ECFS866 Corporate Finance

Task:

Learning Outcomes

1. Apply the concept of shareholder value maximisation and evaluate the challenges to its implementation.

2. Analyse corporate governance in a corporate structure.

3. Apply and critically analyse methods for incorporating risk into a valuation and investment decision.

4. Apply a range of valuation methods to estimate the value of a security/securities.

Assessment and Required Tasks

Students are to read and review the EM from August 2018 and the 2017 and 2018 financial statements of SVW. Students are to prepare a report to the board which addresses the issues below. Appropriate financial models and analysis are required to be constructed to support your final recommendation.

1. Executive Summary & Recommendation

Provide a recommendation to the board on your investment strategy concerning the proposal.

Provide a summary valuation of the choices.

Regardless of whether you choose to convert or sell, provide a recommendation on how to vote. 

2. Enterprise Value and Governance

Depict SVW’s key components of enterprise value and also depict its split of major divisions.

In economic terms, should you assess TELYS4 as debt or equity? 

How might the valuation of TELYS4 differ from normal securities? If the TELYS4 were not redeemed, describe how you might adjust your methodology to value them in the ordinary course of business?

If you accept the offer, how should you treat SVW securities for the purpose of calculating your company’s ROIC, EV and residual income?

3. Cost of Capital and Security Valuation

Estimate the implied beta and cost of capital for TELYS4. Show the potential range of kTELYS4 in a table or security market line.

How does this compare to the benchmark cost of debt?

Value the TELYS4 assuming they have a terminal value of $100 in 10 years.

4. Equity Valuation 

Conduct a divisional valuation of SVW using multiples. Students may use the actual realised Dec-18 results if using Year 1 cashflows.

Bundle Westrac, Coates and Allight into one industrial division.

Only value the Australian divisions. Other divisions and investments may be assumed to equal book value.

Compare your valuation to the share price history of SVW in determining your recommendation.