Valuation Masterclass Valuing Difficult Businesses

Transcription

1 Valuation Masterclass Valuing Difficult Businesses A 4 day intense course This course can be presented in-house for you on a date of your choosing The Banking and Corporate Finance Training Specialist

2 Course Overview Traditional valuation approaches for non-financial businesses focus on the use of multiples or cash flow based analysis. What these techniques assume is a stability and a risk profile that is not found in the more difficult types of business to value. This leads to errors in valuation that traditional valuation tools struggle correct, indeed errors that analysts are sometimes unaware of. Assumptions about risk and profitability need to be adapted when dealing with these types of business and this advanced valuation and modelling course looks at the valuation Course approaches Overview to be taken to enable participants to value companies and sectors which cannot be valued using traditional valuation techniques. The first area covered where analysts struggle to value business correctly is at the early growth and start up stage (the Facebook stage), which would cover sectors such as technology, biotechnology and any early funding stage business. Traditional valuation tools struggle to estimate profitability (what size will the eventual market be?) and risk (will the company survive and how does risk change if it does?) The key challenges associated with such companies are discussed, the problems with traditional valuation approaches and the best valuation approach considered. The second area is more mature but rapidly growing companies which, depending on the geographic location, may cover technology, media, telecoms and pharmaceutical sectors. Here risk is again a problem area, but the rate and timing of the peak in growth becomes a key issue (the Apple stage). Thirdly cyclical and commodity companies are analysed to identify the issues with sectors such as resources, energy and chemicals companies, where analysts seem to become more focused on the ability to forecast the economic than the company and specific approaches to long run commodity prices are analysed ($40 or $100 oil). Finally in the graveyard stage declining companies are considered where traditional valuation approaches become less relevant and a wind down approach may be applicable. Here traditional tools again fail to value risk, but where significant money can be made if a company survives. The course covers the best techniques to assess risk in these types of businesses and how option techniques can be applied to valuation. As well as discussed some of the current issues with traditional cash flow and multiple based valuation approaches the course will cover more advanced valuation approaches such as decisions trees, simulations, scenario analysis and real option valuation. As such the course provides an analytic toolkit for anyone looking to value almost any type of non-financial company across a range of sectors and lifecycle stages. Examples are provided to illustrate each issue. Participants will be required to bring a laptop to the course.

3 Course Content Overview of valuation approaches Intrinsic valuation traditional cash flow techniques Relative valuation multiple based analysis Probabilistic valuation scenario analysis, decision trees and simulations Real options valuation additional value created through optionality Other valuation issues Assessing risk the risky risk free rate and other current valuation issues The economic cycle incorporating macro-economic factors into a valuation Valuing early stage and start-up companies and sectors A life cycle view of start-up companies Start-up companies in context Characteristics of young companies and sectors The key challenges with start-up companies Visibility a key valuation challenge Valuation issues intrinsic value How to value existing assets in a start-up Cash burn and the effect on existing assets The future of the business high growth and growth phases Assessing growth rates - the key component of value Adjusting risk for small fast growing businesses Discount rates for pure equity financed businesses When to calculate terminal value Reducing the dependence on terminal value Value of equity claims Assessing equity claims in a early stage business Problems with start-up multiple analysis Determining the starting point revenue multiples vs profitability multiples Which year? Determining stability for multiple calculation and techniques for normalising multiples vs the sector Valuing a start-up or early stage business in practice Main errors made in valuing early stage businesses Macro vs micro analysis Product success and market share Bottom up approach to a valuation Capacity capability Estimating and using different discount rates The use of phased discount rates Discount rates as maturity approaches Ensuring consistency in a valuation Private and public multiples Option to expand valuation How optionality affects valuation Valuing rapid growth companies and sectors A life cycle view of rapid growth companies The rapid growth company in context Characteristics of growth companies and sectors How are growth companies different?

4 Valuation issues intrinsic value How historic numbers are misleading How asset life may develop in the high growth phase How existing assets differ in a rapid growth business Where the bulk of value is created by a rapid growth company the growth phase Capital intensity and the rapid growth business The development of risk during the growth phase The stage at which a terminal value should be calculated for a rapid growth business Value of equity claims The differing equity claims in a rapid growth business Participation by different equity holders Peer groups Finding similar growth businesses different sectors? Risk measures adapting a multiple analysis for risk Valuing a growth business in practice Main errors made in valuing growth businesses Dealing with immature markets Assessing product cycles Ability to execute the key driver Valuing the operating assets through the growth phase How operating asset lives develop in the high growth phase Ensuring consistency in a valuation Reinvestment and growth Assessing investment requirements the returns and reinvestment equation Completing the valuation combining returns and risk in a model Valuing cyclical companies and sectors Characteristics of cyclical and commodity sectors The impact of global pricing companies as price takers Valuation issues Base year fixation Where do I start from and why? Determining the cycle starting point The macro point of view The demand and supply fundamentals Selective normalisation How do I get to mid cycle? Some key errors in cycle assessment Valuing a cyclical business in practice Normalised valuations Taking the cycle out of the equation The adaptive growth approach Probabilistic approaches Using probabilities to reduce forecasting limitations Normalised earnings multiples Back to mid cycle.. Adaptive fundamentals Real options for underdeveloped resources The extraction/development decision and its value Valuing a natural resource firm

5 Valuing declining companies and sectors A life cycle view of declining companies The graveyard shift is there still value available? Characteristics of declining companies and sectors Terminal vs temporary decline will the patient get better? Valuation issues intrinsic value Where is the value in a declining business? Is it possible to extract value going concern vs fire sale Positive and negative growth and its effect on valuation how growth can be a negative Discounting cash flows - incorporating credit risk into a discount rate Will the business survive incorporating default risk The importance of terminal value in a declining business The approach to wind up valuation The approach to a cost of exit Peer groups Walking with zombies Incorporating distress Valuing a declining business in practice Autopilot optimism Forecasting for the worst Avoiding the hockey stick Discount rate contortions The impact of distress of the discount rate Dealing with distress The treatment of debt and an APV approach to valuation Determining the components of value in distressed companies The value of unleveraged assets The value of the tax shield taxable profits? Valuing equity as an option Using option techniques as an option on recovery The value of closure The probability of default - Techniques used in assessing default the world of the credit analyst What Redcliffe s clients are saying about the course? Very good case studies and enhanced understanding of the topics covered enquiries@redcliffetraining.co.uk +44 (0)