Spoke to Kashish regarding the OrderSpong – Security Analysis – Group Research Report Page 1 of 2 ...

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Spoke to Kashish regarding the OrderSpong – Security Analysis – Group Research Report  Page 1 of 2    Investment Analysis Group Project    You are part of an investment company that provides advice on prospective investment  opportunities. Your company has been approached by a group of investors seeking advice  on a particular investment (the target Investment). The investors want detailed research  report on the target, including its financial strengths and weaknesses, position in the  market, and its potential for growth. They want you to analyse the data you collect and  make recommendations as to the potential return on investment.            The Report:    The Background:  Work as a group to research the company. Start with the company's most recent annual  reports. You can get a lot of information online at websites. Consider the sources of  information we discussed in Topic 2. Your research should also note the industry in which  the company operates, including its main competitors. Analyse the financial/accounting  data and the other information you gathered.    The Valuation:  Your analysis needs to include a valuation, which should be based on the present value of  a projection of the firm’s future free cash flows. The projected free cash flows will be  generated from a pro forma model of the firm’s financial statements. The pro forma  financial statements will be driven by sales projections which may be forecast based on  some consideration of relevant factors. The valuation must also include a sensitivity  analysis.    The Recommendation:  Make a recommendation based on your research and analysis. Your analysis must support  your recommendation. Compare your valuation to the current market price. What would  you tell the client about this company: Buy, Sell, or Hold?       Spong – Security Analysis – Group Research Report  Page 2 of 2  Suggested Format of your Company Analysis Report:    Your report should be no longer than 2000 words.    The following format is one way to structure your report.    1. Introduction  a. Briefly introduce your company. What do they do? What is their history?  2. Industry  a. Discuss the industry and market(s) the company operates in. Who are their  competitors?  3. Valuation  a. Discuss your valuation. What assumptions have you used? How have you  formed your forecasts? What does the sensitivity analysis tell us?  4. Recommendation  a. How does your valuation compare to the current share price? Does your  valuation suggest the company is worth buying or selling now? Should the client  hold (wait)?        Important notes:    • Clear graphs might be useful to illustrate any trends or comparisons.    • The Excel Spreadsheet (pro forma) that you have created to make your valuation  should not be included in the actual report.  o However, the pro forma should be available to the client if they request it.  o Please email the excel spreadsheet that underpins your report to Heath Spong.  h.spong@westernsydney.edu.au      Key Dates:    • The Report and the Excel Spreadsheet (pro forma) will be emailed to Heath Spong by  the end of Week 10.      Final Advice:    • You will get the job done quickly and effectively if you work well as a team.  • Allocate tasks to each member and then bring each team members work back to the  group for review.  • Write the recommendation together at the end, after looking at the research, analysis,  and pro forma.  mailto:h.spong@westernsydney.edu.au                          Metcash Ltd. Executive Summary: This investment research report aims to provide a comprehensive analysis of Metcash Ltd., evaluating its financial strengths and weaknesses, market position, and potential for growth. Metcash is an Australian wholesale distribution and marketing company operating in the grocery, liquor, and hardware sectors. By examining key financial indicators, market dynamics, competitive landscape, and growth prospects, this report will assist investors in making informed decisions regarding potential returns on investment in Metcash Ltd. 1. Introduction: Metcash Ltd. Overview: Brief company description and its business segments. 2. Financial Strengths and Weaknesses:  2.1 Revenue Analysis: Review of historical revenue growth and key drivers.  2.2 Profitability Analysis: Evaluation of profitability ratios and margins.  2.3 Liquidity Analysis: Assessment of liquidity position and working capital management.  2.4 Debt Analysis: Examination of leverage and debt service capacity.  2.5 Cash Flow Analysis: Analysis of cash flow generation and sustainability. 3. Market Position and Competitive Analysis:  3.1 Industry Overview: Overview of the wholesale distribution and marketing industry in Australia.  3.2 Market Share Analysis: Examination of Metcash's market share in key sectors.  3.3 Competitive Landscape: Analysis of major competitors and their strategies.  3.4 Customer Base and Supplier Relationships: Assessment of customer diversification and supplier power. 4. Growth Potential:  4.1 Market Trends and Outlook: Identification of key market trends and growth drivers.  4.2 Expansion Strategies: Assessment of Metcash's growth strategies, including acquisitions and partnerships.  4.3 Geographic Expansion: Evaluation of potential growth opportunities in new markets.  4.4 Product and Service Innovation: Analysis of Metcash's ability to adapt and innovate.  4.5 E-commerce and Digital Initiatives: Review of Metcash's online presence and digital transformation efforts. 5. Risk Assessment:  5.1 Regulatory Environment: Evaluation of regulatory risks and compliance obligations.  5.2 Economic and Market Risks: Assessment of macroeconomic factors that may impact Metcash's performance.  5.3 Operational Risks: Identification and analysis of operational risks.  5.4 Competitive Risks: Examination of risks associated with intensifying competition. 5.5 Supply Chain Risks: Evaluation of risks related to supply chain disruptions. 6. Investment Recommendation: Based on the analysis conducted, we recommend the following:  6.1 Investment Rating: Provide a rating based on the risk and return potential.  6.2 Target Price: Suggest a target price for Metcash Ltd. shares.  6.3 Investment Horizon: Recommend a suitable investment time frame.  6.4 Diversification: Emphasize the importance of diversifying the investment portfolio.  6.5 Key Considerations: Highlight critical factors influencing the investment decision. 7. Conclusion: Summarize the findings and emphasize the investment potential of Metcash Ltd. This report provides a comprehensive analysis of Metcash Ltd., covering its financial strengths and weaknesses, market position, growth potential, and associated risks. It aims to equip investors with the necessary information to make informed investment decisions.    Final DCF Valuation 	Sales growth	7% 	Initial Sales	$1,000 	FA_Sales	70% 	CA_Sales	15% 	CL_Sales	7% 	COGS_Sales	70% 	Interest	10% 	Dividend Payout	60% 	Tax rate	29% 	Income Statements (Profit and Loss) 	Year	2022	2021	2020	2019	2018	2017 	Sales	$15,165	14,315	13,025	12,660	14,464	14,212 	Cost of Goods Sold	13482.3	12,834	11,718	11,383	13,176	12,886 	Interest	48.5	43	52	29	31	37 	Profit before Tax	$1,634	1439	1256	1249	1257	1289 	Taxes	111.1	100	70	81	73	65 	Profit after Tax	$1,523	1338	1186	1168	1184	1224 	Dividend	198.5	148	118	127	102	0 	Retained Earnings	1324	1190	1068	1040	1082	1224 	Balance Sheet 	Year	2022	2021	2020	2019	2018	2017 	Current Assets	$3,046	2,810	2,954	2,427	2,436	2,301 	Fixed Assets	2154.8	2,037	1,742	1,240	1,283	1,631 	Total Assets	$5,201	4,847	4,696	3,667	3,719	3,932 	Current Liabilities	$2,725	2,427	2,363	2,114	2,064	1,960 	Debt	1385.6	2,429	961	303	266	335 	Equity 	Stock	965.5	1022.4	1016.4	909.3	975.6	975.6 	Accumulated Retained Earnings	100	415	506	681	781	88 	Total Liabilities and Equity	5,176	6,292	4,846	4,006	4,087	3,358 	Free Cash Flow Statement 	Year	0	1	2	3	4	5 	Profit after Tax	$1,523	1338	1186	1168	1184	1224 	Interest*(1-tax)		30	37	21	22	27 	Change in Net Working Capital		-63	-208	278	-58	31 	Cash Flow from Operations		1306	1016	1467	1148	1281 	New Fixed Assets		118	295	502	-44	-348 	Free Cash Flow		1424	1310	1968	1104	934 	Valuation 	Year	0	1	2	3	4	5 	Free Cash Flow		1424	1310	1968	1104	934 	Terminal Value						7684 	Total Predicted Cash Flow		1424	1310	1968	1104	8617 	Discounted value	7921.90 	Forcated Value of Firm  	Less Value of Debt 	Less Value of Preferred Stock 	Forcast Equity Value Before Time Adjustment 	Forcast Equity Value as of Valuation Date 	Common Shares Outstanding at Valuation Date 	Forecast Price/Share 	Cost of equity				6.29% 	Cost of capital				6.18% Sheet2 	Sales growth	7% 	Initial Sales	$1,000 	FA_Sales	70% 	CA_Sales	15% 	CL_Sales	7% 	COGS_Sales	70% 	Interest	10% 	Dividend Payout	60% 	Tax rate	29% 	Income Statements (Profit and Loss) 	Year	2022	2021	2020	2019	2018	2017 	Sales	$15,165	14,315	13,025	12,660	14,464	14,212 		2017	2018	$   2,019.00	2,020	2,021	2,022 		$14,212	14,464	12,660	13,025	14,315	$15,165 			252	-1,803	365	1,290	850 			1.7%		2.8%	9.0%	5.6%	4.8%	5% 	Cost of Goods Sold	13482.3	12,834	11,718	11,383	13,176	12,886 		132 	Interest	48.5	43	52	29	31	37				0.26% 	Profit before Tax	$1,634	1439	1256	1249	1257	1289 	Taxes	111.1	100	70	81	73	65 	Profit after Tax	$1,523	1338	1186	1168	1184	1224 	Dividend	198.5	148	118	127	102	0 	Retained Earnings	1324	1190	1068	1040	1082	1224 	Balance Sheet 	Year	2022	2021	2020	2019	2018	2017 	Current Assets	$3,046	2,810	2,954	2,427	2,436	2,301 	Fixed Assets	2154.8	2,037	1,742	1,240	1,283	1,631 	Total Assets	$5,201	4,847	4,696	3,667	3,719	3,932 	Current Liabilities	$2,725	2,427	2,363	2,114	2,064	1,960 	Debt	1385.6	2,429	961	303	266	335 	Equity 	Stock	965.5	1022.4	1016.4	909.3	975.6	975.6 	Accumulated Retained Earnings	100	415	506	681	781	88 	Total Liabilities and Equity	5,176	6,292	4,846	4,006	4,087	3,358 	Free Cash Flow Statement 	Year	0	1	2	3	4	5 	Profit after Tax	$1,523	1338	1186	1168	1184	1224 	Interest*(1-tax)		30	37	21	22	27 	Change in Net Working Capital		-63	-208	278	-58	31 	Cash Flow from Operations		1306	1016	1467	1148	1281 	New Fixed Assets		118	295	502	-44	-348 	Free Cash Flow		1424	1310	1968	1104	934 	Valuation 	Year	0	1	2	3	4	5 	Free Cash Flow		1424	1310	1968	1104	934 	Terminal Value						7684 	Total Predicted Cash Flow		1424	1310	1968	1104	8617 	Discounted value	7921.90 	Forcated Value of Firm  	Less Value of Debt 	Less Value of Preferred Stock 	Forcast Equity Value Before Time Adjustment 	Forcast Equity Value as of Valuation Date 	Common Shares Outstanding at Valuation Date 	Forecast Price/Share 	Cost of equity				6.29% 	Cost of capital				6.18% Sheet3 	Sales growth	7% 	Initial Sales	$1,000 	FA_Sales	70% 	CA_Sales	15% 	CL_Sales	7% 	COGS_Sales	70% 	Interest	10% 	Dividend Payout	60% 	Tax rate	53% 	Income Statements (Profit and Loss) 	Year	0	1	2	3	4	5 	Sales	$1,000	1,070	1,145	1,225	1,311	1,403 	Cost of Goods Sold		749	801	858	918	982 	Interest		28	28	28	28	27 	Profit before Tax		293	316	340	366	393 	Taxes		155	167	180	194	209 	Profit after Tax		138	148	160	172	185 	Dividend		83	89	96	103	111 	Retained Earnings		55	59	64	69	74 	Balance Sheet 	Year	0	1	2	3	4	5 	Current Assets	$150	161	172	184	197	210 	Fixed Assets	700	749	801	858	918	982 	Total Assets	850	910	973	1,041	1,114	1,192 	Current Liabilities	$70	75	80	86	92	98 	Debt	280	280	279	277	275	273 	Equity 	Stock	400	400	400	400	400	400 	Accumulated Retained Earnings	100	155	214	278	347	421 	Total Liabilities and Equity	850	910	973	1,041	1,114	1,192 	Free Cash Flow Statement 	Year	0	1	2	3	4	5 	Profit after Tax		138	148	160	172	185 	Interest*(1-tax)		13	13	13	13	13 	Change in Net Working Capital		-6	-6	-6	-7	-7 	Cash Flow from Operations		145	155	166	178	190 	New Fixed Assets		-49	-52	-56	-60	-64 	Free Cash Flow		96	103	110	118	126 	Valuation 	Year	0	1	2	3	4	5 	Free Cash Flow		96	103	110	118	126 	Terminal Value						1039 	Total Predicted Cash Flow		96	103	110	118	1165 	Discounted value	811.22 	Forcated Value of Firm  	Less Value of Debt 	Less Value of Preferred Stock 	Forcast Equity Value Before Time Adjustment 	Forcast Equity Value as of Valuation Date 	Common Shares Outstanding at Valuation Date 	Forecast Price/Share 	Cost of equity				6.29% 	Cost of capital				6.18% Ratio 		2017		2018		2019		2020		2021		2022 	Sales	$14,212		14,464		12,660		13,025		14,315		16,615 	Gross Profit	1236.3		1288.1		1277.7		1312.7		1682.5		1481.3 	Net (loss)/profit for the year	173.7		-146.7		276.1		14.4		247.1		239.6 	EBIT	304.8		332.7		330		334.9		417.1		489 	Interest 	48.5		42.6		52		28.9		31		37.4 	Current Asset	2301		2436		2427		2954		2810		3,046 	Total Asset	$3,932		3,719		3,667		4,696		4,847		5,201 	Current Liabilities	$1,960		2,064		2,114		2,363		2,427		2,725 	Total Liabilities	$2,294		2,330		2,417		3,324		3,556		4,111 	Inventories	$759		784		779		1,032		1,008		1,125 		2017		2018		2019		2020		2021		2022 	Gross Profit 	0.09		0.09		0.10		0.10		0.12		0.09 	Net profit 	0.01		-0.01		0.02		0.00		0.02		0.01 	Current Ratio	1.17		1.18		1.15		1.25		1.16		1.12 	Quick Raio	0.79		0.80		0.78		0.81		0.74		0.70 	Interest Cover	6.28		7.81		6.35		11.59		13.45		13.07 	Asset Turnver	3.61		3.89		3.45		2.77		2.95		3.19 Average 	Sales growth	7% 	Initial Sales	$1,000 	FA_Sales	70% 	CA_Sales	15% 	CL_Sales	7% 	COGS_Sales	70% 	Interest	10% 	Dividend Payout	60% 	Tax rate	53% 	Income Statements (Profit and Loss) 	Year	2017	2018	2019	2020	2021	2022 	Sales	$14,212	14,464	12,660	13,025	14,315	16,615 			0.01773	-0.12472	0.02883	0.09904	0.16067 	Cost of Goods Sold	12886	13,176	11,383	11,718	12,834	13,482 	Variance of Good sold		0.0225	-0.136	0.0294	0.095	0.0505 	COSt of Goods Sold / Sales		0.9110	0.911	0.8997	0.900	0.8115 	Interest	37	31	29	52	43	49 	Interest Variance		-0.162	-0.06	0.793	-0.17	0.128 	Interest/Sales		0.002	0.002	0.004	0.003	0.003 	Profit before Tax		1257	1248	1255	1438	3084 	Taxes	65	73	81	70	100	111 	Taxes variance		0.12	0.11	-0.14	0.43	0.11 			0.06	0.06	0.06	0.07	0.04 	Profit after Tax		1184	1167	1185	1338	2973 	Dividend	0	102	127	118	148	199 			0	0.25	-0.07	0.25	0.34 	Retained Earnings		1082	1040	1067	1190	2775 	Balance Sheet 	Year	2017	2018	2019	2020	2021	2022 	Current Assets	$2,301	2,436	2,427	2,954	2,810	3,046 	Variance of current assets		0.059	-0.004	0.217	-0.049	0.084 	Current Assets/Sales		0.17	0.19	0.23	0.20	0.18 	Fixed Assets	1631	1,283	1,240	1,742	2,037	2,155 	Varinace fixed Asset		-1.00	-0.03	-1.00	0.17	-1.00 	Fixed Assets/ Sales		0.09	0.10	0.13	0.14	0.13 	Total Assets	$3,932	3,719	3,667	4,696	4,847	5,201 	Current Liabilities	$1,960	2,064	2,114	2,363	2,427	2,725 	Variance of Fixed Asset		0.05	0.02	0.12	0.03	0.12 	Average Current liabilities		0.14	0.17	0.18	0.17	0.16 	Debt	280	269	313	974	-143	1,393 	Equity 	Stock	1719.3	660	559.2	853.5	867	818.3 	Accumulated Retained Earnings	-87.7	726	681	506	1,696	265 	Total Liabilities and Equity	3,872	3,719	3,667	4,696	4,847	5,201 	Free Cash Flow Statement 	Year	0	1	2	3	4	5 	Profit after Tax		1184	1167	1185	1338	2973 	Interest*(1-tax)		15	14	24	20	23 	Change in Net Working Capital		-31	59	-278	208	62 	Cash Flow from Operations		1168	1240	931	1566	3058 	New Fixed Assets		348	43	-502	-295	-118 	Free Cash Flow		1516	1283	429	1271	2940 	Valuation 	Year	0	1	2	3	4	5 	Free Cash Flow		1516	1283	429	1271	2940 	Terminal Value						24199 	Total Predicted Cash Flow		1516	1283	429	1271	27139 	Discounted value	15250.73 	Forcated Value of Firm  	Less Value of Debt 	Less Value of Preferred Stock 	Forcast Equity Value Before Time Adjustment 	Forcast Equity Value as of Valuation Date 	Common Shares Outstanding at Valuation Date 	Forecast Price/Share 	Cost of equity				6.29% 	Cost of capital				6.18% Forecast 	Sales growth	4% 	Initial Sales	$15,000 	FA_Sales	12% 	CA_Sales	6% 	CL_Sales	16% 	COGS_Sales	89% 	Interest	0.29% 	Dividend Payout	15% 	Tax rate	6% 	Income Statements (Profit and Loss) 	Year	2022	2023	2024	2025	2026	2027 	Sales	$15,165	15,715	16,286	16,877	17,490	18,125 	Cost of Goods Sold	13482.3	13,932	14,438	14,962	15,506	16,069 	Interest	48.5	0.1392	0.0004	0.0000	0.0000	0.0000 	Profit before Tax	$1,634	1783	1848	1915	1985	2057 	Taxes	111.1	101	105	109	113	117 	Profit after Tax	$1,523	1682	$1,743	1806	$1,872	1940 	Dividend	198.5	259	268	278	288	299 	Retained Earnings	1324	1423	1475	1528	1584	1641 	Balance Sheet 	Year	2022	2023	2024	2025	2026	2027 	Current Assets	$922	966	1,001	1,037	1,075	1,114 	Fixed Assets	1777.14	1,862	1,930	2,000	2,072	2,147 	Total Assets	$2,699	2,828	2,931	3,037	3,147	3,262 	Current Liabilities	$2,474	2,592	2,686	2,784	2,885	2,989 	Debt	1385.6	-2,270	-3,736	-5,256	-6,831	-8,462 	Equity 	Stock	818.3	818.3	818.3	819.3	819.3	819.3 	Accumulated Retained Earnings	265	1,688	3,162	4,690	6,274	7,915 	Total Liabilities and Equity	4,943	2,828	2,931	3,037	3,147	3,262 	Free Cash Flow Statement 	Year	0	1	2	3	4	5 	Profit after Tax	$1,523	1423	$1,743	1528	$1,872	1641 	Interest*(1-tax)		0.1313	0.0004	0.0000	0.0000	0.0000 	Change in Net Working Capital		-74	-59	-61	-63	-66 	Cash Flow from Operations		1349	1684	1467	1808	1575 	New Fixed Assets		85	68	70	73	75 	Free Cash Flow		1434	1751	1537	1881	1651 	Valuation 	Year	0	1	2	3	4	5 	Free Cash Flow		1434	1751	1537	1881	1651 	Terminal Value						10450 	Total Predicted Cash Flow		1434	1751	1537	1881	12101 	Discounted value	9936.21 	Forcated Value of Firm  	Less Value of Debt 	Less Value of Preferred Stock 	Forcast Equity Value Before Time Adjustment 	Forcast Equity Value as of Valuation Date 	Common Shares Outstanding at Valuation Date 	Forecast Price/Share 	Cost of equity 	Cost of capital   Metcash Trading is an Australian conglomerate company headquartered in Wooloomooloo, NSW. Metcash is a distributing and marketing support in supermarket groceries, perishables

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