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Spong – Security Analysis – Group Research Report
Page 1 of 2

Investment Analysis Group Project

You are part of an investment company that provides advice on prospective investment
opportunities. Your company has been approached by a group of investors seeking advice
on a particular investment (the target Investment). The investors want detailed research
eport on the target, including its financial strengths and weaknesses, position in the
market, and its potential for growth. They want you to analyse the data you collect and
make recommendations as to the potential return on investment.





The Report:

The Background:
Work as a group to research the company. Start with the company's most recent annual
eports. You can get a lot of information online at websites. Consider the sources of
information we discussed in Topic 2. Your research should also note the industry in which
the company operates, including its main competitors. Analyse the financial/accounting
data and the other information you gathered.

The Valuation:
Your analysis needs to include a valuation, which should be based on the present value of
a projection of the firm’s future free cash flows. The projected free cash flows will be
generated from a pro forma model of the firm’s financial statements. The pro forma
financial statements will be driven by sales projections which may be forecast based on
some consideration of relevant factors. The valuation must also include a sensitivity
analysis.

The Recommendation:
Make a recommendation based on your research and analysis. Your analysis must support
your recommendation. Compare your valuation to the cu
ent market price. What would
you tell the client about this company: Buy, Sell, or Hold?


Spong – Security Analysis – Group Research Report
Page 2 of 2
Suggested Format of your Company Analysis Report:

Your report should be no longer than 2000 words.

The following format is one way to structure your report.

1. Introduction
a. Briefly introduce your company. What do they do? What is their history?
2. Industry
a. Discuss the industry and market(s) the company operates in. Who are their
competitors?
3. Valuation
a. Discuss your valuation. What assumptions have you used? How have you
formed your forecasts? What does the sensitivity analysis tell us?
4. Recommendation
a. How does your valuation compare to the cu
ent share price? Does your
valuation suggest the company is worth buying or selling now? Should the client
hold (wait)?



Important notes:

• Clear graphs might be useful to illustrate any trends or comparisons.

• The Excel Spreadsheet (pro forma) that you have created to make your valuation
should not be included in the actual report.
o However, the pro forma should be available to the client if they request it.
o Please email the excel spreadsheet that underpins your report to Heath Spong.
XXXXXXXXXX


Key Dates:

• The Report and the Excel Spreadsheet (pro forma) will be emailed to Heath Spong by
the end of Week 10.


Final Advice:

• You will get the job done quickly and effectively if you work well as a team.
• Allocate tasks to each member and then
ing each team members work back to the
group for review.
• Write the recommendation together at the end, after looking at the research, analysis,
and pro forma.
mailto: XXXXXXXXXX

XXXXXXXXXXMetcash Ltd.
Executive Summary:
This investment research report aims to provide a comprehensive analysis of Metcash Ltd., evaluating its financial strengths and weaknesses, market position, and potential for growth. Metcash is an Australian wholesale distribution and marketing company operating in the grocery, liquor, and hardware sectors. By examining key financial indicators, market dynamics, competitive landscape, and growth prospects, this report will assist investors in making informed decisions regarding potential returns on investment in Metcash Ltd.
1. Introduction: Metcash Ltd. Overview: Brief company description and its business segments.
2. Financial Strengths and Weaknesses:
2.1 Revenue Analysis: Review of historical revenue growth and key drivers.
2.2 Profitability Analysis: Evaluation of profitability ratios and margins.
2.3 Liquidity Analysis: Assessment of liquidity position and working capital management.
2.4 Debt Analysis: Examination of leverage and debt service capacity.
2.5 Cash Flow Analysis: Analysis of cash flow generation and sustainability.
3. Market Position and Competitive Analysis:
3.1 Industry Overview: Overview of the wholesale distribution and marketing industry in Australia.
3.2 Market Share Analysis: Examination of Metcash's market share in key sectors.
3.3 Competitive Landscape: Analysis of major competitors and their strategies.
3.4 Customer Base and Supplier Relationships: Assessment of customer diversification and supplier power.
4. Growth Potential:
4.1 Market Trends and Outlook: Identification of key market trends and growth drivers.
4.2 Expansion Strategies: Assessment of Metcash's growth strategies, including acquisitions and partnerships.
4.3 Geographic Expansion: Evaluation of potential growth opportunities in new markets.
4.4 Product and Service Innovation: Analysis of Metcash's ability to adapt and innovate.
4.5 E-commerce and Digital Initiatives: Review of Metcash's online presence and digital transformation efforts.
5. Risk Assessment:
5.1 Regulatory Environment: Evaluation of regulatory risks and compliance obligations.
5.2 Economic and Market Risks: Assessment of macroeconomic factors that may impact Metcash's performance.
5.3 Operational Risks: Identification and analysis of operational risks.
5.4 Competitive Risks: Examination of risks associated with intensifying competition. 5.5 Supply Chain Risks: Evaluation of risks related to supply chain disruptions.
6. Investment Recommendation: Based on the analysis conducted, we recommend the following:
6.1 Investment Rating: Provide a rating based on the risk and return potential.
6.2 Target Price: Suggest a target price for Metcash Ltd. shares.
6.3 Investment Horizon: Recommend a suitable investment time frame.
6.4 Diversification: Emphasize the importance of diversifying the investment portfolio.
6.5 Key Considerations: Highlight critical factors influencing the investment decision.
7. Conclusion: Summarize the findings and emphasize the investment potential of Metcash Ltd.
This report provides a comprehensive analysis of Metcash Ltd., covering its financial strengths and weaknesses, market position, growth potential, and associated risks. It aims to equip investors with the necessary information to make informed investment decisions.

Final DCF Valuation
    Sales growth    7%
    Initial Sales    $1,000
    FA_Sales    70%
    CA_Sales    15%
    CL_Sales    7%
    COGS_Sales    70%
    Interest    10%
    Dividend Payout    60%
    Tax rate    29%
    Income Statements (Profit and Loss)
    Year    2022    2021    2020    2019    2018    2017
    Sales    $15,165    14,315    13,025    12,660    14,464    14,212
    Cost of Goods Sold    13482.3    12,834    11,718    11,383    13,176    12,886
    Interest    48.5    43    52    29    31    37
    Profit before Tax    $1,634    1439    1256    1249    1257    1289
    Taxes    111.1    100    70    81    73    65
    Profit after Tax    $1,523    1338    1186    1168    1184    1224
    Dividend    198.5    148    118    127    102    0
    Retained Earnings    1324    1190    1068    1040    1082    1224
    Balance Sheet
    Year    2022    2021    2020    2019    2018    2017
    Cu
ent Assets    $3,046    2,810    2,954    2,427    2,436    2,301
    Fixed Assets    2154.8    2,037    1,742    1,240    1,283    1,631
    Total Assets    $5,201    4,847    4,696    3,667    3,719    3,932
    Cu
ent Liabilities    $2,725    2,427    2,363    2,114    2,064    1,960
    Debt    1385.6    2,429    961    303    266    335
    Equity
    Stock    965.5    1022.4    1016.4    909.3    975.6    975.6
    Accumulated Retained Earnings    100    415    506    681    781    88
    Total Liabilities and Equity    5,176    6,292    4,846    4,006    4,087    3,358
    Free Cash Flow Statement
    Year    0    1    2    3    4    5
    Profit after Tax    $1,523    1338    1186    1168    1184    1224
    Interest*(1-tax)        30    37    21    22    27
    Change in Net Working Capital        -63    -208    278    -58    31
    Cash Flow from Operations        1306    1016    1467    1148    1281
    New Fixed Assets        118    295    502    -44    -348
    Free Cash Flow        1424    1310    1968    1104    934
    Valuation
    Year    0    1    2    3    4    5
    Free Cash Flow        1424    1310    1968    1104    934
    Terminal Value                        7684
    Total Predicted Cash Flow        1424    1310    1968    1104    8617
    Discounted value    7921.90
    Forcated Value of Firm
    Less Value of Debt
    Less Value of Prefe
ed Stock
    Forcast Equity Value Before Time Adjustment
    Forcast Equity Value as of Valuation Date
    Common Shares Outstanding at Valuation Date
    Forecast Price/Share
    Cost of equity                6.29%
    Cost of capital                6.18%
Sheet2
    Sales growth    7%
    Initial Sales    $1,000
    FA_Sales    70%
    CA_Sales    15%
    CL_Sales    7%
    COGS_Sales    70%
    Interest    10%
    Dividend Payout    60%
    Tax rate    29%
    Income Statements (Profit and Loss)
    Year    2022    2021    2020    2019    2018    2017
    Sales    $15,165    14,315    13,025    12,660    14,464    14,212
        2017    2018    $ 2,019.00    2,020    2,021    2,022
        $14,212    14,464    12,660    13,025    14,315    $15,165
            252    -1,803    365    1,290    850
            1.7%        2.8%    9.0%    5.6%    4.8%    5%
    Cost of Goods Sold    13482.3    12,834    11,718    11,383    13,176    12,886
        132
    Interest    48.5    43    52    29    31    37                0.26%
    Profit before Tax    $1,634    1439    1256    1249    1257    1289
    Taxes    111.1    100    70    81    73    65
    Profit after Tax    $1,523    1338    1186    1168    1184    1224
    Dividend    198.5    148    118    127    102    0
    Retained Earnings    1324    1190    1068    1040    1082    1224
    Balance Sheet
    Year    2022    2021    2020    2019    2018    2017
    Cu
ent Assets    $3,046    2,810    2,954    2,427    2,436    2,301
    Fixed Assets    2154.8    2,037    1,742    1,240    1,283    1,631
    Total Assets    $5,201    4,847    4,696    3,667    3,719    3,932
    Cu
ent Liabilities    $2,725    2,427    2,363    2,114    2,064    1,960
    Debt    1385.6    2,429    961    303    266    335
    Equity
    Stock    965.5    1022.4    1016.4    909.3    975.6    975.6
    Accumulated Retained Earnings    100    415    506    681    781    88
    Total Liabilities and Equity    5,176    6,292    4,846    4,006    4,087    3,358
    Free Cash Flow Statement
    Year    0    1    2    3    4    5
    Profit after Tax    $1,523    1338    1186    1168    1184    1224
    Interest*(1-tax)        30    37    21    22    27
    Change in Net Working Capital        -63    -208    278    -58    31
    Cash Flow from Operations        1306    1016    1467    1148    1281
    New Fixed Assets        118    295    502    -44    -348
    Free Cash Flow        1424    1310    1968    1104    934
    Valuation
    Year    0    1    2    3    4    5
    Free Cash Flow        1424    1310    1968    1104    934
    Terminal Value                        7684
    Total Predicted Cash Flow        1424    1310    1968    1104    8617
    Discounted value    7921.90
    Forcated Value of Firm
    Less Value of Debt
    Less Value of Prefe
ed Stock
    Forcast Equity Value Before Time Adjustment
    Forcast Equity Value as of Valuation Date
    Common Shares Outstanding at Valuation Date
    Forecast Price/Share
    Cost of equity                6.29%
    Cost of capital                6.18%
Sheet3
    Sales growth    7%
    Initial Sales    $1,000
    FA_Sales    70%
    CA_Sales    15%
    CL_Sales    7%
    COGS_Sales    70%
    Interest    10%
    Dividend Payout    60%
    Tax rate    53%
    Income Statements (Profit and Loss)
    Year    0    1    2    3    4    5
    Sales    $1,000    1,070    1,145    1,225    1,311    1,403
    Cost of Goods Sold        749    801    858    918    982
    Interest        28    28    28    28    27
    Profit before Tax        293    316    340    366    393
    Taxes        155    167    180    194    209
    Profit after Tax        138    148    160    172    185
    Dividend        83    89    96    103    111
    Retained Earnings        55    59    64    69    74
    Balance Sheet
    Year    0    1    2    3    4    5
    Cu
ent Assets    $150    161    172    184    197    210
    Fixed Assets    700    749    801    858    918    982
    Total Assets    850    910    973    1,041    1,114    1,192
    Cu
ent Liabilities    $70    75    80    86    92    98
    Debt    280    280    279    277    275    273
    Equity
    Stock    400    400    400    400    400    400
    Accumulated Retained Earnings    100    155    214    278    347    421
    Total Liabilities and Equity    850    910    973    1,041    1,114    1,192
    Free Cash Flow Statement
    Year    0    1    2    3    4    5
    Profit after Tax        138    148    160    172    185
    Interest*(1-tax)        13    13    13    13    13
    Change in Net Working Capital        -6    -6    -6    -7    -7
    Cash Flow from Operations        145    155    166    178    190
    New Fixed Assets        -49    -52    -56    -60    -64
    Free Cash Flow        96    103    110    118    126
    Valuation
    Year    0    1    2    3    4    5
    Free Cash Flow        96    103    110    118    126
    Terminal Value                        1039
    Total Predicted Cash Flow        96    103    110    118    1165
    Discounted value    811.22
    Forcated Value of Firm
    Less Value of Debt
    Less Value of Prefe
ed Stock
    Forcast Equity Value Before Time Adjustment
    Forcast Equity Value as of Valuation Date
    Common Shares Outstanding at Valuation Date
    Forecast Price/Share
    Cost of equity                6.29%
    Cost of capital                6.18%
Ratio
        2017        2018        2019        2020        2021        2022
    Sales    $14,212        14,464        12,660        13,025        14,315        16,615
    Gross Profit    1236.3        1288.1        1277.7        1312.7        1682.5        1481.3
    Net (loss)/profit for the year    173.7        -146.7        276.1        14.4        247.1        239.6
    EBIT    304.8        332.7        330        334.9        417.1        489
    Interest     48.5        42.6        52        28.9        31        37.4
    Cu
ent Asset    2301        2436        2427        2954        2810        3,046
    Total Asset    $3,932        3,719        3,667        4,696        4,847        5,201
    Cu
ent Liabilities    $1,960        2,064        2,114        2,363        2,427        2,725
    Total Liabilities    $2,294        2,330        2,417        3,324        3,556        4,111
    Inventories    $759        784        779        1,032        1,008        1,125
        2017        2018        2019        2020        2021        2022
    Gross Profit     0.09        0.09        0.10        0.10        0.12        0.09
    Net profit     0.01        -0.01        0.02        0.00        0.02        0.01
    Cu
ent Ratio    1.17        1.18        1.15        1.25        1.16        1.12
    Quick Raio    0.79        0.80        0.78        0.81        0.74        0.70
    Interest Cover    6.28        7.81        6.35        11.59        13.45        13.07
    Asset Turnver    3.61        3.89        3.45        2.77        2.95        3.19
Average
    Sales growth    7%
    Initial Sales    $1,000
    FA_Sales    70%
    CA_Sales    15%
    CL_Sales    7%
    COGS_Sales    70%
    Interest    10%
    Dividend Payout    60%
    Tax rate    53%
    Income Statements (Profit and Loss)
    Year    2017    2018    2019    2020    2021    2022
    Sales    $14,212    14,464    12,660    13,025    14,315    16,615
            0.01773     XXXXXXXXXX    0.02883    0.09904    0.16067
    Cost of Goods Sold    12886    13,176    11,383    11,718    12,834    13,482
    Variance of Good sold        0.0225    -0.136    0.0294    0.095    0.0505
    COSt of Goods Sold / Sales        0.9110    0.911    0.8997    0.900    0.8115
    Interest    37    31    29    52    43    49
    Interest Variance        -0.162    -0.06    0.793    -0.17    0.128
    Interest/Sales        0.002    0.002    0.004    0.003    0.003
    Profit before Tax        1257    1248    1255    1438    3084
    Taxes    65    73    81    70    100    111
    Taxes variance        0.12    0.11    -0.14    0.43    0.11
            0.06    0.06    0.06    0.07    0.04
    Profit after Tax        1184    1167    1185    1338    2973
    Dividend    0    102    127    118    148    199
            0    0.25    -0.07    0.25    0.34
    Retained Earnings        1082    1040    1067    1190    2775
    Balance Sheet
    Year    2017    2018    2019    2020    2021    2022
    Cu
ent Assets    $2,301    2,436    2,427    2,954    2,810    3,046
    Variance of cu
ent assets        0.059    -0.004    0.217    -0.049    0.084
    Cu
ent Assets/Sales        0.17    0.19    0.23    0.20    0.18
    Fixed Assets    1631    1,283    1,240    1,742    2,037    2,155
    Varinace fixed Asset        -1.00    -0.03    -1.00    0.17    -1.00
    Fixed Assets/ Sales        0.09    0.10    0.13    0.14    0.13
    Total Assets    $3,932    3,719    3,667    4,696    4,847    5,201
    Cu
ent Liabilities    $1,960    2,064    2,114    2,363    2,427    2,725
    Variance of Fixed Asset        0.05    0.02    0.12    0.03    0.12
    Average Cu
ent liabilities        0.14    0.17    0.18    0.17    0.16
    Debt    280    269    313    974    -143    1,393
    Equity
    Stock    1719.3    660    559.2    853.5    867    818.3
    Accumulated Retained Earnings    -87.7    726    681    506    1,696    265
    Total Liabilities and Equity    3,872    3,719    3,667    4,696    4,847    5,201
    Free Cash Flow Statement
    Year    0    1    2    3    4    5
    Profit after Tax        1184    1167    1185    1338    2973
    Interest*(1-tax)        15    14    24    20    23
    Change in Net Working Capital        -31    59    -278    208    62
    Cash Flow from Operations        1168    1240    931    1566    3058
    New Fixed Assets        348    43    -502    -295    -118
    Free Cash Flow        1516    1283    429    1271    2940
    Valuation
    Year    0    1    2    3    4    5
    Free Cash Flow        1516    1283    429    1271    2940
    Terminal Value                        24199
    Total Predicted Cash Flow        1516    1283    429    1271    27139
    Discounted value     XXXXXXXXXX
    Forcated Value of Firm
    Less Value of Debt
    Less Value of Prefe
ed Stock
    Forcast Equity Value Before Time Adjustment
    Forcast Equity Value as of Valuation Date
    Common Shares Outstanding at Valuation Date
    Forecast Price/Share
    Cost of equity                6.29%
    Cost of capital                6.18%
Forecast
    Sales growth    4%
    Initial Sales    $15,000
    FA_Sales    12%
    CA_Sales    6%
    CL_Sales    16%
    COGS_Sales    89%
    Interest    0.29%
    Dividend Payout    15%
    Tax rate    6%
    Income Statements (Profit and Loss)
    Year    2022    2023    2024    2025    2026    2027
    Sales    $15,165    15,715    16,286    16,877    17,490    18,125
    Cost of Goods Sold    13482.3    13,932    14,438    14,962    15,506    16,069
    Interest    48.5    0.1392    0.0004    0.0000    0.0000    0.0000
    Profit before Tax    $1,634    1783    1848    1915    1985    2057
    Taxes    111.1    101    105    109    113    117
    Profit after Tax    $1,523    1682    $1,743    1806    $1,872    1940
    Dividend    198.5    259    268    278    288    299
    Retained Earnings    1324    1423    1475    1528    1584    1641
    Balance Sheet
    Year    2022    2023    2024    2025    2026    2027
    Cu
ent Assets    $922    966    1,001    1,037    1,075    1,114
    Fixed Assets    1777.14    1,862    1,930    2,000    2,072    2,147
    Total Assets    $2,699    2,828    2,931    3,037    3,147    3,262
    Cu
ent Liabilities    $2,474    2,592    2,686    2,784    2,885    2,989
    Debt    1385.6    -2,270    -3,736    -5,256    -6,831    -8,462
    Equity
    Stock    818.3    818.3    818.3    819.3    819.3    819.3
    Accumulated Retained Earnings    265    1,688    3,162    4,690    6,274    7,915
    Total Liabilities and Equity    4,943    2,828    2,931    3,037    3,147    3,262
    Free Cash Flow Statement
    Year    0    1    2    3    4    5
    Profit after Tax    $1,523    1423    $1,743    1528    $1,872    1641
    Interest*(1-tax)        0.1313    0.0004    0.0000    0.0000    0.0000
    Change in Net Working Capital        -74    -59    -61    -63    -66
    Cash Flow from Operations        1349    1684    1467    1808    1575
    New Fixed Assets        85    68    70    73    75
    Free Cash Flow        1434    1751    1537    1881    1651
    Valuation
    Year    0    1    2    3    4    5
    Free Cash Flow        1434    1751    1537    1881    1651
    Terminal Value                        10450
    Total Predicted Cash Flow        1434    1751    1537    1881    12101
    Discounted value    9936.21
    Forcated Value of Firm
    Less Value of Debt
    Less Value of Prefe
ed Stock
    Forcast Equity Value Before Time Adjustment
    Forcast Equity Value as of Valuation Date
    Common Shares Outstanding at Valuation Date
    Forecast Price/Share
    Cost of equity
    Cost of capital

Metcash Trading is an Australian conglomerate company headquartered in Wooloomooloo, NSW. Metcash is a distributing and marketing support in supermarket groceries, perishables
Answered 3 days After Jun 04, 2023

Solution

Rochak answered on Jun 07 2023
27 Votes
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