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Alpha Financial Markets Consulting plc
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====Sensitive analysis==== The three main inputs that result in the greatest change in the expected return of the Alpha investment are, in order of importance (from highest to lowest): # The size of the total addressable market (the default size is $ccc billion); # Alpha FMC peak market share (the default share is ccc%); and # The discount rate (the default time-weighted average rate is 10%). The impact of a 10% change in those main inputs to the expected return of the Alpha investment is shown in the table below. {| class="wikitable sortable" |+Alpha FMC investment expected return sensitive analysis !Main input !10% worse !Unchanged !10% better |- |The size of the total addressable market |To be added |To be added |To be added |- |Alpha FMC peak market share |To be added |To be added |To be added |- |The discount rate |To be added |To be added |To be added |} {| 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/most accurate is the absolute valuation approach, so that's the approach that we suggest using to determine the estimated value of the company. |- |Which type of discounted cash flow model do you want to use? |Dividend discount model |The policy of Alpha FMC is to pay out approximately half of adjusted profit after tax. Accordingly, we suggest using the dividend discount model (DDM), which is one of the most common discounted cash flow models. |- |How many distinct stage of growth do you want to use? |Two stages |For simplicity, we have used two stages here. |- |What is the transition between the two growth stages? |Smooth |We suggest a smooth transition, and, therefore, we suggest using the H-Model. |- |What is the expected lifespan of the business? |Perpetual |Again, for simplicity, we have assumed that the business continues forever. |- |What is the expected initial growth rate of dividends? |32.5% | |- |What is the expected constant growth rate in dividends? |3% |We note that the gross domestic product (GDP) growth rate in the last 20 years (2001 to 2022) is around 3% per year for the global economy, and around 2.25% for the United Kingdom. Since the company's inception (i.e. eight years ago), the median dividend of the company is 1.57%. Further information about the company's dividend pay-outs can be found in the appendix section of this report. |- |What is the half life of the initial dividend growth rate? |7.5 years |We suggest using 7.5 years. |- |Which financial forecasts to use? |Proactive Investors |Here, we have used the forecasts of Proactive Investors. |- |What is the required return on equity? |9.479% |For estimating the required return on equity, we used the Capital Asset Pricing Model (CAPM), which provides an economically grounded and relatively objective procedure for required return estimation, and, therefore, it has been widely used in valuation. The calculation of the required return on equity (and the reasons behind the calculation) can be found in the table below. |- |What's the current value of the company? |454.88 pence per share |As at 18th January 2023, the current value of Alpha FMC is 454.88p per share. |- |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. 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. |} {| class="wikitable" |+ |}
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