Description
Please review the attached document for TAQA (the assignment you completed before)
for this assignment, i only need to to write about one company (TAQA –> one paper not two papers as before)
Assignment due Sunday, April 21, 2024 by 11:00pm
Imagine that you are now working for the UAE company for which you conducted the DCF analysis. The company has asked you to recommend an investment strategy. You will write up a report for the company that addresses the following points below, and then recommend an investment strategy for the company based on the results and your analysis.
Provide an introduction to the industry, and the company, which should include its products, competitors, characteristics of the company, and its strategies and plans for the future.
Do a trend analysis, a common size analysis, and a DuPont analysis for the company. Choose the period 2018-2022.
Integrate your DCF analysis from the previous write-up in your assessment of whether the company is undervalued, overvalued or at-its-value.
[Optional] Use comparable common analysis as another valuation technique to triangulate an interval for the company’s value.
Conclude if the company was overvalued or undervalued by the market. Assuming you did everything correctly the value you calculated (or the interval triangulated) should be close to (or include) the realized value which implies that the company is at-its-value. If the realized value is significantly above/below the calculated value (or interval) then it means that it is overvalued/ undervalued.
[If possible] Cross-check your recommendation with the recommendations made by relevant investment analysts. You should be able to find an online accessible financial analysis written by a financial analyst by the end of 2021. Make sure you cite your sources.
IMPORTANT NOTES:
Choose a public company traded in the stock market of the country you are residing in right now.
In your DCF analysis, to arrive at an appropriate valuation: Estimate FCF for 2022 (assume 2022 as Year 0 and include it in your valuation), project it over the next five years (2023-2028), and estimate a terminal value if you think the store will continue indefinitely (estimate a reasonable terminal growth rate).
Calculate your own WACC. Use CAPM to calculate the cost of capital. Assume a beta based on the systematic risk by looking up betas of public companies that are in the same industry and geography (Yahoo Finance shows equity betas which you will need to adjust by using Hamada’s Equation to account for the public companies’ debt; this is because you need an asset beta for your store given the assumption of no debt) or estimate your own beta using market data.
Be sure you justify the key assumptions (revenue growth rate, working capital changes, terminal growth rate etc.).
For your write-up, focus on introducing the company in detail, justifying your comparables, stating and justifying your assumptions, discussing each valuation result, comparing the results across the techniques, and comparing them with recommendation(s) made by the financial analyst(s) (if available).
Your valuation techniques and estimation approach could be explained further in an Appendix.
Your models and calculations should be submitted as a google sheet. The assumptions and given values should be colored blue and your calculations should be in black. Leave the formulas and links as is. The grader should be able to follow your calculations.
Any data you have used from the Bloomberg terminals should be included.
If you have any questions about this assignment, contact the Professors immediately.
Sources you may find useful (you do not have to use them):
Prof Damadoran’s Website
Market-risk-premia
Yahoo Finance
Global Corporate Tax Rates
Statistica.com
Ministry of Economy of UAE
Ministry of Finance of UAE
Central Bank of UAE
Annual financial reports of the company of your choice. The company must be a public company. Every public company must announce its financial statements with transparency. So you should be able to find these statements on their website under their investors’ relations page.
In addition, you have the Bloomberg Finance Labs as a resource to use for this assignment.
GUIDELINES:
-** Do not put your name anywhere** on the assignment or on shared exhibits (Forum will track your submission). Your assignment will be graded blindly.
Be sure you submit a single PDF on Forum (do NOT submit Zip files).
Assume your audience is knowledgeable about the accounting/finance concepts we’ve covered in class and is familiar with the case facts. Don’t waste words explaining what asset turnover is. Jump right into the analysis.
Go deep. When formulating a response, ask why. Then ask why again and justify your explanation. Back up your explanations with evidence. Integrate numbers into your arguments.
Use no more than two significant digits for all numbers in the text and exhibits (12%, 3.5%, or 0.46%, not .12480294). Less is more. Displaying too many digits makes numbers hard to read and actually obscures their value and intuition.
All exhibits you create yourself and referenced in your write-up must be included in the write-up itself and be properly formatted. You must also include a link to all your exhibits so that your calculations can be seen and checked (only those exhibits that appear in the write-up and are explicitly discussed will be assessed). Place your link at the very beginning of the write-up and be sure to grant your professor viewing privileges. Follow these guidelines (e.g. avoid including numbers in a calculation cell but instead, reference inputs/assumptions cells that do contain numbers; use black text for calculations and blue text for inputs).
Check your spelling and grammar. Poor writing conveys carelessness and unprofessionalism.
The course-related LO’s are #financials, #valuation, and #bizstrategy will be graded based on your answers to the 3 questions above, with each corresponding to a specific LO.
In addition to this, use and tag the following GLO’s wherever appropriate: #audience, #evidencebased and #sourcequality.
Add a word count at the end of the assignment (exclude exhibits, footnotes, and the bibliography).
For assignment deadline extensions please refer to the policies section written at the end of the course syllabus.
Assignment Information
Length:
~1500 words
Weight:
15%
Learning Outcomes Added
Financials: Evaluate business situations by identifying or calculating accounting and financial information.
Valuation: Calculate the value of a financial asset.
BizStrategy: Formulate and analyze business strategy.
Unformatted Attachment Preview
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DCF Analysis
Omar Mohamed Alameemi
Zayed University
IBS211 > 22542 Financial Plan Budget & Model
Prof Stetsyuk
March 18 / 2024
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DCF Analysis
Introduction
Given the complexity of the energy sector in the United Arab Emirates (UAE), there
is a need to critically evaluate Abu Dhabi National Energy Company’s (TAQA) bundled
investment potential. In this report, an attempt is made to explore TAQA’s fundamental value
using a DCF approach, which is a key investment technique in the Abu Dhabi Securities
Exchange. TAQA not only has its stronghold in the market as a force to reckon with in terms
of growth but also has a solid performance record. Applying critical financial factors in the
analysis and forward projections, this analysis seeks to see beyond the market prices and
deliver a reasonable valuation of TAQA.
Company Selection
TAQA, the Abu Dhabi National Energy Company, is seen as a champion of
consistency and tactical skill in the world of energy supply. TAQA’s attractiveness lies in its
financial solid backbone and diversified operating strategy that is adaptive to energy
production, distribution, and technology and innovation. Through the company’s initiatives,
such as the sustainable growth strategy seen in the strategic expansion and investment, the
organization is putting effort into aligning with the evolving market needs of the global
energy industry. The wise mix of operational diversity, strategic foresight, and financial
robustness distinguishes TAQA from other potential investment projects in such a way that it
calls for a closer examination of its financial situation using the intelligent use of the DCF
analysis process.
DCF Analysis Overview
Performing the DCF method for TAQA is the first part of the analysis, in which we
will closely examine the company’s financial operations from 2018 up to 2022. This phase
illustrates vast fluctuations, affirmatively fortifying the EBIT chart and acting as proof of the
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business’ dynamism. By adjusting for a 25% tax rate, removing Depreciation & Amortization
(D&A), and carefully considering both Capital Expenditures (CapEx) and changes in Net
Working Capital (NWC), I accurately calculated the Unlevered Free Cash Flows (FCFs) with
full attention to the detail. These FCFs, a strong indicator of TAQA’s strong financial base
and motivated workforce, are the very baseline of our valuation narrative.
In the forecasting part, the analysis looks at the horizons of 2023-2028, aiming to find
out the free cash flow of TAQA. With this exercise, market- and sector-specific statistics
harmonize to provide plausible forecasts. The forecast is that FCF’s continuity will grow at an
annual rate of 4% as a sector-wise vision and as a TAQA business strategy. Considering this
growth rate overall, the company’s prospects in a fast-paced energy environment may reflect
its readiness to adapt to the killer environment of emerging options.
Placed at the center of our valuation are Terminal Value (TV) and Net Present Value
(NPV), which are proxies for crucial assessment of TAQA’s perennial worth beyond the
immediate 10-year projection horizon. The terminal value derived through a projected 3%
perpetual growth rate lightens its way, guiding TAQA toward its consistent appeal and
everlasting relevancy in the energy business. This long-term view is discounted to the present
using a weighted average capital cost (WACC) of 9%, which represents the rate that has been
selected to maintain the perfect balance of risk and reward that the operational and financial
ecosystem of TAQA deserves. This formula yields an Enterprise Value that explains not only
the current value of TAQA but also its worth for the future.
This DCF analysis is based on solid financial theory and is complicated by the TAQA
strategic and operational framework knowledge. It seeks to paint a picture that encapsulates
the dynamic nature of TAQA in the global energy market and provides investors with
insights into the valuation and investment potential of the company. In this light, TAQA is
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not simply a company with strong financial foundations but a pioneering energy entity ready
and able to embrace the opportunities of tomorrow’s energy platform.
Terminal Value and NPV Calculation
The terminal value (TV) is prominent in the valuation area, as it consists of the
resources that remain even after the explicit forecast duration. TAQA further computes the
value through a 3% perpetual growth rate. This cost quotient is based on long-term economic
growth projections and sectoral dynamics and mirrors the invariability of TAQA in the
context of energy. An assumption of a moderate and credible perpetual growth rate is
projected to show that TAQA will remain relevant and continue to grow sustainably into the
future.
The fundamental WACC is also required to discount the estimated Free Cash Flows
(FCFs) and the Terminal Value to their present values. As part of the analysis, a WACC of
9% is found using CAPM (Capital Asset Pricing Model). This rate clearly manifests the riskreturn trade-off present in TAQA’s operational and financial architecture. It implies the return
that should be gained by investors who are financing the company. In this case, we reduce
future cash flows backward to the present to find TAQA’s intrinsic value, a divine net worth
that goes beyond mere numbers.
Key Assumptions Justification
The core of the valuation story of TAQA relies on robust assumptions crafted to
reflect the intrinsic attributes of the company at the industry scale. The rate of revenue
growth, grounded on the average of TAQA’s five years and the expected outlook for this
sector, justifies our positive yet realistic approach to the future success of TAQA. In addition,
the working capital and the capital changes extracted from previous financials are also
witnesses of TAQA’s capability to handle its assets and evidence of the company’s
operational expertise and financial wisdom.
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The choice of 3% as the terminal growth rate reflects the expected economic
development, considers the inflation level and tends to the sector-specific dynamics. This rate
presents TAQA’s perennial value proposition that it is a true leader in the power sector. In
addition, the risk profile of TAQA that may result from the market risk is considered when
the WACC formula is developed according to the CAPM model. This detailed approach
compares TAQA’s cost of capital with a holistic assessment, which leads to a comprehensive
valuation.
Valuation Results
The DCF model we simulated has left us with an impressive valuation, whereby the
estimated enterprise value is equivalent to about AED 550,528 million. The sum of cash and
debt accounts for AED 504,605 million, which is the overall equity amount and results in an
intrinsic value of AED 4.49 per share. On the contrary, in opposition to the current market
price of AED 10.00 per share, our investigation supports that there is an overpricing by the
market. The divergence between intrinsic value and market prices vividly demonstrates the
significance of investors conducting reliable and responsible investment decisions while
employing comprehensive valuation methodologies to discover hidden investment
opportunities.
Using the discounted cash flow analysis gives us the foresight of TAQA’s financial
potential, coupled with its intrinsic position within the ever-changing energy industry. By
combining sound calculations, we create a comprehensive structure of investment assessment
for TAQA shareholders, thus enabling them to make wise and careful investment decisions
that aim at producing value for the long term.
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https://docs.google.com/spreadsheets/d/1iwhZxyqZZwvXBvWlASd5p3FrQB2OyjO/edit?usp=sharing&ouid=102323823967380727933&rtpof=true&sd=true
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