Project Task a: Valuation and Sensitivity Analysis

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Task A
I choose Qantas Airways Limited (ASX code: QAN.AX) as the target company which is listed on the Australian Stock Exchange (ASX).Qantas Airways is principally engaged in providing transport services at both international and domestic level. It is also engaged in the provision of time definite freight services. Qantas focuses on selling of international and domestic holiday tours, and associated support activities including information technology, catering, ground handling, and engineering and maintenance. It operates its business through six divisions namely Qantas, Qantas holidays, Jetstar and Qantas flight catering, Qantas freight and Qantas frequent player.

In the section 1, the report deals with the valuation of the company. I will estimate the value of QAN’s on a per share basis. According to the historical prices of the company and all ordinaries, I will calculate QAN’s beta by calculating a regression on the monthly returns from QAN on the market returns in the last 5 years. And according to the QAN’s financial data, I will rebuild its historical Cash Flows. In addition, I gather relevant financial data and other non-financial information to estimate future FCF for the next 5 years. By discounting Future Cash Flows (FCF) using a discount rate given by QAN’s Weighted Average Cost of Capital (WACC) I will compute the Net Present Value (NPV) of the company. So, we are able to compare our calculated NPV per share with the market share price and analyse the factors which cause the deviations. In the second section, I will conduct a sensitivity analysis to assess the sensitivity of the NPV on changes of the assumptions. Finally, summarise and give a recommendation regarding the assessment of the company.

Section 1: Valuation
1. Download data and Calculate Return
Collect the historical prices of the company and all ordinaries, Calculate the monthly returns on QAN’s share and the all ordinary index over the last 5 years by using the following formula: R= (Pt-Pt-1)/ Pt_1

Date| Adj Close(QAN)| QAN Return| Adj Close(ORD)| Market Return| | | | | |
2009-12-1| 2.7| 3.85%| 4733.1| 0.37%|
2009-11-2| 2.6| -7.14%| 4715.5| 1.48%|
2009-10-1| 2.8| -2.10%| 4646.9| -1.95%|
2009-9-1| 2.86| 13.04%| 4739.3| 5.69%|
2009-8-3| 2.53| 9.05%| 4484.1| 5.52%|
2009-7-1| 2.32| 15.42%| 4249.5| 7.64%|
2009-6-1| 2.01| 5.24%| 3947.8| 3.53%|
2009-5-1| 1.91| -3.54%| 3813.3| 1.83%|
2009-4-1| 1.98| 13.14%| 3744.7| 6.01%|
2009-3-2| 1.75| 11.46%| 3532.3| 7.14%|
2009-2-2| 1.57| -35.92%| 3296.9| -5.21%|
2009-1-2| 2.45| -6.84%| 3478.1| -4.95%|
2008-12-1| 2.63| 13.36%| 3659.3| -0.36%|
2008-11-3| 2.32| -4.13%| 3672.7| -7.78%|
2008-10-1| 2.42| -22.68%| 3982.7| -14.00%|
2008-9-1| 3.13| -7.40%| 4631.3| -11.20%|
2008-8-1| 3.38| 1.81%| 5215.5| 3.22%|
2008-7-1| 3.32| 9.21%| 5052.6| -5.26%|
2008-6-2| 3.04| -12.39%| 5332.9| -7.64%|
2008-5-1| 3.47| 2.06%| 5773.9| 2.07%|
2008-4-1| 3.4| -13.49%| 5657| 4.57%|
2008-3-3| 3.93| -6.87%| 5409.7| -4.67%|
2008-2-1| 4.22| -9.64%| 5674.7| -0.39%|
2008-1-1| 4.67| -14.15%| 5697| -11.28%|
2007-12-3| 5.44| -7.01%| 6421| -2.62%|
2007-11-1| 5.85| -1.02%| 6593.6| -2.74%|
2007-10-1| 5.91| 5.91%| 6779.1| 3.01%|
2007-9-3| 5.58| 0.00%| 6580.9| 5.32%|
2007-8-1| 5.58| -2.79%| 6248.3| 0.98%|
2007-7-2| 5.74| 2.50%| 6187.5| -1.95%|
2007-6-1| 5.6| -1.75%| 6310.6| -0.49%|
2007-5-1| 5.7| 7.14%| 6341.8| 2.98%|
2007-4-2| 5.32| 1.33%| 6158.3| 3.00%|
2007-3-1| 5.25| 1.94%| 5978.8| 2.79%|
2007-2-1| 5.15| -4.45%| 5816.5| 1.02%|
2007-1-1| 5.39| 3.26%| 5757.7| 2.01%|
2006-12-1| 5.22| 5.45%| 5644.3| 3.35%|
2006-11-1| 4.95| 16.75%| 5461.6| 2.03%|
2006-10-2| 4.24| 8.44%| 5352.9| 4.69%|
2006-9-1| 3.91| 13.66%| 5113| 0.65%|
2006-8-1| 3.44| 12.79%| 5079.8|...
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