions made on

interest rates and monetary policy are made following important considerations- maintaining full

employment, ensuring economic prosperity for Australians and maintaining the stability of the

Australian dollar. The below diagram, Figure 3, clearly shows a trend in the RBA’s decision to reduce

interest rates in recent years. Traditionally, one might say that when interest rates are higher, the

economy is doing well and performing and when they are lowered, the RBA is attempting to lift

economic activity and spending. In comparing the macroeconomic indicators, there is definitely a

strong correlation between interest rates and consumer confidence.

Figure 3: Interest rates in Australia since 2011

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3.3.3 Consumer Confidence

The level of sentiment/confidence that an organizations target consumers have will undoubtedly

affect a company’s sales, business performance as well as the broader economy overall. The idea of

consumer confidence concerns the degree of sureness that consumers have towards the overall

state of the economy (Trading Economics 2012). After examining Figure 4 which focuses on

Australian consumer confidence since January 2011, our group has recognized that sentiment in

Australia has dipped within the last 12 months and is only starting to recover. There are a number of

reasons behind decreasing consumer confidence. A highly publicised event that has affected the

global economy has been the European debt crisis which has the potential to cause a spill over effect

on Australian banks’ borrowing costs and stability (SMH BusinessDay 2011). Prior to the euro crisis,

the turmoil that the global financial crisis of 2008 caused most certainly had an impact on consumer

confidence not only in Australia, but globally. It is safe to say that the confidence of consumers has

been put to the test during the past five years.

Figure 4: Australian consumer confidence since 2011

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3.3.4 Economic Outlook

Despite recent financial turmoil externally, Australia is well positioned to continue growing at a

faster rate than most developed countries. Some of the main areas of concern for the Australian

economy will continue to be low consumer and investor confidence, the high Australian dollar and

changed consumer patterns (IMF 2012). Looking forward into the future, investment in resources

and commodities is forecasted to continue and eventually peak sometime during 2013/2014 (RBA

2012). As seen below in Figure 5, Australia’s growth has fluctuated less than larger countries like

China and the United States in part due to the positive effects of the mining boom. Whilst this has

provided positive affects to Australia, a key challenge for AAU will be to ensure resources and funds

from the boom filter across the Australian economy (IMF 2012).

Figure 5: GDP Comparison between Australia and world

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3.4 The Australian media industry

3.4.1 Overview

AAU operates primarily in the Australian media and advertising industry. The industry’s coverage

expands across a number of different media types including but not limited to television, radio, print,

internet, mobiles and cinema (Australia On Net 2007).

The industry as a whole is said to generate some $8 billion annually as local organizations look to

position themselves competitively by focusing on selecting their customers efficiently. Many

Australian organizations are able to reach their target consumer by engaging the service sand

expertise of organizations like AAU (Australia On Net 2007).

It is important to at the very least recognize that there are authorities that closely work alongside

and monitor organizations like AAU that are operating in media and advertising. A key body in this

industry is the Australian Communications and Media Authority. The ACMA is a government

department that is responsible for monitoring spam, broadcasting, internet content and

telecommunications throughout Australia (ACMA 2012).

AAU Company Valuation Report Page 21

3.4.2 Market Segmentation

Gaining an understanding into what drives AAU’s business and the areas in which it is highly

profitable is a key element of this report which should not be overlooked. In the below illustration,

Figure 5, we can clearly see which industries source AAU’s services and expertise and ultimately

generate revenue for AAU.

Figure 5: Financial Year 2011- performance highlights

3.4.3 Level of Debt

Something which separates AAU apart from many other organizations and particularly its

competitors is the fact that the company bears no debt. A proud declaration made by the then Chief

Executive Officer in 2008, Peter James, was that a ‘key priority is a continued focus on working

capital management, generating positive cash flows for the year’ (AAU Annual Report 2008). This

stance has not changed in 2012 and is a faucet of the AAU business model which will hopefully

support the organization as it continues to circumnavigate trying domestic economic conditions.

With regards to debt, the closest debt associated with AAU’s business dealings is bad debt. This

relates to funds owed by debtors which aren’t paid or recovered by AAU. Provisioning is made

AAU Company Valuation Report Page 22

annually by management to ensure that amounts not expected to be collected are factored into

business plans and financial targets.

We believe the all-important concept of ‘leverage’ should be examined given that AAU has no debt

to speak of. According to Investopedia (2012), this concept is defined as ‘the use of financial

instruments or borrowed capital, such as margin, to increase the potential return of an investment’.

By not leveraging their firm, our group’s belief is that AAU is missing out on opportunities to grow

their business to a certain extent which is not a great scenario for company growth in the longer

term. On face value, no debt is seen as a fantastic ideal for any organization as you have fewer

liabilities to service each financial year, but with a view to the future, this can stifle company

growth

and even result in lost business opportunities.

3.4.4 Organizational Goals

Many leading and successful organizations and their respective management teams put in place

goals that promote organizational development and growth. In this report, our group has explored

three of AAU’s focuses (AAU Annual Report 2011).

• The first area in which AAU wishes to improve is to continue in reducing overall cost structure. The

New Zealand arm of the business took a hit following the earthquake natural disaster in Christchurch

which came at a significant cost to AAU financially (AAU Annual Report 2011).

• Increasing profit margins in existing business areas where AAU is highly profitable is the second

focus area and goal. Government accounts which apportion for 37% of billings is most certainly an

area that management have clearly outlined they wish to further extend. Building upon already

established relationships with key personnel working in state and federal governments is seen as the

best way of achieving this (AAU Annual Report 2011).

• Winning new business is the third all important organizational goal that management have identified

in the AAU Annual Report (2011). Constantly sourcing new business opportunities is what will drive

company expansion and is a key focus that the business has adopted.

AAU Company Valuation Report Page 23

3.4.5 Key Competitors

The Australian media and advertising space is very much a dynamic and competitive environment.

This industry has a wide array of competitors that compete with AAU for market share throughout

each financial year. The organizations competing against AAU in the Australian media industry which

this report compares and contrasts are as follows.

STW Communications Group Limited (STW Group)

A key player in the media industry, this organization claims itself to be

‘Australasia’s leading marketing content and communications service group,

comprising over 75 operating companies’ (STW Group 2012). According to

the company’s Australian stock exchange profile, STW Group has been listed on the stock exchange

for five years longer than AAU. The date they officially listed on the ASX was the 14th of January

1994 (ASX 2012).

Digital Performance Group Limited (DPG Limited)

The company focuses its efforts on selling online marketing and advertising

campaigns to businesses with a key objective being to increase its client’s

sales and well as brand awareness. With the head office in Melbourne, one

of DPG’s companies, Empowered Communications, currently boasts a media

network with an active member base of over 504,000 users in Australia (DPG 2012).

AAU Company Valuation Report Page 24

4. Valuation Assumptions
In order to estimate AAU’s intrinsic share price value, the CAPM model has been selected to

calculate the required rate of return. The data that will be used for calculation are the firm’s and the

S&P/ASX 200 Return Index.

Required rate of Return(CAPM)

Based on this model, there are three components used to determine the required rate of return

(risk-free rate; market return rate and Beta). Other components include the market risk premium

calculated by using market return rate (Rm) minus risk-free rate (Rf).

CAPM equation: E(Ri)= Rf + βi (Rm-Rf)

Risk-free rate (Rf)

The risk-free rate is the theoretical rate of return of an investment with no risk of financial loss. The

yield for a 10 year government bond is currently 3.14 % as of the 13th September 2012 (Reserve

Bank of Australia 2012). This will be used as the risk-free rate for the valuation model.

Market returns (Rm)

Based on the economic outlook assumption and calculation, 4.75% was the market return (the full

calculation for the expected market return is in section , table )

Market risk premium (Rm-Rf)

Market risk premium is the difference between the expect market return and the risk-free rate. The

expected market return (4.75%) minus the free-risk rate (3.14%) is equal to (1.61%) which is the

market risk premium.

Beta (β)

Beta represents the systematic risk of the risky asset relative to the diversified market portfolio. It is

important to note that this method ignores the diversifiable or market risk. As Beta is unknown and

cannot be observed directly, it has to be estimated based on the S&P/ASX200 proxy. The beta

formula is shown below:

Figure 1 below shows AAU’s weekly return for the last 4 years compared with the S&P/ASX200. As

seen in this graph, there is a positive linear relationship between the market and stock returns.

Table 1.1: Beta for AAU with the S&P/ASX200

AAU Company Valuation Report Page 25

The raw Beta figure that has been calculated is 0.67 (full calculation shown on appendix A, excel) and

the adjusted beta figure was 0.75009. As the Beta is less than 1, the systematic risk of AAU is less

than the market risk. The adjustment beta will be used to calculate the required rate of

return.

Formula of beta adjustment: Adj βi=Raw Beta(0.67)+1.00(0.33)

=0.627*(0.67)+0.33

=0.75009

Required Rate of Return (CAPM) Calculation:

The investor’s required rate of return can be derived as follows:

E(Ri)=Rf + βi (Rm-Rf)

E(Ri)=0.0314+0.75009(0.0475-0.0314)

E(Ri)= 0.043476449

The required rate of return for AAU’s stock is 4.435% and this figure will be used as part of the

following valuation analysis.

4.2 Valuation Analysis

4.2.1 Dividend Discount Model (DDM)
The Dividend discount model is used to evaluate the company’s stock price based on the net present

value of future dividends. This model requires an estimation the company’s future dividends growth

rates for more valid results.

y = 0.627x + 0.0015

R² = 0.0579

–

0.3

–

0.2

–

0.1

0.1
0.2
0.3

0.4

0.5

-0.2 -0.15 -0.1 -0.05 0 0.05 0.1 0.15

AAU

Weekly Returns

for lat

4 Years

S&P Weekly returns for lat 4 years

Beta for AAU with the s&P/ASX200

AAU Company Valuation Report Page 26

There are two models, the Gordon model also called the stable growth rate model and the multi-

stage dividend growth rate model. Both need to be considered when evaluating the company’s stock

price.

The equation of the Gordon Model is shown below. While P is the share price; D is the dividend paid;

(r) is required rate of return and (g) is the dividend growth rate. With this model, the assumption

made is that required rate (r) of return must be greater than the dividend growth rate (g). Note: The

dividend’s growth rate (g) is constant.

D1 =D0 (1+g)

The second model is the multi-stage dividend growth rate model. With this model, the required

rate

of return (r) can be less than the dividend growth rate (g) in the short term. This model which has

different stages of growth rates is considered with both business cycle and the future economic

outlook. The formula for the multi-stage dividend growth rate model is pictured below.

The two above models rely on the assumption that a company is paying out dividends to its

shareholders. However, in the real world many growth companies may decide not to pay dividends

at all for a given period. Instead of paying out dividends, the company may reinvest its capital in

more profitable projects rather than paying out dividends to shareholders. This can make it difficult

to estimate whether the firm will initiate a dividend in all cases; therefore the dividend

discount

model may not always be applicable.

4.2.2 Dividend Forecast
AAU’s dividend to shareholders for 2012 was 1.78 cents per share. This is the sum of the interim

dividend paid on 31 March 2012 and the declared final dividend for the financial year ended 30 June

2012. Based on company data, the amount of 0.75 cents per share will be paid on the 27th

September 2012.

AAU Company Valuation Report Page 27

Table 4.2.1: Dividend history of AAU

dividend

history per share cent

total

$000

earnings

per

share dividend earning per share

2007 interim dividend for 2007 1.5 910 -12.03 1.5

2008 interim dividend for 2008 2.5 1517

2008 paid on 28 Sept 2009 2.5 1517 6.47 5

2009 interim dividend for 2009 1 607 0.45 1

2010 net loss per share 0 0 -11.76 0

2011 interim dividend for 2011 1 607

2011 paid on 28 Sep 2011 1 607 2.29 2

2012 interim dividend for 2012 1 607

2012 paid on 28 Sep 2012 0.78 473 2.57 1.78

Sources: AAU Annual financial report 2011

Table 4.2.2 Dividend growth rate history

Year 2007 2008 2009 2010 2011 2012

DPS (cents) 1.5 5 1 0 2 1.78

change/Growth n/a 233% -80% -100% n/a -11%

Over the past 5 years, AAU‘s dividend payment figure has significantly fluctuated. The company

experienced a loss of 12.03 per share during 2007. The reason for this loss can be attributed to the

fact that AAU incurred $10.357 million in restructure and impairment expenses in the year 2007

(AAU Annual Report 2007). This contributed to the net loss of $7.298 M for this year. Comparing

2007 to 2008, AAU saw a dividend growth rate of 233% in 2008. Following a booming period in 2008,

the GFC was one of the prime reasons for AAU’s poorer performance in 2009. A dramatic decline of

80% in dividend payments indicates that the company was not very profitable during this operating

period. AAU did not pay any dividends during 2010 due to a net loss result of $7.13M. The dividend

growth rate was negative 100% thus mathematically affecting the calculation of

dividend growth

rate for 2011. Nonetheless, AAU paid 2 cents per share to ordinary shareholders. Between 2011 and

2012 , the share growth rate was -11%, a change from 2 cents per share to 1.78 cents per share

respectively. Looking at the 5 year period, AAU has put a lot of effort into reducing expenditure

meanwhile focusing on continually growing company revenue.

During the 2011 period, AAU implemented a number of important initiatives. This includes

completing the formation of their core Digital team and implementing the findings of the 2011

review of this area, changing the way they operate in line with changing consumer media habits,

expanding television and video production capabilities as well as launching the company and social

media websites in August 2012. (AAU Annual Report 2012, AAU FY12 Final Results Market section)

AAU Company Valuation Report Page 28

AAU has responded to the changes in customer behaviour in the media industry by completing the

formation of their core digital team. This should be an opportunity for better growth rates and

ultimately a better return to shareholders. Taking this into consideration, we have estimated the

following forecasted data. (AAU Annual Report 2012)

Table 4.2.2.1: Forecasted Dividend Growth Rates

Phase 1: Slow-

Moderate Growth Stage

Phase 2: High Growth Stage Phase 3: Stable Growth Stage

2013-2015 2016-2018 2019-Onwards

6% 13% 3%

4.2.3 Intrinsic Share Price
According to the ASX (2012), AAU’s current share price is $0.155 as of the 28th of September 2012.

Based the forecasted dividend growth rate above, AAU’s stock price should be of $2.01. If these

calculation and assumptions are correct, then AAU shares are trading at a discount rate of 1100%.

Table 4.2.3: AAU Intrinsic Share Price (full calculation on appendix excels calculation)

Actual

2012 2013 2014 2015 2016 2017 2018 2019

Dividend

Growth

rate
6% 6% 6% 13% 13% 13% 3%

DPS (cent) 1.78 1.86 1.97 2.08 2.36 2.66 3.01 3.10

Annuity 243.78

Time period 0 1 2 3 4 5 6 7

require rate of

return
0.0435 0.0435 0.0435 0.043 0.0435 0.043 0.0435 0.043476

Discount factor 1 0.9583 0.9184 0.88 0.8435 0.808 0.7746

Discount DPS 1.778 1.8059 1.834 1.9866 2.151 2.3297

Discount Annuity 188.85

Total 200.7

NPV ($) 2.01

4.2.4 Sensitivity Analysis
The calculation of AAU’s intrinsic value in the dividend discount model shows the strength in AAU’s

share price, currently $0.155 compared to the forecasted NPV of $2.01. This makes the share price

approximately undervalued by 1100%. Please note, the accuracy of this valuation strongly relies on

the forecast of the dividend growth rate.

With the discount sensitivity analysis, the market risk premium and AAU’s beta will be used to

calculate the present value. The consistent growth rate assumes 3.431%. With this model, it will

show the change in market risk premium and the beta which both affect AAU’s share price.

AAU Company Valuation Report Page 29

Table 4.2.4: DDM Beta and Risk Premium Sensitivity (Gordon model)

AAU

beta

market risk premium 0.55009 0.65009 0.75009 0.85009 0.95009 1.05009

0.0161 3.0909 2.4332 2.0063 1.7068 1.4852 1.3144

0.0261 1.6069 1.3088 1.1039 0.9545 0.8408 0.7512

0.0361 1.0856 0.8951 0.7615 0.6625 0.5864 0.5259

0.0461 0.8197 0.6801 0.5812 0.5073 0.4501 0.4045

0.0561 0.6585 0.5484 0.4699 0.411 0.3653 0.3287

0.0661 0.5502 0.4595 0.3944 0.3455 0.3074 0.2768

With a brief overview of the economic environment, the economy is slowly recovering. According to

Barberis (2001), investors become more risk averse during harsh economic times. The data in Table

4.2.4 shows that an increased market risk premium and beta would affect the share price. In other

words, investors would offer to pay a higher price on lower risk level stocks. This is especially true

when investors prefer taking on a risk averse approach. They would invest their money on low risk

assets and settle for moderate to lower returns rather than invest on an asset which offers a higher

return.

Dividend growth rate sensitivity is considered the phase growth rate which affects the share price.

This sensitivity analysis is used to compare and contrast growths rate and the subsequent impact on

the share price.

Table 4.2.5 Dividend Growth Rate Sensitivity

phase

2
growth
rate

phase 1 growth rate 0.1 0.11 0.12 0.13 0.14 0.15 0.16 0.17

0.03 1.639 1.682 1.726 1.771 1.817 1.863 1.910 1.958

0.04 1.687 1.731 1.777 1.823 1.870 1.917 1.966 2.015

0.05 1.735 1.781 1.828 1.875 1.924 1.973 2.023 2.074

0.06 1.785 1.832 1.880 1.929 1.978 2.029 2.080 2.133

0.07 1.835 1.884 1.933 1.983 2.035 2.087 2.139 2.193

0.08 1.887 1.937 1.987 2.039 2.092 2.145 2.199 2.255

0.09 1.939 1.990 2.043 2.096 2.150 2.205 2.261 2.317

0.1 1.993 2.045 2.099 2.153 2.209 2.265 2.323 2.381

The above table illustrates that as required rate of return remains constant, investors are willing to

pay a higher price for the share as the growth rate increases.

The sensitivity analysis above demonstrates that the accuracy of share price present value data is

highly dependent on the forecasted growth rate. Where the company has not paid dividends or the

dividend amount was too small, they may have made a loss or decided to reinvest the profit into a

more valuable project. Therefore, the DDM model would not be an appropriate tool to calculate the

intrinsic value of the share price. In this case, the free cash Flow to Equity Model will be used to

calculate the intrinsic value of the company’s share price.

AAU Company Valuation Report Page 30

4.3 Free cash Flow to Equity Model

The FCFE model is used to measure a firm’s ability to pay out shareholder dividends. The FCFE model

takes into consideration calculating the intrinsic share price where the company has not paid

dividends or dividend amount paid is very small. This model shows the ability of the company to pay

its shareholders using equity cash flows once expenses have been paid. With this model, stable

growth FCFE and multi-stage FCFE growth need to be considered.

The first model to be examined is the stable FCFE growth model. This model assumes that the

company has enjoyed a constant growth rate and required rate of return for the following period.

This model is appropriate when the growth rate (Ri) not greater than the required rate of return (g)

and the beta of the stock is close to one or below one.

Formula of constant FCFE growth model:

The second model is the multi-stage growth rate model. This model assumes that the company has a

multi-phase growth rate for the short term which allows for the growth rate (g) to be greater than

require rate of return (Ri).

Formula of multi-stage FCFE growth model

In order to calculate the intrinsic value of the company’s share price, a phase growth rate need to be

forecasted. FCFE is often used to evaluate the intrinsic value of the share price of the company. The

equation of FCEF is below:

FCFE=Net Earnings-[(Capital Exp – Depreciation)* (1-Debt Ratio)]-[(Chg in Working Capital)*(1-Debt

Ratio)]

4.3.1 Cash Flow Forecast

Free cash flow to equity for 2011 was $1,222,673. Table 4.4.1 below shows that over the past 5

years, AAU historical FCFE growth rate has proven to be extremely volatile. The negative growth rate

AAU Company Valuation Report Page 31

of 326% for 2009 indicates that the company had to come to terms with a crisis during this particular

year. During this time, the global economy was weak and this posed a challenge for the whole

industry. From 2010 the growth rate was recovering and until 2011 it was able to improve its growth

rate from negative to positive 3%.

Table 4.3.1 Historical FCFE Growth Rate

2006 2007 2008 2009 2010 2011

NPAT -7298 3926 271 -7138 1392 1562

capital expenditure 3927 2383 2294 590 1006 2002

depreciation 664 625 665 595 349 585

current asset 37635 42126 28708 40271 39063 27686

current liability 34352 38004 36490 37506 35841 24558

working capital 3283 4122 -7782 2765 3222 3128

chg in working capital 0 839 -11904 10547 457 -94

total liability 34829 38354 26979 37933 36468 25203

total total assets 50776 55590 42140 45822 44850 33897

Debt ratio 69% 69% 64% 83% 81% 74%

FCFE 0 3120.785 3967.708 -8952.98 1183.805 1222.673

share outstanding 60677 60677 60677 60677 60677 60677

FCFE per share 0 0.051433 0.065391 -0.14755 0.01951 0.020151

FCFE growth rate 0 0 27% -326% -113% 3%

To forecast the future FCFE growth rate, the assumption of dividend growth rate forecast in table

4.3.1 needs to be taken into consideration. A continued reduction in operating expenses shows that

the company has put significant efforts into minimising its expenditure and trying to maximise its

profitability thus needs to be considered as well.

Table 4.3.2 operating expenses history

2006 2007 2008 2009 2010 2011

operating expenses 39850 32297 31624 37104 26504 25547

decreasing rate 0 23% 2% -15% 40% 4%

As seen in the above table, AAU has had a very positive decreasing rate of expenditure over the past

5 years. Considering the company has completed several initiatives, previously analysed on dividend

forecast, we may assume there is no significant investment for the future. Consequently, FCFE

growth rates must be greater than the dividend

growth rate.

Table 4.3.3 Forecasted FCFE Growth Rates

Phase 1: Slow-
Moderate Growth Stage
Phase 2: High Growth Stage Phase 3: Stable Growth Stage
2013-2015 2016-2018 2019-Onwards

20% 30% 3%

Based on the forecasted FCFE growth rate, the intrinsic share price of AAU can be calculated.

Currently the share price of AAU is $0.155 compared to the estimated NPV of $2.28; AAU shares sold

at a discount of 1371%. If the above forecasting is correct, then the figure indicates to investors that

AAU’s stock is a sound investment.

AAU Company Valuation Report Page 32

Table 4.3.4 AAU share price (fully calculation on appendix excel)

Actual

2011 2012 2013 2014 2015 2016 2017 2018

FCFE growth rate 20% 20% 20% 30% 30% 30% 3%

FCFE pre share 0.02 0.024 0.029 0.035 0.045 0.058 0.076 0.078

Annuity 2.657

time period 0 1 2 3 4 5 6 7

discount factor 1 0.9583 0.9184 0.88 0.8435 0.808 0.7746

discount FCFE

p/s
0.023 0.0264 0.03041 0.0379 0.0472 0.05881

discount annuity 2.05811

lNPV ($) 2.2819

4.3.2 Sensitivity Analysis
FCFE sensitivity analysis is used to test the uncertainty of the inputs and how they will affect to

outcome when different values are used. The accuracy of the intrinsic value of AAU share price

depends on the accuracy of forecast of the growth rate; require rate of return and the beta.

The first sensitivity test assumes constant growth at 3.41% in order to investigate how a change in

market risk premium and beta will affect the intrinsic share price value.

Table 4.3.5 Discount FCFE Market risk premium and Beta Sensitivity (discount sensitivity)

discount

sensitivity

market risk
AAU

Beta

Premium 0.55009 0.65009 0.75009 0.85009 0.95009 1.05009

0.0161 4.036 3.1761 2.6182 2.22708 1.9376 1.7147

0.0261 2.0966 1.7073 1.4399 1.24498 1.09652 0.9797

0.0361 1.4161 1.1674 0.993 0.86399 0.76462 0.6857

0.0461 1.0691 0.8869 0.7578 0.66154 0.58695 0.5275

0.0561 0.8587 0.7151 0.6127 0.53595 0.47628 0.4286

0.0661 0.7175 0.5991 0.5142 0.45044 0.40073 0.3609

Table 2.4.5.1 shows that when beta or risk premium increases, the share price decreases and vice-

versa. As can be seen in the above table, investors will prefer to pay more for the less risky asset or

will be looking to pay less if the market premium increases.

The second sensitivity test assumes constant beta, market risk premium and required rate of return

to observe the effects of changes in future growth phases on the intrinsic share price value.

AAU Company Valuation Report Page 33

Table 4.3.6 FCFE Growth Rate Sensitivity

phase
2
growth
rate

phase 1 growth

rate
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

0.1 2.6866 2.7575 2.8298 2.90336 2.97822 3.0544 3.1319 3.2107

0.2 3.4797 3.5719 3.6657 3.76122 3.85841 3.9573 4.05793 4.1603

0.3 4.4159 4.5331 4.6523 4.77376 4.89733 5.0231 5.15101 5.2812

0.4 5.5069 5.6532 5.8022 5.95385 6.10819 6.2652 6.42502 6.5876

0.5 6.7646 6.9446 7.1278 7.31433 7.50415 7.6973 7.89384 8.0938

0.6 8.2009 8.4193 8.6417 8.86805 9.09843 9.3329 9.57137 9.814

0.7 9.8276 10.09 10.356 10.6279 10.9042 11.185 11.4715 11.763

0.8 11.657 11.968 12.284 12.6067 12.9347 13.268 13.6081 13.954

The analysis demonstrates that there is a positive relationship between the share price and the

growth rate. As the forecast growth rate increases, investors are prepared to pay higher prices on

the share to gather greater benefit.

Similarly to the DDM model sensitivity analysis, the accuracy of intrinsic value of the share price is

highly depend on the accuracy on the forecast of growth rate and required rate of return.

4.4 Price earnings ratio
The P/E ratio values the stock based on expected annual earnings. This model allows investors to

compare and contrast the intrinsic value of stock of several companies in the same industry and with

similar risk (About.com Stocks 2012). It enables investors to select more valuable stock and obtain

larger future returns.

Earning Multiplier Model: Price/Earnings Ratio

Since:

Therefore:

This model is determined by

-Expected dividend payout ratio

-Required rate of Return (k)

-expected growth rate of dividend (g)

EarningsMonth -12 Expected

PriceMarket Current
=

Pi
−

= 11
1

AAU Company Valuation Report Page 34

Table 4.4.1 AAU P/E Ratio forecast 2013

2012 2013

current price 0.155 2

dividend growth

rate
0.06

earnings per

share
0.178 0.1887

estimated P/E

ratio
0.8708 10.6

The ratio indicates that investors would be willing to pay $10.6 for every $1 the company generates

in the future. To evaluate AAU value, comparison with AAU’s competitors is necessary and will help

investors to understand and select more appropriate portfolios. Considering the similarities in risk

and business cycle in the media industry, STW Communications Group Limited and Digital

Performance Group Limited have been elected.

Table 4.4.2 Peer Comparison

Company Forecast P/E ratio Share price beta

AAU 10.6 0.155 0.755

STW 8.89 1.02 1.11

DIG N/A 0.01 1.32

Source:

From the above table, 4.4.2, AAU has a higher P/E ratio of 10.6 than rival STW, which have P/E ratio

of 8.89. Beta is an indicator that shows the systematic risk of the asset. Lower beta means lower risk

and vice versa. Investors will accept a lower return with lower risk during a weak economic period.

Investors of AAU will pay 20% more than STW stock to the company to gather $1. However from the

beta analysis, investing on AAU stock will have 30% less systematic risk then investing in STW stock.

Just focusing on the P/E ratio and not taking into account other factors, AAU’s share price must be

under-priced.

4.4.1 Sensitivity analysis

The result of P/E ratio is influenced by different forecasted dividend growth rates.

Table 4.4.2 P/E Growth Rate Sensitivity

Growth
rate

0.03 0.04 0.05 0.06 0.07 0.08 0.09

P/E Ratio 10.9 10.8 10.7 10.6 10.5 10.4 10.3

The sensitivity analysis indicates that the P/E ratio is minimally affected by the change in dividend

growth rate.

4.5 Price/Book Value ratio (P/B)
This ratio enables investors to compare the stock’s per-share price to its book value. The purpose of

this model is to determine whether or not the stock is undervalued. Low P/B ratio conveys that the

stock is undervalued- an opportunity to buy if the company has no issues with its internal control or

operations.

AAU Company Valuation Report Page 35

Formula:

Table 4.5.1 AAU history P/B ratio

(‘000 in $) 2007 2008 2009 2010 2011

book equity 17240 15160 7890 8380 8690

share outstanding 60677 60677 60677 60677 60677

book value per share 0.284127 0.249848 0.130033 0.138108 0.143217

share price 0.35 0.25 0.2 0.17 0.16

P/B ratio 1.23 1.00 1.54 1.23 1.12

Source: FinAnalysis

Table 4.5.1 shows the fluctuations in AAU’s P/B ratio between 2007 and 2011. In order to determine

whether the share price was undervalued or overvalued, AAU’s P/B ratio needs be compared with

that of its peers.

Table4.5.2 comparison of P/B of AAU with its competitor

Year 2007 2008 2009 2010 2011

AAU 1.23 1.00 1.54 1.23 1.12

STW 1.39 0.41 1.73 0.99 0.75

DIG 4.48 8.2 5.8 7.43 25.01

Source: excel calculation

Table 4.5.2 above shows that STW has the lowest P/B ratio and DIG has the highest P/B ratios. As

we can see in the P/E table above , the assumption is that where STW’s stock was under-priced, AAU

stock was under-priced too. Based on the above P/B ratio analysis, STW would be more valuable to

invest in than AAU or DIG. DIG has the highest P/B ratio; this may indicate the share of DIG was

overpriced.

AAU Company Valuation Report Page 36

5. Evaluation of value/price of the company

The share price of AAU can be impacted by both micro and macro factors which have been discussed

in section 2 of this report. Investors’ confidence levels for instance are impacted by things that are

often out of their control. The level of risk appetite that an investor has is also a determinant of the

amount of their money that they will invest in a given company, whether that investment is with

AAU, STW or DIG. The reality of investment is that not every investor will be able to analyse the

market in depth and many will make their decisions based on inner feelings. This ultimately means

that share prices will fluctuate both upwards and also downwards without warning. The presence of

large investment companies also cause the value of the company to differ from current and recent

share prices because they have a large impact on share prices causing the prices to go up and down.

Each of the models discussed in this report rely on certain assumptions which is a key reason for the

value of a company being different each time you use a different model. Forecasting criteria with

each of the models is different as well. For instance, betas, required rate of return, market premium

are criteria that are used in some of these models, but not all of these models. Some of the criteria

we have used with the forecasting perhaps are more accurate than the other criteria used in

calculations as well.

The next question to be considered is which model is the most appropriate out the four that have

been discussed in this valuation report. Following company analysis and use of each of these models,

our group has recognized the Net Tangible Asset Backing Model (NTA) as the most appropriate

model for evaluation of the company. The other models look at forecasting future returns whilst

arguably being less concerned about safe risk levels. If the investors wish to pursue higher return

investments, then the other models would be more appropriate. With the current economic

environment which is volatile, investors will be more risk averse. With risk aversion, investors are

concerned about finding assets that have low risk primarily. The NTA model studies the ability of

firms to pay investors if their organization is liquidated. If this model is positive, this means the

company’s stock is safer to invest in as they will receive equity back from the company even when

the company goes into financial hardship.

AAU Company Valuation Report Page 37

6. References
Adcorp Australia Limited (AAU), Company Profile, InvestSmart, viewed 27

September

2012,

Barberis, N 2001, The Quarterly Journal of Economics, retrieved 15 September 2012,

< qje.oxfordjournals.org/content/116/1/1.full.pd>

Interest rates, 2012, Reserve Bank of Australia, viewed 5 October 2012,

http://www.rba.gov.au/statistics/tables/index.html#interest_rates

World Economic Growth Rate (2004-2010), GDP Growth (Annual %), The World Bank, viewed 29

September 2012,

Definition of GDP Growth Rate- Real growth rate, 2011, Indexmundi, January 1, viewed 26

September 2012,

STW Communications Group Limited (SGN)- FinAnalysis, AspectHuntley, 2012, viewed 24 September

2012,

Little, K 2012, Understanding Price to Earnings ratio, About.com Stocks, viewed 21 September 2012,

Reserve Bank of Australia, 2012, Statement on Monetary Policy- August 2012, RBA, viewed 15

September 2012,

AAU Company Valuation Report Page 38

International Monetary Fund, 2012, World economic outlook update- New setbacks, further policy

action needed, 16 July, IMF, viewed 15 September 2012,

‘Sadif Analytics releases new summary due diligence reports for Australian stocks’, 2012, Pr-

Inside.com, 24 August, viewed

29 August 2012,

‘Low inflation hides problem’, 2012, The Australian Financial Review, 26 April, viewed 29 August

2012,

Conversations, Interest rate management (IRRM), Interest rate risk, National Australia Bank, viewed

29 August 2012,

MOD=AJPERES&CACHEID=0471d300422c19ce82b3d71ef60654e8>

‘Europe’s debt crisis will hurt Australia: RBA’, 2011, Sydney Morning Herald, BusinessDay, 14

December,

viewed 29 September 2012,

1ou52.html>

2012 Article IV consultation with Australia preliminary concluding statement, International Monetary

Fund, Sydney, September 20, viewed 29 September 2012,

Economic Outlook, Statement on Monetary Policy, August 2012, Reserve Bank of Australia, page 65,

viewed 29 September 2012,

Leverage, Definition of Leverage, Investopedia, viewed 29 September 2012,

AAU Company Valuation Report Page 39

7. Appendices

Appendix 1: Beta calculation of AAU with ASX 200 index

Start 27/07/2007

End 27/07/2012

Frequency W

beta

Name

S&P/ASX 200 – TOT RETURN

IND

ADCORP AUSTRALIA – TOT RETURN

IND
S&P

Weekly

returns

WFMI Weekly
Returns

Code ASX200I(RI) A:AAUX(RI) for lat 4 years for lat 4 Years

CURRENCY A$ A$

27/07/2007 37922.45 45.2
Weekly Return
S&P Weekly Return AAU

3/08/2007 37537.22 45.2 -0.010158363 0

10/08/2007 37042.76 41.63 -0.013172526 -0.078982301

17/08/2007 35390.93 38.06 -0.04459252 -0.085755465

24/08/2007 38136.65 42.82 0.07758259 0.125065686

31/08/2007 39240.53 36.87 0.028945385 -0.13895376

7/09/2007 39472.91 36.28 0.005921938 -0.01600217

14/09/2007 39727.5 36.28 0.00644974 0

21/09/2007 40067.73 35.09 0.008564093 -0.032800441

28/09/2007 41424.1 35.09 0.03385193 0

5/10/2007 41662.56 36.28 0.005756552 0.033912796

12/10/2007 42570.98 34.5 0.021804229 -0.049062845

19/10/2007 42306.01 33.31 -0.006224193 -0.034492754

26/10/2007 42270.07 32.71 -0.000849525 -0.018012609

2/11/2007 42261.55 32.71 -0.000201561 0

9/11/2007 41413.28 33.9 -0.020071909 0.036380312

16/11/2007 40939.91 34.5 -0.011430391 0.017699115

23/11/2007 40126.28 32.71 -0.019873761 -0.051884058

30/11/2007 41416.73 46.99 0.032159722 0.436563742

7/12/2007 42191.17 44.61 0.018698724 -0.050649074

14/12/2007 41160.38 47.58 -0.024431415 0.066577001

21/12/2007 39700.73 45.2 -0.035462501 -0.050021017

28/12/2007 40291.79 46.99 0.014887887 0.03960177

4/01/2008 40094.12 48.77 -0.004905962 0.0378804

11/01/2008 38026.75 44.61 -0.051562922 -0.085298339

18/01/2008 36536.8 44.01 -0.039181629 -0.013449899

25/01/2008 37255.63 41.04 0.019674137 -0.067484663

1/02/2008 37145.15 41.04 -0.002965458 0

8/02/2008 35969.5 45.2 -0.031650162 0.101364522

15/02/2008 35675.71 47.58 -0.008167753 0.052654867

22/02/2008 35449.84 47.58 -0.006331198 0

29/02/2008 35673.6 51.74 0.006312017 0.087431694

AAU Company Valuation Report Page 40

7/03/2008 33835.06 54.12 -0.051537832 0.045999227

14/03/2008 33493.67 48.46 -0.01008983 -0.104582409

21/03/2008 33006.7 47.83 -0.014539165 -0.013000413

28/03/2008 34461.6 47.83 0.044078929 0

4/04/2008 36202.18 47.83 0.050507812 0

11/04/2008 35046 46.57 -0.031936751 -0.026343299

18/04/2008 34985.34 45.31 -0.001730868 -0.027056045

25/04/2008 36001.23 47.2 0.029037591 0.041712646

2/05/2008 36731.52 45.94 0.02028514 -0.026694915

9/05/2008 37241.36 46.57 0.013880177 0.013713539

16/05/2008 38268.63 45.31 0.027584116 -0.027056045

23/05/2008 37262.05 44.05 -0.026303006 -0.027808431

30/05/2008 36604.8 45.94 -0.017638589 0.042905789

6/06/2008 36223.05 44.68 -0.01042896 -0.027427079

13/06/2008 34837.81 46.57 -0.038241948 0.042300806

20/06/2008 34255.73 44.68 -0.016708283 -0.040584067

27/06/2008 34015.75 46.57 -0.007005543 0.042300806

4/07/2008 33009.99 44.05 -0.02956748 -0.054112089

11/07/2008 32346.32 47.2 -0.020105126 0.071509648

18/07/2008 31439.92 44.05 -0.028021735 -0.066737288

25/07/2008 32285.47 46.57 0.026894152 0.057207719

1/08/2008 31854.31 54.12 -0.013354614 0.162121537

8/08/2008 32387.98 52.86 0.016753463 -0.023281596

15/08/2008 32390.54 58.53 7.90417E-05 0.107264472

22/08/2008 32143.35 57.9 -0.007631549 -0.010763711

29/08/2008 33652.13 58.53 0.046939102 0.010880829

5/09/2008 32074.32 59.79 -0.046885888 0.021527422

12/09/2008 32274.75 60.42 0.006248924 0.010536879

19/09/2008 31655.94 53.11 -0.019173193 -0.120986428

26/09/2008 32342.71 54.44 0.021694823 0.025042365

3/10/2008 30976.52 53.11 -0.042241049 -0.024430566

10/10/2008 26130.31 50.46 -0.156447851 -0.049896441

17/10/2008 26198.23 51.12 0.00259928 0.013079667

24/10/2008 25530.3 43.15 -0.025495234 -0.155907668

31/10/2008 26514.52 41.16 0.038551055 -0.046118192

7/11/2008 26883.41 45.15 0.013912754 0.096938776

14/11/2008 24879.73 41.16 -0.074532212 -0.088372093

21/11/2008 22685.76 40.5 -0.088183031 -0.016034985

28/11/2008 24869.93 39.83 0.09627934 -0.01654321

5/12/2008 23191.26 42.49 -0.067497978 0.066783831

12/12/2008 23330.47 42.49 0.006002692 0

19/12/2008 24033.05 45.81 0.030114267 0.078136032

26/12/2008 23867.85 45.81 -0.006873867 0

2/01/2009 24744.55 41.16 0.036731419 -0.101506221

9/01/2009 24890.82 43.15 0.005911201 0.048347911

AAU Company Valuation Report Page 41

16/01/2009 23659.81 40.5 -0.049456386 -0.061413673

23/01/2009 22272.27 39.17 -0.058645441 -0.032839506

30/01/2009 23591.64 39.17 0.059238237 0

6/02/2009 23148.85 38.51 -0.018768937 -0.01684963

13/02/2009 23750.93 30.54 0.026009067 -0.206959231

20/02/2009 22767.7 30.54 -0.041397537 0

27/02/2009 22512.84 25.23 -0.011193928 -0.173870334

6/03/2009 21298.05 23.9 -0.053959874 -0.052715022

13/03/2009 22666.2 28.03 0.064238275 0.172803347

20/03/2009 23492.56 28.03 0.036457809 0

27/03/2009 24916.9 32.24 0.060629408 0.150196218

3/04/2009 25354.57 29.43 0.017565187 -0.087158809

10/04/2009 24922.8 29.43 -0.017029277 0

17/04/2009 25636.72 35.04 0.028645257 0.190621814

24/04/2009 25199.41 34.34 -0.017057954 -0.019977169

1/05/2009 25589.93 30.84 0.015497188 -0.101921957

8/05/2009 26792.75 36.44 0.047003646 0.181582361

15/05/2009 25651.75 30.84 -0.042586147 -0.153677278

22/05/2009 25627.7 31.54 -0.000937558 0.022697795

29/05/2009 26011.84 30.84 0.01498925 -0.022194039

5/06/2009 27101.64 32.94 0.041896306 0.068093385

12/06/2009 27727.97 37.14 0.02311041 0.127504554

19/06/2009 26621.11 34.34 -0.039918537 -0.075390415

26/06/2009 26704.43 32.94 0.003129847 -0.040768783

3/07/2009 26187.03 32.24 -0.019375062 -0.021250759

10/07/2009 25953.82 32.24 -0.008905554 0

17/07/2009 27367.67 33.64 0.054475603 0.043424318

24/07/2009 27976.47 33.64 0.022245226 0

31/07/2009 29032.28 36.44 0.037739214 0.083234245

7/08/2009 29411.7 40.65 0.013068901 0.115532382

14/08/2009 30554.2 40.65 0.038845085 0

21/08/2009 29447.01 36.44 -0.036236917 -0.103567036

28/08/2009 30955.77 36.44 0.051236441 0

4/09/2009 30661.52 37.14 -0.009505498 0.01920966

11/09/2009 31817.84 33.64 0.037712416 -0.094238018

18/09/2009 32508 35.04 0.021690976 0.041617122

25/09/2009 32654.23 39.95 0.004498277 0.140125571

2/10/2009 31890.13 36.44 -0.023399725 -0.087859825

9/10/2009 32942.4 37.84 0.03299673 0.038419319

16/10/2009 33523.62 36.44 0.017643523 -0.036997886

23/10/2009 33682.75 39.24 0.004746802 0.076838639

30/10/2009 32185.68 42.75 -0.044446193 0.089449541

6/11/2009 31892.53 41.35 -0.009108088 -0.032748538

13/11/2009 32788.64 39.95 0.028097802 -0.033857316

20/11/2009 32649.53 37.84 -0.004242628 -0.05281602

AAU Company Valuation Report Page 42

27/11/2009 31858.5 36.44 -0.024227914 -0.036997886

4/12/2009 32765.77 34.34 0.028478114 -0.057628979

11/12/2009 32301.54 34.34 -0.014168139 0

18/12/2009 32408.83 33.64 0.003321513 -0.020384391

25/12/2009 33429.11 35.04 0.031481544 0.041617122

1/01/2010 33985.86 33.64 0.016654646 -0.039954338

8/01/2010 34276.24 36.44 0.008544142 0.083234245

15/01/2010 34188.74 32.94 -0.002552789 -0.096048299

22/01/2010 33149.19 32.24 -0.03040621 -0.021250759

29/01/2010 31886.24 28.73 -0.03809897 -0.108870968

5/02/2010 31528.42 29.43 -0.011221768 0.024364775

12/02/2010 31872.57 28.03 0.010915549 -0.047570506

19/02/2010 32444.34 31.54 0.01793925 0.125222975

26/02/2010 32576.06 25.23 0.004059876 -0.200063412

5/03/2010 33630.74 25.93 0.032375923 0.027744748

12/03/2010 34004.17 27.33 0.011103829 0.053991516

19/03/2010 34394.66 27.33 0.011483592 0

26/03/2010 34597.77 27.33 0.005905277 0

2/04/2010 34678.82 27.33 0.002342637 0

9/04/2010 34963.98 28.03 0.008222886 0.02561288

16/04/2010 35223.57 28.03 0.007424498 0

23/04/2010 34495.42 30.84 -0.020672237 0.100249732

30/04/2010 33973.06 25.23 -0.01514288 -0.181906615

7/05/2010 31706.14 25.23 -0.066726989 0

14/05/2010 32639.88 28.03 0.029449816 0.110978993

21/05/2010 30535.25 23.83 -0.064480323 -0.149839458

28/05/2010 31619.72 23.83 0.035515347 0

4/06/2010 31609.67 25.23 -0.00031784 0.058749475

11/06/2010 32011.06 24.53 0.012698329 -0.027744748

18/06/2010 32345.3 22.43 0.010441391 -0.085609458

25/06/2010 31403.4 21.72 -0.02912015 -0.031654035

2/07/2010 30163.22 21.02 -0.039491902 -0.032228361

9/07/2010 31285.31 28.03 0.037200604 0.333491912

16/07/2010 31473.36 23.83 0.006010808 -0.149839458

23/07/2010 31727.08 23.13 0.008061421 -0.029374738

30/07/2010 31977.25 26.63 0.007885062 0.151318634

6/08/2010 32494.63 25.93 0.016179628 -0.026286143

13/08/2010 31770.55 25.93 -0.022283066 0

20/08/2010 31656.11 25.93 -0.003602078 0

27/08/2010 31337.65 24.53 -0.010059985 -0.053991516

3/09/2010 32618.94 27.33 0.040886601 0.114145944

10/09/2010 32840.69 26.63 0.006798198 -0.02561288

17/09/2010 33449.3 26.63 0.018532193 0

24/09/2010 33196.02 28.03 -0.007572057 0.052572287

1/10/2010 33045.21 26.63 -0.004543014 -0.049946486

AAU Company Valuation Report Page 43

8/10/2010 33787.99 29.43 0.02247769 0.105144574

15/10/2010 33842.82 28.03 0.001622766 -0.047570506

22/10/2010 33548.88 28.73 -0.008685446 0.024973243

29/10/2010 33659.48 28.73 0.003296682 0

5/11/2010 34722.4 28.03 0.031578622 -0.024364775

12/11/2010 34078.3 30.13 -0.018549985 0.074919729

19/11/2010 33621.84 27.33 -0.013394447 -0.092930634

26/11/2010 33399.21 30.13 -0.006621589 0.102451518

3/12/2010 34096.74 29.43 0.020884626 -0.023232658

10/12/2010 34475 27.33 0.011093729 -0.071355759

17/12/2010 34600.26 29.43 0.003633358 0.076838639

24/12/2010 34751.48 28.03 0.004370487 -0.047570506

31/12/2010 34518.53 28.03 -0.006703312 0

7/01/2011 34226.09 30.84 -0.008471971 0.100249732

14/01/2011 34928.27 29.43 0.020515928 -0.045719844

21/01/2011 34594.88 28.03 -0.00954499 -0.047570506

28/01/2011 34734.82 32.24 0.004045107 0.150196218

4/02/2011 35373.71 32.24 0.018393359 0

11/02/2011 35534.51 32.24 0.004545749 0

18/02/2011 36016.64 33.64 0.013567937 0.043424318

25/02/2011 35386.79 31.54 -0.01748775 -0.062425684

4/03/2011 35706.2 33.64 0.00902625 0.066582118

11/03/2011 34170.04 35.04 -0.04302222 0.041617122

18/03/2011 34040.56 36.44 -0.003789284 0.039954338

25/03/2011 34926.74 36.44 0.026033062 0

1/04/2011 35808.44 32.07 0.025244268 -0.119923161

8/04/2011 36390.68 27.7 0.016259854 -0.136264422

15/04/2011 35740.79 24.05 -0.017858693 -0.131768953

22/04/2011 36194.98 24.05 0.012707889 0

29/04/2011 35527.91 24.05 -0.018429904 0

6/05/2011 34942.26 23.32 -0.016484223 -0.03035343

13/05/2011 34772.72 23.32 -0.004852004 0

20/05/2011 34999.19 23.32 0.006512864 0

27/05/2011 34649.2 22.59 -0.009999946 -0.031303602

3/06/2011 33959.18 21.86 -0.019914457 -0.032315184

10/06/2011 33804.79 21.86 -0.004546341 0

17/06/2011 33232.86 20.41 -0.016918608 -0.066331199

24/06/2011 33459.54 20.41 0.00682096 0

1/07/2011 34077.1 19.68 0.018456918 -0.035766781

8/07/2011 34549.4 20.41 0.013859747 0.037093496

15/07/2011 33204.34 18.95 -0.038931501 -0.071533562

22/07/2011 34164.3 20.41 0.028910679 0.077044855

29/07/2011 32841.59 18.95 -0.038716145 -0.071533562

5/08/2011 30472.6 19.68 -0.07213384 0.038522427

12/08/2011 31005.98 18.95 0.017503593 -0.037093496

AAU Company Valuation Report Page 44

19/08/2011 30578.23 18.22 -0.013795726 -0.038522427

26/08/2011 31445.24 21.86 0.028353832 0.199780461

2/09/2011 31846.26 23.32 0.012752964 0.066788655

9/09/2011 31567.35 26.24 -0.008758014 0.125214408

16/09/2011 31270.96 25.43 -0.009389131 -0.030868902

23/09/2011 29426.26 27.74 -0.058990834 0.090837593

30/09/2011 30239.41 29.28 0.027633481 0.055515501

7/10/2011 31405.66 27.74 0.038567221 -0.052595628

14/10/2011 31729.47 27.74 0.010310562 0

21/10/2011 31248.43 26.97 -0.015160669 -0.027757751

28/10/2011 32846.67 26.2 0.05114625 -0.028550241

4/11/2011 32302.32 26.2 -0.016572456 0

11/11/2011 32631.34 26.97 0.010185646 0.029389313

18/11/2011 31733.38 27.74 -0.027518331 0.028550241

25/11/2011 30273.18 27.74 -0.046014638 0

2/12/2011 32581.36 25.43 0.076245046 -0.083273252

9/12/2011 31940.43 25.43 -0.019671677 0

16/12/2011 31608.67 26.2 -0.010386836 0.030279198

23/12/2011 31517.42 26.2 -0.002886866 0

30/12/2011 30879.11 26.2 -0.02025261 0

6/01/2012 31274.64 26.2 0.012808983 0

13/01/2012 31939.71 26.2 0.021265473 0

20/01/2012 32273.36 26.2 0.010446244 0

27/01/2012 32644.34 26.2 0.01149493 0

3/02/2012 32361.19 26.2 -0.008673785 0

10/02/2012 32341.05 26.97 -0.00062235 0.029389313

17/02/2012 31970.98 26.97 -0.011442733 0

24/02/2012 32993.59 26.2 0.031985569 -0.028550241

2/03/2012 32887.44 28.51 -0.003217292 0.088167939

9/03/2012 32471.95 30.05 -0.012633698 0.054016135

16/03/2012 32974.64 29.28 0.015480746 -0.02562396

23/03/2012 32960.69 29.28 -0.000423052 0

30/03/2012 33472.32 29.28 0.01552243 0

6/04/2012 33356.08 29.28 -0.00347272 0

13/04/2012 33383.59 29.28 0.000824737 0

20/04/2012 33717.12 30.9 0.009990837 0.055327869

27/04/2012 33682.74 31.72 -0.00101966 0.026537217

4/05/2012 33949.2 30.9 0.007910877 -0.025851198

11/05/2012 33160.2 30.9 -0.023240607 0

18/05/2012 31391.84 26.84 -0.053327785 -0.131391586

25/05/2012 31260.98 28.46 -0.004168599 0.060357675

1/06/2012 31599.36 28.46 0.010824357 0

8/06/2012 31601.95 28.46 8.19637E-05 0

15/06/2012 31552.48 29.28 -0.00156541 0.028812368

22/06/2012 31481.55 29.28 -0.002248001 0

AAU Company Valuation Report Page 45

29/06/2012 31904.52 27.65 0.013435488 -0.055669399

6/07/2012 32402.63 30.09 0.015612521 0.088245931

13/07/2012 31813.76 26.84 -0.018173525 -0.108009305

20/07/2012 32724.61 29.28 0.028630693 0.090909091

27/07/2012 32807.59 30.9 0.002535706 0.055327869

Appendix 2: Dividend forecast (DDM)

Actual
2012 2013 2014 2015 2016 2017 2018 2019

Dividend Growth rate 6% 6% 6% 13% 13% 13% 3%

DPS (cent) 1.78 1.86 1.97 2.08 2.36 2.66 3.01 3.1

Annuity 243.78
Time period 0 1 2 3 4 5 6 7
require rate of
return

0.0435 0.0435 0.0435 0.043 0.0435 0.043 0.0435 0.04348

Discount factor 1 0.9583 0.9184 0.88 0.8435 0.808 0.7746

Discount DPS 1.778 1.8059 1.834 1.9866 2.151 2.3297

Discount Annuity 188.85

Total 200.7

NPV ($) 2.01

y = 0.627x + 0.0015
R² = 0.0579

-0.3

-0.2

-0.1

0
0.1
0.2
0.3
0.4
0.5
-0.2 -0.15 -0.1 -0.05 0 0.05 0.1 0.15
AAU
Weekly

Returns for lat

4 Years
S&P Weekly returns for lat 4 years
Beta for AAU with the s&P/ASX200

AAU Company Valuation Report Page 46

Appendix 3: DDM Beta and Risk Premium

Sensitivity

market risk premium 0.5501 0.6501 0.7501 0.8501 0.9501 1.05

0.0161 3.091 2.433 2.006 1.707 1.485 1.31

0.0261 1.607 1.309 1.104 0.955 0.841 0.75

0.0361 1.086 0.895 0.761 0.663 0.586 0.53

0.0461 0.82 0.68 0.581 0.507 0.45 0.4

0.0561 0.658 0.548 0.47 0.411 0.365 0.33

0.0661 0.55 0.459 0.394 0.345 0.307 0.28

Rf 0.031 0.031 0.031 0.031 0.031 0.03

E(Ri) 0.04 0.048 0.059 0.071 0.085 0.1

growth rate 0.034 0.034 0.034 0.034 0.034 0.03

dividend 0.018 0.018 0.018 0.018 0.018 0.02

Appendix 4: Dividend Growth Rate Sensitivity

phase
2
growth
rate

phase 1 growth rate 0.1 0.11 0.12 0.13 0.14 0.15 0.16 0.17
0.03 1.639 1.682 1.726 1.771 1.817 1.863 1.910 1.958
0.04 1.687 1.731 1.777 1.823 1.870 1.917 1.966 2.015
0.05 1.735 1.781 1.828 1.875 1.924 1.973 2.023 2.074
0.06 1.785 1.832 1.880 1.929 1.978 2.029 2.080 2.133
0.07 1.835 1.884 1.933 1.983 2.035 2.087 2.139 2.193
0.08 1.887 1.937 1.987 2.039 2.092 2.145 2.199 2.255
0.09 1.939 1.990 2.043 2.096 2.150 2.205 2.261 2.317
0.1 1.993 2.045 2.099 2.153 2.209 2.265 2.323 2.381

Appendix 5: Historical FCFE Growth rate
2006 2007 2008 2009 2010 2011

NPAT -7298 3926 271 -7138 1392 1562
capital expenditure 3927 2383 2294 590 1006 2002
depreciation 664 625 665 595 349 585
current asset 37635 42126 28708 40271 39063 27686

AAU Company Valuation Report Page 47

current liability 34352 38004 36490 37506 35841 24558
working capital 3283 4122 -7782 2765 3222 3128
chg in working capital 0 839 -11904 10547 457 -94

total liablilty 34829 38354 26979 37933 36468 25203

total total assets 50776 55590 42140 45822 44850 33897
Debt ratio 69% 69% 64% 83% 81% 74%

FCFE 0 3120.785 3967.708
–

8952.98
1183.805 1222.673

share outstanding 60677 60677 60677 60677 60677 60677

FCFE per share 0 0.051433 0.065391
–

0.14755
0.01951 0.020151

FCFE growth rate 0 0 27% -326% -113% 3%

Appendix 6: Operating expenses history

2006 2007 2008 2009 2010 2011
operating expenses 39850 32297 31624 37104 26504 25547
decreasing rate 0 23% 2% -15% 40% 4%

Appendix 7: AAU’ share price FCFE model

Actual
2011 2012 2013 2014 2015 2016 2017 2018
FCFE growth rate 20% 20% 20% 30% 30% 30% 3%
FCFE pre share 0.02 0.024 0.029 0.035 0.045 0.058 0.076 0.078
Annuity 2.657
time period 0 1 2 3 4 5 6 7
discount factor 1 0.9583 0.9184 0.88 0.8435 0.808 0.7746

discount FCFE p/s 0.0229992 0.02644992 0.0304128 0.0379 0.0472 0.05881

discount annuity 2.05811
lNPV ($) 2.2819

Appendix 8: discount sensitivity

market risk
AAU
Beta

Premium 0.55009 0.65009 0.75009 0.85009 0.95009 1.05009

0.0161 4.036 3.17609501 2.61824399 2.227078697 1.9376 1.7147

0.0261 2.0966 1.70729204 1.439941049 1.244984463 1.09652 0.9797

0.0361 1.4161 1.1674146 0.993038428 0.863985343 0.76462 0.6857

0.0461 1.0691 0.88694585 0.757835331 0.661537017 0.58695 0.5275

0.0561 0.8587 0.71513602 0.612713045 0.535952964 0.47628 0.4286

0.0661 0.7175 0.59908716 0.514238526 0.450442427 0.40073 0.3609

AAU Company Valuation Report Page 48

Appendix 9: FCFE growth rate sensitivity

phase
2
growth
rate

phase 1 growth
rate
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8

0.1 2.6866 2.75753773 2.829802692 2.903360383 2.97822 3.0544 3.1319 3.2107

0.2 3.4797 3.57190221 3.665721778 3.761219667 3.85841 3.9573 4.05793 4.1603

0.3 4.4159 4.53306427 4.6523476 4.773764765 4.89733 5.0231 5.15101 5.2812

0.4 5.5069 5.65322031 5.802202315 5.953849426 6.10819 6.2652 6.42502 6.5876

0.5 6.7646 6.94456673 7.127808084 7.314327398 7.50415 7.6973 7.89384 8.0938

0.6 8.2009 8.41929993 8.641687063 8.868052429 9.09843 9.3329 9.57137 9.814

0.7 9.8276 10.0896163 10.35636141 10.62787827 10.9042 11.185 11.4715 11.763

0.8 11.657 11.9677122 12.28435329 12.60665866 12.9347 13.268 13.6081 13.954

Appendix 10: P/E Ratio forecast 2013

2012 2013
current price 0.155 2

dividend growth rate 0.06

earings per share 0.178 0.18868

estimated P/E

ratio
0.8708 10.5999576

Appendix 11: AAU book share value 2007-2011

(‘000 in $) 2007 2008 2009 2010 2011
book equity 17240 15160 7890 8380 8690

share oustanding 60677 60677 60677 60677 60677

book value pre share 0.284127 0.249848 0.130033 0.138108 0.143217

share price 0.35 0.25 0.2 0.17 0.16
P/B ratio 1.23 1.00 1.54 1.23 1.12

Appendix 12: STW book share value 2007-2011

(‘000 in $) 2007 2008 2009 2010 2011

book equity 293930 280690 367750 384440 396300

share oustanding 192900 190500 357600 357700 356100

book value pre share 1.523743 1.473438 1.028384 1.074755 1.11289

share price 2.12 0.61 0.75 1.06 0.84

P/B ratio 1.39 0.41 0.73 0.99 0.75

AAU Company Valuation Report Page 49

Appendix 13: DIG book share value 2007-2011

(‘000 in $) 2007 2008 2009 2010 2011

book equity 11840 16740 15760 22870 6700

share oustanding 132600 457400 457400 849500 837700

book value pre share 0.089291 0.036598 0.034456 0.026922 0.007998

share price 0.4 0.3 0.2 0.2 0.2

P/B ratio 4.48 8.20 5.80 7.43 25.01

Appendix 14: AAU NTA Backing Model history

(‘000 in $) 2007 2008 2009 2010 2011
book equity 17240 15160 7890 8380 8690

intangile asset 10220 10550 3330 3160 3230

share oustanding 60677 60677 60677 60677 60677

NTA 0.12 0.08 0.08 0.09 0.09

Appendix 15: STW NTA backing Model history

(‘000 in $) 2007 2008 2009 2010 2011
book equity 293930 280690 367750 384440 396300

intangile asset 279020 341320 381640 382850 409910

share oustanding 192900 190500 357600 357700 356100

NAT 0.08 (0.32) (0.04) 0.0044 (0.04)

Appendix 16: DIG NTA Backing Model history

(‘000 in $) 2007 2008 2009 2010 2011
book equity 11840 16740 15760 22870 6700

intangile asset 24390 25300 15020 23400 8450

share oustanding 132600 457400 457400 849500 837700

NAT (0.09) (0.02) 0.0016 (0.0006) (0.0021)

ONLY FOCUS ON FCFE AND DDM
Project Description:
REIT INDUSTRY , STARTHILL GLOBAL Stock code: P40U.SI
http://www.marketwatch.com/investing/stock/sglmf/financials
Do a small analysis on FCFE and DDM and explain your results, do a forecast until year 2018
EXCEL SHEET 1 and 2 are done, values just need to be checked again to reconfirm
Sheet 3 some of the values are wrong
sheet 4: totally untouched all the values are not correct
sheet 5: some values are wrong
OBJECTIVE OF THIS PROJECT: TAKING 7 AUGUST 2013, STARHILL GLOBAL CURRENT PRICE OF $, OUR ROLE IS TO DETERMINE AND FORECAST A 12 MONTH PRICE TARGET FOR STARHILL GLOBAL.
WHY DO A VALUATION PROJECT.
• BEING ABLE TO VALUE SOMETHING (A FINANCIAL ASSET IN THIS CASE) IS AN IMPORTANT SKILL SET.
• THE PROJECT WOULD TAKE YOU THOROUGH THOUGHT PROCESS TO SHARPEN YUR ANALYTICAL (BOTH QUANTITATIVE AND QUALITATIVE) AND FORECASTING SKILLS.
• MOST IMPORTANTLY, A VALUATION PROJECT IS NOT JUST A NUMBER CRUNCHING EXERCISE!
• GIVE AN INDUSTRY OVERVIEW AND IDENTIFY THE KEY DRIERS SPECIFIC TO THE INDUSTRY N GIVE AN OVERVIEW OF THE FIRM’S BUSINESS LINES AND ITS CHARACTERISTICS -10%
• 1) ESTIMATE BETA USING 60 HISTORICAL MONTHLY DATA POINTS FOLLOWED BYBETA ADJUSTMENT
2) ESTIMATE EXPECTED MARKET (STI) RETURNS IN 2013
3) PICK RISK FREE RATE
4) ESTIMATE REQUIRED RATE OF RETURN: 6.25% or 0.0625

• PERFROM A 3 STEP DUPONT ANALYSIS ON THE FIRM AND COMPARE IT WITH ITS PEERS – 10%
• FROM THE ANALYSIS OF THE ECONOMY, INDUSTRY IDENTIFY THE KEY DRIVERS (BOTH POSITIVE AND NEGATIVE) THAT WILL HAVE AN IMPACT ON THE FIRM WITH REGRADS TO: -10%
1) FUTURE REVENUE/ SALES (IF APPLICABLE)
2) FUTURE EXPENSES (IF APPLCABLE)
3) CAPEX (IF ANY)

1) FUTURE GROWTH RATE, HENCE
2) FUTURE EARNING, HENCE
HENCE:
1) AFFECTING THE RISKNESS OF THE STOCKRECALIBRATE BETA),
2) AFFECTING FUTURE DIVIDENDS PAYOUT
• USING CASH FLOW VALUATION TECHNIQUES. -20%
1) USE DDM TO ESTIMATE THE 12 MONTH PRICE TARGET
2) USE FCFE TO ESTIMATE THE 12 MONTH PRICE TARGET

Linear Regression

Regression Analysis

Beta

for SATS

y =

.68x + 0.0017
R² = 0.2099

3.1638951774458905E-2 1.039373084910657E-2 -7.1789409019913653E-3 1.1528825368704299E-2 -3.6029508628639358E-3 5.487328249578776E-2 3.8199629220858802E-2 -6.9170776580708249E-2 -1.0593065511582905E-2 5.4775121407052933E-3 3.0058244945281365E-2 9.8377009843747101E-2 -2.0762564478290196E-2 -5.3684295303893501E-2 6.7513718805604209E-2 -7.2818394182846732E-2 -9.5319917473018809E-2 2.2054582046121752E-2 -1.2497112277803554E-2 -4.0343804862059433E-3 2.1533557641225467E-2 3.1669052751859217E-2 -5.3215377454618518E-2 -3.2350691527379479E-3 1.4417909498521368E-2 6.6186812277651359E-4 1.4524007063464578E-2 4.9926618378283168E-2 -1.2507949258627003E-2 5.367288424304608E-2 3.0120613238392907E-2 -7.4634994167302668E-2 3.018223629071921E-2 4.9657198112590208E-2 2.0070300690258869E-3 -5.2550023812646236E-2 6.0575670175541343E-2 3.0549237494954896E-2 -8.0222407645075908E-3 3.0726213891781429E-2 -2.4932310469313979E-2

0.1397515794

165802 1.7431775636731867E-3

0.2128856208

4695981 0.12958311519479523 6.5911328196028601E-2 -8.6803666825081532E-2 -8.5662708054224206E-3 1.6732368677744629E-2 -3.4349570839371367E-2 -0.23939446608815082 -0.13906823117210168 -6.4751762155889014E-2 -6.0694680988213467E-3 -7.6764538216261238E-2 1.4241737854177034E-2 4.6695440519259362E-2 -6.3077202663185221E-3 1.4991196445040603E-2 0 -2.7027027027027053E-2 2.7777777777777804E-2 2.8571428571428598E-2 4.4776119402984947E-2 8.0645161290322648E-2 6.8965517241379379E-2 -3.3333333333333368E-2 1.6949152542372899E-2 5.3571428571428416E-2 1.8181818181818195E-2 7.8431372549019676E-2 -1.9230769230769246E-2 -1.8867924528301903E-2 3.9215686274509838E-2 -7.2727272727272779E-2 -3.5087719298245452E-2 0 1.7857142857142672E-2 3.703703703703707E-2 1.8867924528301903E-2 -1.8518518518518535E-2 0 1.8867924528301903E-2 3.9215686274509838E-2 0 4.0816326530612283E-2 2.0833333333333353E-2 2.1276595744680871E-2 4.444444 4444444363E-2 2.2727272727272749E-2

-0.1020408163

2653059 8.8888888888888837E-2 4.6511627906976785E-2 0 2.3809523809523832E-2 0

-0.1063829787

2340424 -2.0833333333333353E-2 9.090909090909087E-2 0 -0.13725490196078433 -0.10526315789473675

0.54

054054054054046 5.7142857142857197E-2 -2.7777777777777804E-2 -5.2631578947368467E-2 -2.5641025641025664E-2 5.4054054054054106E-2 -5.1282051282051329E-2 –

0.37

096774193548382

-0.2051282051

2820515 -2.5000000000000022E-2 3.8961038961038995E-2

-0.1444444444

4444446 -1.0989010989010999E-2 0 0

0.1818181818

1818182

STI

Weekly

Returns

SATS Weekly Returns

Sheet1

STI

Stock Prices (Adj Close) Returns Returns

12/3/12

0.72

0.7

0.6

0.51

0.55

0.57

0.56

0.54

0.0188679245

0.53

2/1/11 0.54

0.54

0.0188679245

0.53

0.0392156863

0.51

0.44

-0.1020408163

0.49

0.45

2/1/10

0.43

0.42

-0.1063829787

0.47

0.48

0.44

0.1397515794

0.51

0.57

0.2128856208

0.37

6410256

0.37

0.39

0.62

-0.2051282051

-0.025

0.8

-0.1444444444

0.91

2/1/08 0.91

0.1818181818

1/2/08 0.77

Beta

Start		1/2/08
End		12/3/12
Interval	Monthly
StarHill Global	Starhil Global
Date		Stock Prices (Adj Close)
			0.7	3167.08	0.0316389518
11/1/12	3069.95	-0.027027027	0.0103937308
10/1/12	0.74	3038.37	0.0277777778	-0.0071789409
9/3/12	3060.34	0.0285714286	0.0115288254
8/1/12	3025.46	0.0447761194	-0.0036029509
7/2/12		0.6	3036.4	0.0806451613	0.0548732825
6/1/12		0.62	2878.45	0.0689655172	0.0381996292
5/1/12	0.58	2772.54	-0.0333333333	-0.0691707766
4/2/12	2978.57	0.0169491525	-0.0105930655
3/1/12	0.59	3010.46	0.0535714286	0.0054775121
2/1/12		0.56	2994.06	0.0181818182	0.0300582449
1/2/12		0.55	2906.69	0.0784313725	0.0983770098
1	2/1/11					0.51	2646.35	-0.0192307692	-0.0207625645
11/1/11	0.52	2702.46	–		0.0188679245	-0.0536842953
10/3/11			0.53	2855.77		0.0392156863	0.0675137188
9/1/11	2675.16	-0.0727272727	-0.0728183942
8/1/11	2885.26	-0.0350877193	-0.0953199175
7/1/11			0.57	3189.26	0.022054582
6/1/11	312			0.44	0.0178571429	-0.0124971123
5/3/11	3159.93	0.037037037	-0.0040343805
4/1/11	3172.73	0.0215335576
3/1/11	3105.85	-0.0185185185	0.0316690528
3010.51	-0.0532153775
1/3/11	3179.72	-0.0032350692
1	2/1/10	3190.04	0.0144179095
11/1/10	3144.7	0.0006618681
10/1/10	3142.62	0.0408163265	0.0145240071
9/1/10		0.49	3097.63	0.0208333333	0.0499266184
8/2/10		0.48	2950.33	0.0212765957	-0.0125079493
7/1/10		0.47	2987.7	0.0444444444	0.0536728842
6/1/10		0.45	2835.51	0.0227272727	0.0301206132
5/3/10	2752.6	-0.0746349942
4/1/10	2974.61	0.0888888889	0.0301822363
3/1/10	2887.46	0.0465116279	0.0496571981
	0.43	275	0.8	0.0020070301
1/4/10	2745.35	0.0238095238	-0.0525500238
12/1/09		0.42	2897.62	0.0605756702
11/2/09	2732.12	0.0305492375
10/1/09	2651.13	-0.0208333333	-0.0080222408
9/1/09	2672.57	0.0909090909	0.0307262139
8/3/09	2592.9	-0.0249323105
7/1/09	2659.2	-0.137254902
6/1/09	2333.14	-0.1052631579	0.0017431776
5/1/09	2329.08	0.5405405405
4/1/09	1920.28	0.0571428571	0.1295831152
3/2/09	0.35	1699.99	-0.0277777778	0.0659113282
2/2/09	0.36	1594.87	-0.0526315789	-0.0868036668
1/1/09	0.38	1746.47		-0.025	-0.0085662708
1	2/1/08		0.39	1761.56	0.0540540541	0.0167323687
11/3/08	1732.57	-0.0512820513	-0.0343495708
10/2/08	1794.2	-0.3709677419	-0.2393944661
9/1/08	2358.91	-0.1390682312
8/1/08	0.78	2739.95	-0.0647517622
7/1/08	2929.65	0.038961039	-0.0060694681
6/2/08		0.77	2947.54	-0.0767645382
5/2/08	0.9	3192.62	-0.010989011	0.0142417379
4/1/08			0.91	3147.79	0.0466954405
3/3/08	3007.36	-0.0063077203
3026.45	0.0149911964
2981.75
1.1116439063

Sheet2

Sheet3

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