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Team Valuation Report: Semester 1, 2020 The company selected for this report is: Telstra Corporation Limited Ticker code: TLS.AX Your team (comprising 2-5 students) is requested to advise a...

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Team Valuation Report: Semester 1, 2020
The company selected for this report is:
Telstra Corporation Limited
Ticker code: TLS.AX
Your team (comprising 2-5 students) is requested to advise a well-diversified high net-worth in-
dividual who is interested in investing in shares with a fundamental value greater than the share
price. As a financial analyst, you are required to write a detailed recommendation report on
whether to invest in the selected company.
The report shall be structured in 5 Sections (preceded by a
ief executive summary) to address the
following questions of your client:
1. What are the competitive forces behind the industry’s structure? How does competition affect the
margins of the industry and the company? How does the company’s profitability compare rela-
tively to its peers (you should select between 3 and 5 industry peers)? What is the firm’s business
strategy? Please highlight potential investment risks the company could face in the future (please
efer to Lectures 1 and 2);
2. Analyse how the market is pricing the firm using different relative (or market) valuation tech-
niques. Please use the same group of industry peers identified in the previous section (please re-
fer to Lectures 3 and 4);
3. Estimate carefully the cost of debt, cost of equity and cost of capital for this company (please re-
fer to Lectures 6 and 7);
4. Estimate the free cash flows of the company (please refer to Lectures 8 to 10);
5. Estimate the target price of the company, issue a buy/hold/sell recommendation to your client,
and draw your conclusion. (please refer to Lectures 11 and 12).
Your report is expected to be submitted by 11:59 pm Sunday 31 May 2020 AEST (please refer
to the unit guide for more information about late submissions). Your submission should contain
all of the following:
(i) A 7 to 10 page recommendation report (in font Times New Roman – font size 11) in Word o
PDF, discussing the scope of the work, your justified assumptions, findings and recommen-
dation. Please refer to examples of professional analyst reports (available on iLearn) when
formatting your team report;
(ii) A cover page indicating: (a) your team name; (b) members’ name, student number, email
address, and allocated section of the assignment; and (c) class time. Failure to indicate the stu-
dents’ allocated section of the assignment on the cover page will result in significant deductions.
Please also identify the team leader for email co
espondence. Your cover page should be the first
page of your assignment, and is not counted in the limit of 10 pages;
(iii) A spreadsheet model (in Excel), showing all your numerical assumptions, steps of the esti-
mation, and company’s valuation.
The team leader ONLY should submit the equity report to the Turnitin class-link that will be activat-
ed on iLearn. The team leader should also submit the Excel file containing all the calculations in a
separate folder that will also be available on iLearn. Please give both these files your team name (e.g.,
BestTeamEver01.xls, and BestTeamEver01.doc or BestTeamEver01.pdf). More information on the
submission process will be provided in class in Week 10 or 11.
The marking criteria will be as follows:
Criteria Marks
Assumptions and bases 10
Numerical accuracy 5
Interpretations and Recommendation 10
Overall quality of the report (format and language) 5
Total 30
Note:
-Use sub-headings that contain the question number as a title. Answer the questions in the orde
they're asked.
-Write in a 'front focused' manner. State the most important things up front. For example in ques-
tion 5, state your buy, hold or sell recommendation, fair value estimated stock price and actual
market price in the very first sentence.
-Extra evidence such as graphs and tables is highly desirable. They must be placed in-text. Figures
or tables should be placed directly above or wrapped in the paragraph that they are discussed in.
Do not put figures in the appendix; they will not be marked. Also note that your written test file
will usually be the only thing that we read and examine. The spreadsheet will only be used to
check for inconsistencies.
-Use in-text referencing of sources. For example: "...the equity premium relative to long-term gov-
ernment bonds was an annualized 3.8%. The expected equity premium is lower, around 3% to
3½% on an annualized basis." (Dimson et al XXXXXXXXXXPut a bibliography at the end of your assign-
ment: Dimson, Elroy and Marsh, Paul and Staunton, Mike, Equity Premia Around the World (Oc-
tober 7, XXXXXXXXXXAvailable at
SSRN: https:
ssrn.com/abstract= XXXXXXXXXXor http:
dx.doi.org/10.2139/ssrn XXXXXXXXXX
https:
protect-au.mimecast.com/s/P8UaCRONg6sgNGrms9Cbtr?domain=ssrn.com
https:
protect-au.mimecast.com/s/D8XuCVARmOHPM2lwIzs4__?domain=dx.doi.org
Answered Same Day May 29, 2021

Solution

Neenisha answered on May 30 2021
136 Votes
Valuation Report
Question 3
Cost of Equity
To compute cost of Equity, we need to use Capital Asset Pricing Model (CAPM). According to this model,
Ke = Rf + * ( Rm – Rf)
Where,
Ke = Cost of Equity
Rf = Risk Free Rate
= Beta
Rm = Market Return
Rm – Rf is known as Market Risk Premium
To compute the risk free rate we refe
ed to the 10 Year Treasury Rate of the Australian Bond. Thus the Risk Free Rate = 0.90%. Now to compute the Market Return we took the 5 year monthly historical prices of Australian Index ( S&P / ASX 200 ). We computed the return using the 5 year data which comes out to be 5.44%.
Now to compute Beta, Regression Analysis was used. First data of Australian Index ( S&P / ASX 200 ) and Woolworths Group Limited (WOW.AX) was obtained from Yahoo. Finance. The data was 5 year monthly data for the period of 2015 – 2020. Now the return of every months was...
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