Beam - Getting to a valuation, page-66

Hi Phantom, I can give you some pointers but you’ll need to do the work and if you don’t have any experience in financial modelling it might be a challenge. But it’s a good habit to get your hands dirty and build a tool kit so good luck.

What you’ve posted above is the financial theory. It will be much easier for you to google something like DCF model excel, which will give you practical pointers. There should be plenty of free ones.

What I’ve posted above is less than half of my financial model/workings and only a fraction of my overall research for BCC. I do three way financial forecasts, so P&L, BS and CF for my forecast period for every six months, which I aggregate to financial years.

To properly derive a DCF you’ll need to build a three way financial model because to work out your cashflow you need capex and the change in working capital in addition to NOPAT.

Essentially to get your unlevered free cashflow it’s NOPAT, less capex less change in working capital. You’ll forecast that out over your forecast period which should be a minimum of 3 years and typically 5-7 and then discount it back using your discount rate which is your WACC. The terminal growth part helps you work free cashflow in your outer years as the basic assumption is that the business goes on forever.

I could go on about assumptions, what appropriate rates to use are and why and the weaknesses in this but the post would get too long, some of it becomes subjective and some of it is just experience.

Once you’ve worked out your cashflow you discount those cashflows to work out a PV. The sum of that plus cash less debt gives you the equity value. Divide that by fully diluted SOI and you’ll get your valuation.

PE method is very easy and is explained in previous posts. You just need to derive a P&L. NPAT / fully diluted SOI gives EPS. EPS x my multiple gives me my valuation.

EV/EBITDA is a little involved as you need to work out cash to derive your EV. This means you need to build a 3 way model to see what happens to cashflow and also have a view on the target capital structure for the group. Ie should we assume that BCC maintain 20% debt on the cap structure to lower their WACC or does debt go to zero? The mix of cash and debt will change EV. If you can get this far and have followed any or most of the above you just reverse engineer your equity value based on your target multiple and EBITDA. Divide that by fully diluted SOI and you’ll get your valuation.

If you’re starting out I’d recommend getting comfortable with building a P&L and just using the PE method. Once you get some confidence and experience just build from there. Hopefully that was some use for you. Cheers