Equity Research: Cimpor

Topics: Discounted cash flow, Capital asset pricing model, Free cash flow Pages: 167 (15072 words) Published: June 8, 2013
MASTERS OF SCIENCE IN BUSINESS ADMINISTRATION

EQUITY RESEARCH: CIMPOR
TOMÁS LAVIN PEIXE 152110052

ADVISOR: PROF. JOSÉ TUDELA MARTINS

Dissertation submitted in partial fulfillment of requirements for the degree of International MSC in Business Administration, at Universidade Católica Portuguesa, September, 2012  
 
 
 
 

 

I. Preface The goal of this dissertation is to value Cimentos de Portugal, SGPS, S.A, hereon stated as Cimpor. In order to do that, the main valuation methods and theories will be reviewed and consequently applied to deliver an investment recommendation regarding FY2012 stock price. The structure of this dissertation is divided into eight main sections: I. In the first section -executive summary- an equity research report will be presented summarizing Cimpor’s valuation as well as my final recommendation; II. In section two -literature review- I will start by explaining the main role of valuation and then discuss the five major steps to value a firm (understanding the business, forecasting company performance, selecting the valuation model, converting forecast into valuation and making the investment decision); III. In the third section, a detailed analysis of Cimpor will be presented covering the following topics: history, geographic diversification, growth strategy, shareholder structure, share performance and dividend policy; IV. In the fourth section, an overview of cement industry will be done including an analysis of both past trends and future perspectives. Moreover, the main players and the Porter’s five forces analysis will be introduced; V. Section five will show the main macroeconomic indicators needed to perform the valuation; VI. In section six, Cimpor’s valuation will be computed through a DCF WACC based approach. In addition, a sensitivity analysis will be done as well as a relative valuation using EV/EBITDA and P/E multiples; VII. In section seven, my own assumptions and results will be compared with an equity research report from BPI; VIII. Finally, in the last section the main conclusions achieved will be summarized.

 
 
 
 

 
 

 
 
 

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II. Acknowledgements During the development of this dissertation, I had the pleasure to contact with a number of people that were crucial by the support and learning experience provided, to who I would like to acknowledge: First of all, I would like to express my gratitude to Professor Aswath Damodaran for his constant availability to answer my questions, for providing all his MBA valuation classes online as well as all financial data used in this thesis. I also want to recognize the availability and helpful feedback provided by Professor José Tudela Martins, BPI Equity Research team and Cimpor Investor Relations Department, for the additional data provided. Finally, I would also like to thank to my family and Margarida Ramos for supporting me throughout my University studies.

 
 

 
 
 

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Table of Contents
I. Preface .................................................................................................................................... i II. Acknowledgements .............................................................................................................. ii 1. Executive Summary ............................................................................................................. 6 2. Literature Review ................................................................................................................. 7 2.1. The Role of Valuation .................................................................................................................7 2.2. The Valuation Process ................................................................................................................7 2.2.1. Understanding the Business...

References: Articles: Damodaran, A., (2009), Ups and Downs: Valuing Cyclical and Commodity Companies Damodaran, A., (2008), What is the risk free rate? A Search for the Basic Building Block Damodaran, A., (2011), Equity Risk Premiums (ERP): Determinants, Estimations and Implications Demirakos, E., Strong, N., Walker, M., (2004), What Valuation Models Do Analysts Use? Dimson, E., Marsh, P., Staunton, M., (2002), Global Evidence on the Equity Risk Premium Eberhart, A., (2004), Equity Valuation Using Multiples Fernández, P. (2007), Valuation Methods: the most common errors in valuation Givoly, D., Lakonishok, J., (1984), The Quality of Analysts’ Forecasts of Earnings Goedhart, M., Koller, T., Wessels, D., (2005), The right role of multiples in valuation Heller, S., (2010), Estimating beta and Cost of Equity Capital for Non-traded Transportation Companies James, M., Koller, T., (2000), Valuation in emerging markets Liu, J., Nissim, D., Thomas, J., (2002), Equity Valuation Using Multiples Luehrman, T., (1997), Using APV: A better tool for valuing operations Massari, M., Roncaglio, F., Zanetti, L., (2007), On the Equivalence between the APV and the WACC Approach in the Growing Leveraged Firm Ohlson, J., Zhang, X. (1999), On the Theory if Forecast Horizon in Equity Valuation Rosenberg, B., Guy, J., (1995), Prediction of Beta from Investment Fundamentals Ruback, R., (2000), Capital Cash Flows: A simple Approach to Valuing Risky Cash Flows Sabal, J., (2008), WACC or APV Books: Baker, H., Powell, G., (2005), Understanding financial management: a practical guide CFA Institute, (2009), Equity Copeland, T., Koller, T., Murrin, J., (2000), Valuation: Measuring and Managing the Value of Companies Damodaran, A., (1994), Damodaran on Valuation Damodaran, A., (2010), Investment Valuation: Tools and Techniques for Determining the Value of Any Asset
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Damodaran, A., (2011), The Little Book of Valuation: How to Value a Company, Pick a Stock and Profit Graham, B., Dodd, D., (1934), Security analysis Madura, J., (2008), Financial Markets and Institutions Madura, J., (2010), International Financial Management Meyer, T., Mathonet, P., (2005), Beyond the J-curve: Managing a Portfolio of Venture Capital and Privet Equity Funds Mota, A., Barroso, C., Nunes, J., Ferreira, M., (2006), Finanças Empresariais Penman, S., (2001), Financial statement analysis and security valuation Stowe, J., Robinson, T., Pinto, J., McLeavey, D., (2002), Analysis of Equity Investments: Valuation Reports: Banif Investment Bank, (July, 2011), Cimpor: Valuation Update Banif Investment Bank, (February, 2012), Cimpor: 4Q11/FY2011 Conference Call Highlights Comment BPI Equity Research, (February, 2011), Cimpor: Political instability in Egypt driving 4% target cut BPI Equity Research, (September, 2011), Cimpor: Shareholder back to the chess table BPI Equity Research, (January, 2012), Cimpor: Getting close to a new chapter? Credit Suisse, (January, 2012), Building Materials: Another challenging year Espirito Santo Investment Bank, (August, 2011), Cimpor: Even more solid than expected Goldman Sachs, (2003), Dreaming with BRICS: the path to 2050 HSBC, (January, 2011), The World in 2050: Quantifying the shift in the global economy International Cement Review, (2011), Global Cement Report Millennium Investment Bank, (February, 2012), Cimpor: 4Q11 earnings comment Millennium Investment Bank, (February, 2012), Cimpor: Shareholder Structure Millennium Investment Bank, (February, 2012), Cimpor: Valuation Update PriceWaterhouseCoopers, (January, 2011), The World in 2050: The accelerating shift of global economic power: challenges and opportunities World Business Council for Sustainable Development, (March, 2012), Cement Executive Brief
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Internet based sources: Bloomberg, http://www.bloomberg.com/ Cimpor, http://www.cimpor.pt/ Damodaran, A., http://pages.stern.nyu.edu/~adamodar/ Euronext, http://www.euronext.com/ Google Finance, http://www.google.com/finance Stern Stewart & Co., http://www.sternstewart.com/ The European Cement Association, http://www.cembureau.be/ Yahoo Finance, http://finance.yahoo.com/
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