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Gfinity plc
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== How much can I expect to make from an investment in the company? == === What's the expected return of an investment in the company? === We estimate that the expected return of an investment in the company over the next five years is 411%. In other words, an Β£10,000 investment in the company is expected to return Β£51,100 in five years time. The assumptions used to estimate the return figure can be found in the table below. Assuming that a suitable return level over five years is 10% per year and Gfinity achieves its expected return level (of 411%), then an investment in the company is considered to be a 'suitable' one. === What are the assumptions used to estimate the return? === {| 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, 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). Gfinity has never paid cash dividends, and it said that it currently does not anticipate paying any cash dividends in the foreseeable future. Accordingly, we suggest using the free cash flow valuation method (rather than the dividend discount model). |- |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" |'''Growth stage 1''' |- |Discount rate (%) |25% |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 (%) |60% |Research suggests that a suitable rate for a company in this growth stage (i.e. stage 1) is 60%. |- | colspan="3" |'''Growth stage 2''' |- |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" |'''Growth stage 3''' |- |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" |'''Growth stage 4''' |- |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" |'''Other key inputs''' |- |What's the current value of the company? |$54.80 million |As at 28th November 2022, the current value of the Gfinity company is $54.80 million (or Β£45.30 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. 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. |} === Sensitive analysis === The main inputs that result in the greatest change in the expected return of the Gfinity investment are, in order of importance (from highest to lowest): # The size of the total addressable market (the default size is $119 billion); # Gfinity peak market share (the default share is 1%); and # The discount rate (the default time-weighted average rate is 16%). The impact of a 10% change in those main inputs to the expected return of the Gfinity investment is shown in the table below. {| class="wikitable sortable" |+Gfinity investment expected return sensitive analysis !Main input !10% worse !Unchanged !10% better |- |The size of the total addressable market |To be added |411% |To be added |- |Gfinity peak market share |To be added |411% |To be added |- |The discount rate |To be added |411% |To be added |}
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