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FINM1416 Workshop 3 Assignment

This assignment has two components: (1) An individual component (50%) to be completed individually on Blackboard, and (2) A group component (50%) to be completed in groups during and after your workshop.

Important: 

· You must complete your Individual Component to take part in the Group Workshop (there is no point in attending the workshop if you have nothing to bring to the workshop for discussion with your team members).

· You must attend the workshop to receive a grade for the group component.

· You are expected to work in the same group that you did in your last workshop.

The individual component is due at 8:00AM on Monday of the workshop week. The group component will commence during the workshop where staff will be present to help ensure you are on the right track. It will be due at the same time one week after your workshop. Please refer to the Timetables tab on Blackboard for details of due dates.

After submitting your group component work, you are required to complete the Peer Assessment individually on Blackboard to evaluate the level of contributions in various aspects made by your group peers. Your final workshop grade is adjusted for the Peer Assessment score given to you by your group members. The due date for the Peer Assessment is at the same time one week after the due date of your group report.

Preparation

The purpose of this workshop assignment is to complete a share valuation using different methods and consider trends in the industry. Tutorial 6 is a base for several parts of this workshop. Therefore, make sure you attend and understand the material covered during Tutorial 6. Further, make sure you have reviewed Chapter 6 from the Pressbook and attended and understood Lecture 4. Failing to do this will likely cause confusion and delay your progress in this assignment.

Problem

This workshop will give you the chance to see how our dividend valuation formula and P/E ratio works with publicly traded companies on NASDAQ. You will analyse the following four companies (stock symbols in bold in parentheses):

1. Tesla (TSLA)

2. Toyota Motor Corporation (TM)

3. The Shyft Group (SHYF)

4. Thor Industries (THO)

You will value each of the above companies using different valuation models from this course. For one of the questions, you should listen to the following podcast: The Economist - Changing gears – has the world passed “peak car” (available on Blackboard). Then, in your discussion groups, you will discuss your answers, the assumptions made in your calculations, the challenges the car industry is facing, the position of each of the companies in the changing industry and, if you had to choose one, which company you would invest in. Finally, you will write a 1,000-word group report.

Required

PART 1 – INDIVIDUAL COMPONENT (due 8:00AM, Monday, 16 September 2024) (50% of final mark)

You will be valuing the shares at 31/12/2023 using 2 valuation methods: the Perpetual Dividend Model (Q3-4) and P/E ratios (Q5). In Q1 and Q2, you will first estimate two growth rates for a perpetual dividend growth. We use the average of these two growth rates in Q3 and Q4 to estimate share prices. In Question 5, you will use the P/E method to estimate the share price.

Question 1: Estimating a perpetual growth rate using EPS (5 marks)

Find all the four companies’ reported earnings per share (EPS) for the year ending 31 December 2023. Also, find the consensus EPS forecast for the years 2024, 2025 and 2026. You must use the NASDAQ website to obtain the information. You should use the EPS information in the Earnings tab. After collecting EPS information, calculate the 3-year average of forecasted EPS growth rates for all these companies. If an EPS for a year is missing, assume that it is equal to the average of previous years’ EPS. If 2023 EPS is missing, use the Revenue EPS tab to find the information; however, if it is still missing in the Revenue EPS tab, then assume that it is equal to double the sum of two quarterly EPS available for the company. If you have other assumptions, justify them in a separate sheet named “assumptions”.

Question 2: Estimating a perpetual growth rate using historical dividends (5 marks)

Find all the four companies’ historical dividends for the years 2020-2023. You should use the NASDAQ website to obtain the information. In the Dividend History tab, you can find dividends paid by the companies. You should use the Ex/EFF DATE (ex-dividend date). After collecting historical dividend information, calculate the 3-year average of historical dividend growth rates for all four companies. If a company has a missing dividend for a given year, assume that it did not pay the dividend in that year.

Question 3: Estimating share prices using the 2023 dividends (5 marks)

In estimating share prices using the dividend, assume the following:

1) The company’s dividends will grow in perpetuity at a constant rate equal to the average of (i) the 3- year average of EPS growth rates computed in Question 1, and (ii) the 3-year average of historical dividend growth rates calculated in Question 2. The dividends for 2023 can be found on the NASDAQ website, under the Dividend History tab.

2) A required return of 8.43% for Tesla, 5.55% for Toyota, 7.5% for Shyf, and 7.97% for Thor.

3) If the average growth rate that you have calculated is negative, assume it is zero. If it is greater than the discount rate, use a revised growth rate that is equal to the discount rate minus 1%. Find the actual share price from the Summary tab on the NASDAQ website

Question 4: Estimating share prices using forecasted dividends (5 marks)

Repeat Question 3 above but this time estimate share prices using a forecasted 2023 dividend. We can forecast a dividend using a forecasted EPS and a dividend payout ratio (the proportion of EPS paid out as a dividend), where Forecasted Dividend = Forecasted EPS × Dividend Payout Ratio). Assume a dividend payout ratio of 30% to forecast the dividend.

Question 5: estimating share prices using P/E benchmarking (5 marks)

An alternative method for valuing a company, especially for a non-dividend paying stock, is to use the P/E valuation multiple method. Re-value all four companies using the P/E ratio method (assume a valuation date of 31/12/2023). Use the industry forward P/E ratio available from Prof. Damodaran website as the benchmark P/E ratio to estimate share prices. (Forward PE is the ratio of price to the first-year forecasted EPS). If you are unsure of which Industry Name the companies fall under, make sure to click the “Download Detail” button on which companies are included in each industry. The download takes a minute or so to Page 2 of 4complete due to the file size. If you have difficulty downloading the file, you can try switching to a different browser (Firefox, Google Chrome, Safari, etc.) or you can use the file in the assignment folder.

Question 6: Assumptions of the models (9 marks)

For each of the three valuations (Q3-5), what assumptions were made and how realistic are they? (Name and explain at least 1 assumption for each).

Question 7: Car industry (12 marks)

Based on the podcast: The Economist - Changing gears: has the world passed “peak car” (available on Blackboard), what are the two main challenges the car industry is facing? The podcast was recorded in 2020, has anything changed since then? Which of the companies do you think is best positioned to address the challenges, and why? (You will need to do additional research to answer the last two questions; make sure to reference appropriately – use either Harvard or APA style but just be consistent).

Question 8: Your choice (4 marks)

If you would invest in one stock, which one would it be? What was the most important factor in your decision?

Submission guidelines

The above items should be submitted via the Workshop 3 Individual Component on Blackboard, in which you should also attach your workings in the Excel file (xls or xlsx). An Excel template is provided. Do not upload workings in any other format. The Workshop 3 Individual Component on Blackboard is due at 8:00AM, Monday, 16 September 2024.

PART 2 – GROUP COMPONENT (2-HOUR TIMETABLED WORKSHOP + GROUP REPORT due at the same time exactly one week after your actual workshop) (50% of mark)

In Workshop 3, you will continue to work with the same team members as in your previous workshop. You can change your groups, but you must inform us in due time. You must attend the workshop to get marks for this component and you must join the session within the first 10 minutes.

First ≈ 10min:

· Brief introduction to the workshop

· Staff walk around the room to help you form groups and make sure your groups are on track to complete the assignment

Remaining workshop time: Review and discuss the different answers of your group members. Then, begin to brainstorm and write up the answers for your group report (up to 1,000 words):

1. What are the estimated share prices for all four companies in Q3-5? A table summarising your findings is useful. (8 marks)

2. For each of the valuations, what assumptions were made, how realistic are they, and how do they compare to the actual share prices? (8 marks)

3. Some actual share prices have been much higher or lower than your valuation. Pick the stock that has the largest difference and explain what you think might be the reason for such a difference? List three reasons and explain. (8 marks)

4. What are the main two challenges the car industry is facing according to the podcast? Has anything changed since the podcast? (8 marks)

5. What are some advantages or disadvantages each of the companies has in this changing industry? Which of the companies do you think is best positioned to address the challenges, and why? (8 marks) 

6. If you had to pick one stock to invest in as a group, who would it be? What was the main reason for this choice? (8 marks)

Include the Excel valuation as an appendix and just refer to the numbers in the body of your essay.

Marking

Your final score for the workshop will be computed out of 100 marks. Your best three workshops will each count for 15% of your final grade. Marks will be allocated as follows: