Qantas Airline Financial Valuation and Sensitivity Analysis
Corporate Finance
PROJECT - TASK A
Table of Contents
Executive summary 1
Introduction 2 VALUATION 2 1. Select a company listed on the Australian Stock Exchange, find and download the following data 2 2. using the data from 1b and 1c construct a Characteristic Line and determine Beta for the company. Is this Equity or Asset Beta? 2 3. Rebuild the Five Year Historical Financial Statement, extracting only relevant cash flow data for NPV analysis 5 4. Forecast another five years of relevant data. You must explain the method you use to derive your forecast data. E.g. basis of your forecast growth rate, working capital consideration, nominal or real cash flows etc 6 5. Estimate the WACC for the company. You must explain how you derive the Cost of Equity, Cost of Debt and other components required to work out WACC. 9 6. Use the forecast data and a Terminal Value at year 5 to estimate the current valuation of your company. Comment on the quality of your forecast data and terminal value. 12 7. Compare with the price in the market, and offer some explanation of any discrepancy. 14 SENSITIVITY ANALYSIS 15 8. Conduct sensitivity analysis on the forecast cash flow. Identify and comment on the sensitive factors affecting the value of the company. 15
Conclusion and recommendation 20
Bibliography 21
Executive summary
In this essay, we generally investigated Qantas Airways Limited, which is the largest airline in Australia mainly though historical data from the aspects of valuation and sensitivity analysis.
Based on our analysis, Qantas Airline Limited has an equity beta of 1.3711 which is greater than 1. It means that the stock has greater price volatility than the overall market and is also more risky. As such, the stock price is affected by the negative impact from global financial crisis in recent years.
We got average growth rate of 2.1% by using the
PROJECT - TASK A
Table of Contents
Executive summary 1
Introduction 2 VALUATION 2 1. Select a company listed on the Australian Stock Exchange, find and download the following data 2 2. using the data from 1b and 1c construct a Characteristic Line and determine Beta for the company. Is this Equity or Asset Beta? 2 3. Rebuild the Five Year Historical Financial Statement, extracting only relevant cash flow data for NPV analysis 5 4. Forecast another five years of relevant data. You must explain the method you use to derive your forecast data. E.g. basis of your forecast growth rate, working capital consideration, nominal or real cash flows etc 6 5. Estimate the WACC for the company. You must explain how you derive the Cost of Equity, Cost of Debt and other components required to work out WACC. 9 6. Use the forecast data and a Terminal Value at year 5 to estimate the current valuation of your company. Comment on the quality of your forecast data and terminal value. 12 7. Compare with the price in the market, and offer some explanation of any discrepancy. 14 SENSITIVITY ANALYSIS 15 8. Conduct sensitivity analysis on the forecast cash flow. Identify and comment on the sensitive factors affecting the value of the company. 15
Conclusion and recommendation 20
Bibliography 21
Executive summary
In this essay, we generally investigated Qantas Airways Limited, which is the largest airline in Australia mainly though historical data from the aspects of valuation and sensitivity analysis.
Based on our analysis, Qantas Airline Limited has an equity beta of 1.3711 which is greater than 1. It means that the stock has greater price volatility than the overall market and is also more risky. As such, the stock price is affected by the negative impact from global financial crisis in recent years.
We got average growth rate of 2.1% by using the
Bibliography: NECG 2001, GPU GasNet - Asset, equity and debt beta, viewed 30 October 2010 Qantas Airline Limited, 2010, Annual Report 2010, viewed 25 October 2010 Qantas Airline Limited, 2010, Annual Report 2009, viewed 25 October 2010 Qantas Airline Limited, 2010, Annual Report 2008, viewed 25 October 2010 Qantas Airline Limited, 2010, Annual Report 2007, viewed 25 October 2010 Qantas Airline Limited, 2010, Annual Report 2006, viewed 25 October 2010 Reserve Bank of Australia, 2010, Key Information - Inflation rate, viewed 4 November 2010 Yahoo! Finance, 2010, ALL ORDINARIES (^AORD) Historical Prices, viewed 30 October 2010 Yahoo! Finance, 2010, Qantas Airways Limited (QAN.AX) Historical Prices, viewed 30 October 2010