Students have to expose their investment case about the InterContinental Hotels Group, supported in their
valuation analysis. The investment recommendation can be to BUY (if valuation higher than
market price) or to SELL (if valuation lower than market price) the IHG company. The
consistency and quality of the investment case and the supporting valuation exercise, both
properly explained, are the topics to be evaluated. The investment report is self-contained, i.e.
there are no additional elements to be evaluated.
The report should deliver:
1) a discounted cash flow (DCF) valuation of the stock (common equity) in the company by
identifying the key assumptions for the DCF analysis,
presenting relevant cash flow tables and applied valuation formulas, and
estimating how sensitive the value estimates are to changes in the key
assumptions,
2) a relative valuation of the stock (common equity) in the company by
• preparing a list of comparable (peer) companies, using criteria that are justified to
be appropriate,
• choosing a multiple that will be used in comparing companies across the peer
group,
• evaluating the company against its peers using the chosen multiple,
3) a final value estimate and investment recommendation by
• considering the values obtained from discounted cash flow and relative valuation
models and reconciling potential differences between the two, and
• making a final investment recommendation on whether to buy or sell the stock of
the company.
Contents
1.0 Introduction …………………………………………………………………………………………………………………….
1.1 Trajectory of the Valuation ………………………………………………………………………………………………
1.2 Company Overview………………………………………………………………………………………………………..
1.3 Capital Structure ……………………………………………………………………………………………………………
1.4 Financials ……………………………………………………………………………………………………………………..
1.3 Regional Sales ………………………………………………………………………………………………………………
1.4 Business Area ……………………………………………………………………………………………………………….
1.5 Industry Overview ………………………………………………………………………………………………………….
2.0 Methodology………………………………………………………………………………………………………………….
2.1 Introduction to Valuation ……………………………………………………………………………………………….
2.2 Discounted Cash Flow Model (DCF) ………………………………………………………………………………
2.3 Relative Valuation ………………………………………………………………………………………………………..
2.4 Data sources ……………………………………………………………………………………………………………….
3.0 Empirical Analysis …………………………………………………………………………………………………………
3.1 Historical Financial Performance ……………………………………………………………………………………
3.1 Determining Key Performance Drivers ……………………………………………………………………………
3.2 Free Cash Flow Projections…………………………………………………………………………………………..
3.2.1 Sales growth drivers applicable to Richemont in all regions…………………………………………
3.2.2 Sales growth factors affecting regions………………………………………………………………………
3.2.3 Cost of Goods ……………………………………………………………………………………………………….
3.2.4 Operating Expenses……………………………………………………………………………………………….
3.2.5 Tax ………………………………………………………………………………………………………………………
3.2.6 Depreciation………………………………………………………………………………………………………….
3.2.7 Capex…………………………………………………………………………………………………………………..
3.2.8 Working Capital……………………………………………………………………………………………………..
3.3 Weighted Average Cost of Capital (WACC) ……………………………………………………………………
3.3.1 Cost of Debt ………………………………………………………………………………………………………….
3.3.2 Cost of Equity………………………………………………………………………………………………………..
3.4 Terminal Value …………………………………………………………………………………………………………….
3.5 Enterprise Value…………………………………………………………………………………………………………..
3.6 Equity Value ………………………………………………………………………………………………………………..
3.7 Sensitivity Analysis……………………………………………………………………………………………………….
3.8 Scenario Analysis…………………………………………………………………………………………………………
3.9 Relative Valuation ………………………………………………………………………………………………………..
4.0 Conclusion…………………………………………………………………………………………………………………….
5.0 References…………………………………………………………………………………………………………………….
6.0 Appendices……………………………………………………………………………………………………………………
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