FIN30016 | Group Assignment

You are asked to write a sell-side analyst report as a group of 2-3 people. One of the modules on Canvas has resources that further help you to complete this group assignment.

Weight: 20% of total assessment

Due dates: Check on Canvas. You must submit your report, in word or PDF format, elec- tronically using the assignment submission link on Canvas.

Late submissions: Late assignments cannot be accepted unless a time extension has been re- quested from, and approved by, the Unit Convenor. Such requests must be made in writing via email before the due date. You will be penalized 10% of the assessment’s worth for each calendar day the task is late, up to a maximum of 5 days. After 5 calendar days, a zero result will be recorded.

Format: This assignment must be written in a sell-side analyst report format. The resources on group assignment on Modules of Canvas have some examples. This report would be within 2,000 words or no more than 8 pages excluding references and appendices.

Question

 You are in the sell-side analyst team working for a brokerage firm.   The firm has asked your team to prepare a sell-side analyst report for the clients of the firm. The report is produced to help guide investment decisions. Sell-side analysts issue the often-heard recommendations of ‘buy’, ‘hold’, ‘neutral’, or ‘sell’ to help clients with their investment decisions.

The company you are asked to analyze in the report is Fortescue Metals Group Limited (FMG.AX). FMG is an Australian iron ore company. As of 2017, Fortescue is the fourth largest iron ore producer in the world after BHP, Rio Tinto, and Vale. Your analyst report should address the following requirements (A-C).

Part A - Quantitative Analysis

 Estimate the value (per share) of the company using the Free-Cash-Flow-to Equity (FCFE)

1. Provide a brief comment on the dividend policy of the

Part B - Quatitative Analysis

 Using economic, industry and firm based analysis, estimate the potential and growth of the sector as well as FMG.AX. Are they able to achieve growth under the current economic climate?

Part C - Conclusion/Recommendation

 You are required to make recommendation if your clients should either BUY/ SELL/ HOLD/. Using your findings from part (a) and (b), provide some justifications to your recommendations.

Some general advice

1. It is not about getting the most accurate There is no one price otherwise the market price for all the companies will be static. It is about how you build your ‘story’. State your assumptions and cite your references.
2. Part A (i), you are only required to look up FCFE for the firm over the last two years. The biggest challenge is finding the appropriate discount Revise FIN20014 on the relevant topics early (i.e. internal

 based models such as Weighted Cost of Capital, WACC or Risk based models such as Capital Asset Pricing/Market models are fine).

3. Part A (ii), you are only required to look up dividend paid by firm over the last 2 years. It is also a good exercise using the dividend discount model to investigate the multiples the market was over the last few Apply your knowledge from FIN20014 on dividend policy.
4. Part B, instead of merely stating facts about the economy, industry and the firm, provide some analysis. Make a judgement call on how these facts will affect the companys operation, profitability and most important of all, growth and
5. You should state your outlook horizon in your justifications. (1 year/2 years). Use the most recent financials When estimating your growth, you are only expected to use 2 years worth of historical data and forecast 1 year ahead.
6. Some good starting points. For issues on applying FCFE, look up the group assignemnt resources on You have learned about DCF approach in valuation from FIN20014. Topic 9 in this unit further discusses equity valuation. You may also wish to search Ashworth Demodaran for his books or his website. Use DatAnalysis from Swinburne Library for financial data on the company. You may also wish to use Yahoo Finance for this purpose.