Valuation Methodology
In order to value Graincorp’s stock, this report used two-stage discounted cash flow (DCF) model. This model is chosen considering that Graincorp is in the mature stage, with the characteristics of paying high dividends and has a high leverage. Moreover, management stated that they are building another silos by this year, so it is assumed that Graincorp will have an increasing growth for several periods and will drop to the stable growth afterwards. Hence, the first stage of this model would be the increasing phase for 5 years and then followed by the stable growth phase.
5.2. Valuation Input
Weighted Average Cost of Capital (WACC) would serve as one of the valuation input for this two-stage DCF model. WACC itself explain …show more content…
Moreover, there was a statement that government will give contributions to research and development in agriculture industry to develop new technology. This new technology is expected to be able to meet the increase of demand of crops from Asia countries in the next few years. Hence, based on our analysis, we concluded that Graincorp outlook would have a positive growth for the next year. In the long run, we forecasted that Graincorp would be able to grow although it is below the GDP …show more content…
Our DCF valuation estimates the fair value between -$0.97 to -$4.64 per share with conservative input. With the company’s poor performance in the last 2 years, it is hard for the company to improve their performance in the near future. Even the return of capital for this company, based on the FY14 data, is lower than its WACC (8% < 8.78%). Meaning that Graincorp was destroying the firm value instead of adding more value into it. However, there might be a chance for this company to improve their performance through the support given by the government and their new investment on assets in the future. Hence, we put ‘HOLD’ as the recommendation for Graincorp’s
In order to value Graincorp’s stock, this report used two-stage discounted cash flow (DCF) model. This model is chosen considering that Graincorp is in the mature stage, with the characteristics of paying high dividends and has a high leverage. Moreover, management stated that they are building another silos by this year, so it is assumed that Graincorp will have an increasing growth for several periods and will drop to the stable growth afterwards. Hence, the first stage of this model would be the increasing phase for 5 years and then followed by the stable growth phase.
5.2. Valuation Input
Weighted Average Cost of Capital (WACC) would serve as one of the valuation input for this two-stage DCF model. WACC itself explain …show more content…
Moreover, there was a statement that government will give contributions to research and development in agriculture industry to develop new technology. This new technology is expected to be able to meet the increase of demand of crops from Asia countries in the next few years. Hence, based on our analysis, we concluded that Graincorp outlook would have a positive growth for the next year. In the long run, we forecasted that Graincorp would be able to grow although it is below the GDP …show more content…
Our DCF valuation estimates the fair value between -$0.97 to -$4.64 per share with conservative input. With the company’s poor performance in the last 2 years, it is hard for the company to improve their performance in the near future. Even the return of capital for this company, based on the FY14 data, is lower than its WACC (8% < 8.78%). Meaning that Graincorp was destroying the firm value instead of adding more value into it. However, there might be a chance for this company to improve their performance through the support given by the government and their new investment on assets in the future. Hence, we put ‘HOLD’ as the recommendation for Graincorp’s