Background
The purpose of this exercise is to show you that by using the public information we are able to analyze asset prices.
At the end of every financial year, publicly listed companies provide (among other things) detailed accounting numbers on their operations over the past year in the form of an annual report. One can compile a year-by-year table of key performance metrics by cutting and pasting from archived annual reports.
Our company of interest in Australian Pharmaceutical Industries (API).
API provides annual reports on its website (https://www.api.net.au/investor/annual-reports/). Download the annual reports from the last five years (2013-2017). Your goal is to generate a stock price estimate for API at the time the 2017 report was published (19 October 2017).
a) Create a table of total payouts for API over the five years of reports. From this table, forecast the growth (this could be positive, negative, or zero) over the next three years and try to get a reasonable terminal condition from the end of this period. State your assumptions clearly.
b) Find the cost of equity. To determine the cost of equity, go to the Yahoo Finance website: https://au.finance.yahoo.com/ and get the monthly price and dividend information for API over the five years ending in September 2017.
c) Based on your numbers from (a) and (b), estimate the value of API’s equity and its price per share. How sensitive is your price estimate to the discount and growth rates you used? How does your share price estimate compare to the actual (market) price on 19 October 2017? What might account for any discrepancy between your price and the market price?
d) Create a football field (see Figure 9.2 in the textbook for an example) for API’s share price using data from Yahoo Finance. For a given stock, Yahoo provides an overview of the most current financial data (“Statistics”). Use these statistics in combination with data from similar firms to construct a football field with Trailing P/E and at least four other multiples. Briefly, explain both the intuition behind each of the multiples you have used and the calculations you made for each multiple. Be sure to justify your assumptions for each range of multiples used in constructing the football field.