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Alpha Financial Markets Consulting plc
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==== What are the assumptions used to estimate the return figure? ==== {| class="wikitable" |+ Key inputs !Description !Value !Commentary |- | Which valuation model do you want to use? |Discounted cash flow |Research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach<ref name=":5">Demirakos et al., 2010; Gleason et al., 2013</ref>, so that's the approach that we suggest to use here; nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the using the relative valuation approach (the valuation based on the relative approach can be found in the appendix of this report). |- |Which type of DCF model do you want to use? |Free cash flow |While Alpha has paid a dividend every year since its public listing (in 2017), at the moment, the growth rate of the dividend varies materially; accordingly, we suggest valuing the business using the free cash flow valuation method (rather than the dividend discount model). Nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the dividend discount model (the valuation based on the dividend discount model can be found in the appendix of this report). |- |Which financial forecasts to use? | Proactive Investors |The only available long-term forecasts (i.e. >15 years) are the ones that are supplied by us (the forecasts can be found in the financials section of this report), so we suggests using those. |- | colspan="3" |'''<div style="text-align: center;">Growth stage 2</div>''' |- |Discount rate (%) | 15% |There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. |- |Probability of success (%) | 90% | Research suggests that a suitable rate for a company in this growth stage (i.e. stage 2) is 90%. |- | colspan="3" |'''<div style="text-align: center;">Growth stage 3</div>''' |- |Discount rate (%) | 10% |There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. |- |Probability of success (%) |100% |Research suggests that a suitable rate for a company in this growth stage (i.e. stage 3) is 100%. |- | colspan="3" |'''<div style="text-align: center;">Growth stage 4</div>''' |- |Discount rate (%) | 10% |There are two key risk parameters for a firm that need to be estimated: its cost of equity and its cost of debt. A key way to estimate the cost of equity is by looking at the beta (or betas) of the company in question, the cost of debt from a measure of default risk (an actual or synthetic rating) and apply the market value weights for debt and equity to come up with the cost of capital. |- |Probability of success (%) | 100% |Research suggests that a suitable rate for a company in this growth stage (i.e. stage 4) is 100%. |- | colspan="3" |'''<div style="text-align: center;">Other key inputs</div>''' |- |What's the current value of the company? |$659 million |As at 26th January 2023, the current value of the Alpha FMC company is $659 million (or Β£554 million). |- |Which time period do you want to use to estimate the expected return? | Between now and five years time |Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years.<ref>https://www.newyorkfed.org/mediabrary/media/medialibrary/media/research/staff_reports/research_papers/9809.pdf</ref> Accordingly, we suggest that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time. |}
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