20130324 第1回valuation勉強会

Valuation in FED

2013/3/24 1

自己紹介&Ice Break

•  名前

•  所属

•  勉強会に参加したきっかけ

2

Contents

•  Part1 Foundations of Value

•  Part2 Core Valuation Techniques

•  Part3 Intrinsic Value and the Stock Market

•  Part4 Managing for Value

•  Part5 Advanced Valuations Issues

•  Part6 Special Situations

3

Part1 Foundations of Value

4th Edition 5th Edition

第1章企業価値の最大化

Why Maximize Value? 1. Why Value Value?

第2章企業価値を創造する経営者

The Value Manager

2.Fundamental Principles of Value Creation

第3章価値創造の本質

Fundamental Principles of Value Creation 3.The Expectations Treadmill

第4章株式市場は何で動くのか

Do Fundamentals Really Drive the stock Market?

4.Return on Invested Capital

5.Growth

4


1.  Why Value Value?

2.  Fundamental Principles of Value Creation

3.  The Expectations Treadmill

4.  Return on Invested Capital

5.  Growth

5

What is value?

6

What is Value?

•  Value is defining dimension of measurement in a market economy.

•  Value is a particularly helpful measure of performance because it takes into account the long-term interests of all the stakeholders in a company,not just shareholders.

•  Competition among value-focused companies also helps to ensure that capital,human capital,and natural resources are used efficiency across the economy,leading to higher living standards for everyone.

7

(P3)

Fundamental principles of corporate finance

Companies create value by investing capital to generate future cash flow at rate of return that exceed their cost of capital. (P17)

8

Two core principles of value creation

•  The combination of growth and return on invested capital(ROIC) relative to its cost is what drives value. –  Companies can sustain strong growth and high returns

on invested capital only if they have a well-defined competitive advantage.

•  Conservation of value –  Anything that doesn't increase cash flow doesn't create

value. – M・M theory

9

(P4)

The economics and process of value creation

•  the economics of value creation –  how competitive advantage enables some companies to

earn higher returns on invested capital than others.

•  the process of measuring value –  how to calculate return on invested capital from a

company's accounting statements.

10

(P4)

Consequences of forgetting to value value

Market bubbles Many executives and investors either forgot or threw out fundamental rules of economics in the rarefied air of the Internet revolution(P6).

Financial Crises Securitizaing risky home made the loans more valuable because it reduced the risk of the assets and this violates the conservation of value rule(P7).

Financial Crises and excessive

Using leverage to make an investment in itself creates value(P8).

11

Benefits of focusing on long-term value

•  Pursuing the creation of long-term shareholder value does not cause stake holders to suffer.

•  Value-creating companies also create more jobs.

•  A strong positive correlation between long-term shareholder returns and investment in research and development

•  Companies that create also tend to show a greater commitment to meeting their social responsibilities.

12

(P11-P12)

Value-creating companies also create more jobs?

13

Black Stone -‐King of Capital-‐

•  プライベートエクイティの傘下に入ることが雇用に与える影響に関する最も網羅的な調査として、1980年から2005年までの4500以上の投資案件を調べた物がある。

•  そこでは、プライベートエクイティ傘下の企業では、買収直後の2年間は一般企業と比べて雇用の削減率がやや高くなる傾向があるが、長期的には削減した分を上回る雇用を生み出すことが明らかになった。（P412）

14

デビット・キャリー&ジョン・E・モリス（2011）『ブラックストーン』東洋経済新報社

機械との競争 -‐テクノロジーは雇用を破壊する-‐

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•  技術の進歩は、すべての人の所得を自動的に押し上げる上げ潮のようなものではない。富の総量が増えたとしても、勝ち組と負け組が出来ることはありうるし、むしろそうなることの方が多いのである。しかも負け組の方が少ないとは限らないのだ。

•  馬車とともに姿を消した馬車用靴の職人が労働人口に占める割合は小さかったが、今度はそうはいかない。労働人口の90％が負け組になることだってあり得る。（P75）

エリク・ブリニョルフソン, アンドリュー・マカフィー (2013) 『機械との競争』日経BP社

Bowing vs Facebook

17

The number of employees

Market capitalizaOon

Bowing Facebook

$ 64,137MM $61,292 MM

171,700 （Dec,31, 2011）

3,200






5.  Growth

18

Growth and ROIC:Drives of Value

19

Return on investment capital

Revenue growth

Cash flow

Cost of of Capital

Value

DCF Valuation

20

Value Inc.

Year1 Year2 Year3 Year4 Year5 YearX Sum

Revenue 1,000 1,050 1,103 1,158 1,216 ・・・

Earnings 100 105 110 116 122 ・・・

Investment (25) (26) (28) (29) (30) ・・・

Cash flow 75 79 83 87 91 ・・・

Value today 68 65 62 59 57 ・・・ 1,500

Volume Inc

Year1 Year2 Year3 Year4 Year5 YearX Sum

Revenue 1,000 1,050 1,103 1,158 1,216 ・・・

Earnings 100 105 110 116 122 ・・・

Investment (50) (53) (55) (58) (61) ・・・

Cash flow 50 53 55 58 61 ・・・

Value today 45 44 41 40 38 ・・・ 1,000

Exhibit2.2(P19)

Relationship of Growth,ROIC,and Cash Flow

•  Growth,ROIC,and Cash flow(as represented by the investment rate)are tied together mathematically in the following relationship.

21

Investment Rate =Growth ÷　Return on Invested Capital

Value Inc 　:25%=5%÷20% Volume Inc :50%=5%÷10%

Translating Growth and ROIC into value

3% 800 1,100 1,400 1,600

6% 600 1,100 1,600 2,100

9% 400 1,100 1,900 2,700

7% 9% 13% 25%

ROIC

22

Growth

Exhibit2.4(P21)

Impact of higher growth and ROIC

•  High-ROIC companies should focus on growth

•  Low-ROIC companies should focus on improving returns before growing

23

Exhibit2.5(P24)

6%

10%

1% higher ROIC

1％ higher growth

High-ROIC company Typical packaged-goods company

15%

5%

1% higher ROIC

1％ higher growth

Moderate-ROIC company Typical retailer

What creates value? What produces value?

24

Value Creation of type of Growth

25

Exhibit2.6(P25)

The most important implication of this chart is the rank order. New products typically create more value for shareholders, while acquisitions typically create the least.

Acquire business

Compete for share in a stable market

Increase share in a growing market

Expand an exsiOng market

Introduce new products to market 1.75-2.00

0.30-0.75

0.10-0.50

-0.25-0.40

0.-0.20

Type of growth

世界の経営学者はいま何を考えているのか

26

なぜ経営学者は買収額を払いすぎてしまうのか (買収プレミアム) 1)  経営者の思い上がり

2)  自社をどうしても成長させたいというあせり

3)  国家を代表している言うプライド

入山章栄(2012) 『世界の経営学者はいま何を考えているのか』英治出版

ConservaOon of Value •  Anything that doesn’t increase cash flows doesn’t create

value.

•  Value is conserved, or unchanged, when a company changes the ownership of claims to its cash flows but doesn’t change the total available cash flows.

•  In every circumstance, execuOves should focus on increasing cash flows rather than finding gimmicks that merely redistribute value among investors or make reported results look be]er.

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ApplicaOon

•  AccounOng policy(Chap16)

•  AcquisiOons(Chap21)

•  Corporate por`olio decisions(Chap19)

•  Dividend policy(Chap23)

•  Capital Structure(Chap23)

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Application for the conservation of value principle

•  Share repurchases –  To determine whether share purchases create value, you must

compare them with some other use of the cahs.

•  Acquisition

–  acquisitions create value only when the combined cash flows of the two companies increase due to cost reductions,accelerated revenue growth,or better use of fixed and working capital

•  Financial engineering –  The total cash flows received by the CDO investors cannot be more

than they would receive if they directly owned the loans and securities. 29

Cash flows related to Collateralized Debt ObligaOons

30

Exhibit2.8(P33)

Risk and Value Creation

•  A company's future cash flows are unknown and therefore risky.

•  Risk enters into valuation both through the company's cost of capital,which is the price of risk,and in the uncertainty surrounding future cash flows.

•  The cost of capital to a company equals the minimum return that investors expect to earn from investing in the company.

31

P35


32


Revenue growth

Cash flow

Cost of of Capital

Value

Volatility of Portfolio Return: Declining with Diversification

33

Market volatility

Volatility of portfolio return

Number of stock portfolio

Total Risk

0

•  The total risk declines because companies’ cash flow are not correlated. Some will increase when others decline.

•  Investors require compensation only for risks they cannot diversify.

Terms for Valuation

Net operating profit less adjusted taxes

(NOPLAT)

the profit generateed from the company's core operations after subtracting the income taxes related to the core operations.

Invested Capital the cumulative amount the business has invested in its core operations-primarily property,plant, and equipment and working capital.

Net investment the increase in invested capital from one year to the next.

Free Cash Flow

(FCF)

the cash flow generated by the core operations of the business after deducting investments in new capital.

Return on invested capital

(ROIC=NOPLAT/Invested Capital)

the return on the company earns on each dollar invested in the business.

Invested rate

(IR=Net Investment/NOPLAT) the portion of NOPLAT invested back into the business.

Weighted average cost of capital

(WACC)

the rate of return that investors expect to earn from investing in the company and therefore the appropriate discount rate for the free cash flow.

Growth(g) the rate at which the company's NOPLAT and cash flow grow each year

34

DCF approach to valuation

gWACCROICgNOPLAT

Value

ROICgNOPLATFCF

ROICgIR

IRROICg

IRNOPLATIRNOPLATNOPLAT

InvestmentNetNOPLATFCF

gWACCFCFValue

t

t

−

⎟⎠

⎞⎜⎝

⎛ −=

−=

=

×=

−=

×−=

−=

−=

=

=

1

)1(

1)(

1

1

）（　　　　

　　　　

　

35

Company's earnings multiple

⎟⎟⎟⎟

⎠

⎞

⎜⎜⎜⎜

⎝

⎛

−

−=

−

⎟⎠

⎞⎜⎝

⎛ −××=

×=

−

⎟⎠

⎞⎜⎝

⎛ −=

=

gWACCROICg

ROICCapitalInvested

Value

gWACCROICgROICCapitalInvested

Value

ROICCapitalInvestedNOPLATgWACC

ROICg

NOPLATValue

t

1

1

1

1

　　

　

　

36

company's earnings multiple is driven by both its expected growth and its return on invested capital.


37


Revenue growth

Cash flow

Cost of of Capital

Value






5.  Growth

38

What roll do expectaOons have in stock market?

39

Return to the shareholders(TRS)

•  The performance of a company and that of its management are frequently measured by total returns to shareholders(TRS).

•  TRS measure combines the amount shareholders gain through any increase in the share price over a given period with the sum of dividends paid to them over the period.

•  Managers have to pull off herculean feats of real performance improvement to satisfy investors's expectations and continue improving TRS.

–  “expectations treadmill”（期待との際限なき戦い）

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•  Managers have to pull off herculean feats of real

performance improvement to satisfy investors's expectations and continue improving TRS.

•  この期待に応えて株主に対するリターンを向上させ続けるためには、経営者は、英雄的な偉業ともいえる成果を挙げる必要があるのだ。

41

Decomposing TRS (TradiOonal way)

TRS=% change in share price +　dividend yield

=% Increase in Earnings + % change in P/E

+ dividend yield

42

※assuming P=E/r ,　we get　the following equation by using z=xy , z＋△z=(x＋△x)+(y＋△y) P＋△P　　　　　　　　= (E＋△E)　　　　　　 + (r＋△R) % change in share price =% Increase in Earnings + % change in P/E, P:Price E:Earnings r:discount rate(P/E)

(P50)

A few problems with expressing TRS

•  Manager might assume that all forms if earnings growth create an equal amount of value.

(ex. AcquisiOon)

•  The dividend yield can be increased without affecOng future earnings, as if dividends themselves create value.

•  The tradiOonal expression if TRS fails account for the impact of financial leverage.

43

Break up the TRS equation into four parts (Enhanced way)

1.  The value generated from revenue growth net of the capital required to grow.

2.  What TRS would have been without any of the growth measured in part1

3.  Changes in shareholder's expectations about the company's performance , measured by the change in its P/E or other earnings multiple.

4.  The impact of financial leverage on TRS.

44

Wal-Mart vs Target: Wal-‐Mart ahead in Growth, ROIC, Not TRS

45

Exhibit3.1 (P49)

Wal-Mart vs Target: P/E increase helps Target’s TRS

46

11

15

Target

Wal-‐Mart

1995

18

16

Target

Wal-‐Mart

2006

Exhibit3.2(P50)

•  Relative to Wal-Mart, Target was starting from a position of low shareholder expectations.

•  Target eventually sold its Mevyn’s and Marshall Field’s brands, after which it beat expectations.- thereby raising expectations of its future performance.

Wal-Mart vs Target:TRS decomposition

Target Wal-mart Difference

Revenue growth 9 13 -4

Investment for growth -5 -3 -2

Change in margin 4 0 4

TRS from performance 8 10 -2

Zero-growth return 6 4 2

Change in P/E 5 0 5

Impact of financial leverage 5 2 3

other 0 -1 1

Sum 24 15 9

47

1995-2005,percent annualized

Exhibit3.5 (P53)

•  Better performance in one domain by one company was offset by better performance in another domain by the other company.

•  We can conclude that the TRS differentiators for the two companies over the next several years will mostly be underlying growth and returns on capital.

Understanding expectaitons

•  We have reverse engineered hundreds of companies’ share prices over the years using discounted cash flows.

•  With the excepOon of the Internet bubble era, at least 80% of the companies have had performance expectaOons built into their share prices that are in line with industry expectaOons and returns on capital.

•  The other 20% should brace themselves for a significantly faster or slower ride on the treadmill.

48

Managerial Implication

•  The board will take a long-term view and continue to support management's value creating priorities, even if these do not imemediatley strengthen the share price.

•  The expectations treadmill is virtually impossible to escape, and we don't know any easy way to manage expectations down.

49






5.  Growth

50

The fundamental principles of value creaOon

•  The value of a business depends on its return on invested capital(ROIC) and growth.

51


52


Revenue growth

Cash flow

Cost of of Capital

Value

Why do some companies develop and sustain much higher ROICs than others?

Drivers of ROIC

ROIC = (1−Tax rate) Pr ice per Unit - Cost per Unit Invested Capital per Unit

54

If a company has a competitive advantage,it earns a higher ROIC,because it either charges a price premium or produces its products more efficiency.

Definition of ROIC from valuation in practice

　　　　　ROIC=NOPLAT/投下資産

NOPLAT：EBITDA-EBITDAにかかる税金

投下資産：運転資本(ワーキングキャピタル) +事業用有形固定資産 +その他(事業用)資産

55

鈴木一功（2004）「企業価値評価　実践編」ダイヤモンド社

Five forces

56

Threat of new entry

Bargaining power of suppliers

The degree of rivalry among

exisOng compeOtors

Pressure from subsOtute products

Bargaining power of buyers

Because the five forces differ by industry and because companies within the same industry can pursue different strategies, there can be significant variation in ROIC across and within industries.

Company Profitability:Industry Matters

57

The reason for this difference in the industries' performance lies mainly in differences between their competitive structures.

Exhibit4.1 (P61)

Consumer goods

Commodities

Pharmaceutical and biotech

Sources of Competitive Advantage

Price premium Innovative products Difficult-to-copy or patented products, services or

technologies

Quality Customers willing to pay a premium for a real or perceived difference quality over and above competing products or services.

Brand Customers willing to pay a premium based on brand , even if there is no clear quality difference.

Customer lock in Customers unwilling or unable to replace product or service they use with a competing product or service.

Rational price discipline Lower bound on prices established by large industry leaders through price signaling or capacity management.

58

Exhibit4.2(P62)

Sources of Competitive Advantage

59

Cost and capital efficiency Exhibit4.2(P62)

Innovative business method Difficult to copy business method that contrasts with established industry practice.

Unique resources Advantage resulting from inherent geological characteristics or unique access to raw

Economies of scale Efficient scale or size for the relevant market

Scalable product/process Ability to add customers and capacity at negligible marginal cost

Empirical results of ROIC

•  The median ROIC between 1963 and 2008 was around 10% and remained relaOvely constant thought the period.

•  ROICs differ by industry but not by company size.

•  There are large variaOon in rates of ROIC between and within industries.

•  Rates of ROIC tend to remain fairly stable-‐ especially compared with rates of growth.

60

U.S-Based Nonfinancial companies:ROIC 1963-2008

61 Acquiring companies haven't been able to extract much value from their acquisitions.

Exhibit4.4(P71)

Distribution of ROIC:Shifting to Right

62

There has been a recent shift toward more companies earning very high returns on capital.

(P73) Exhibit4.5

ROIC Variation across and within Industries

63

Industries where companies build identifiable sustainable advantages, such as patent-protected innovations and brands,tend to generate higher returns.

Exhibit4.6 (P74)

Top 5 industries 1.  Software 2.  Pharmaceuticals 3.  IT services 4.  Broadcasting 5.  Household and personal

products

Persistence of Industry ROICs

64

Persistently high ・Household and personal product

・Beverages ・Pharmaceuticals ・Software

Persistently medium ・Machinery

・Auto components

・Electrical equipment

・Restaurants

Cyclical

・Chemicals

・Semiconductors

・Oil and gas

・Metals and mining

Persistently low

・Paper and forest products

・Railroads

・Utilities

・Department stores

Trending down ・Trucking ・Advertising ・Health-care-facilities ・Automobiles

Trending up ・Health care equipment ・Aerospace and defence

Exhibit4.7 (P75)

Most industries stayed in the same group over the period.

Non financial Companies:ROIC Decay Analysis

65

High performing companies are in general remarkably capable of sustaining a competitive advantage in their businesses and/ or finding new business where they continue or rebuild such advantages.

Exhibit4.8 (P77)

ROIC transitions Probability,1995-2005

66

High-ROIC companies tend to maintain their high returns on invested capital and low-ROIC companies tend to retain their low returns.

Exhibit4.10 (P78)

Can companies keep their compeOOve advantages over Ome?

67

The image of traditional sustainable competitive advantage

The image of a succession of temporal competitive advantage

入山章栄(2012)『世界の経営学者はいま何を考えているのか』英治出版 P71

Summary of ROIC

•  Returns on invested capital are driven by compeOOve advantages that enable companies to realize price premiums, cost and capital efficiencies, or some combinaOon of these.

•  Industry structure is an important but not exclusive determinant of ROIC.

•  If a company finds a formula or strategy that earns an a]racOve ROIC, there is a good chance it can sustain that a]racOve return over Ome and through changing economic, industry, and company condiOons.

68






5.  Growth

69


70


Revenue growth

Cash flow

Cost of of Capital

Value

What should companies do to increase sales?

Considerable variation in revenue growth

72 Average industry revenue growth varies considerably across industries, and there are also big differences in growth rates among companies.

Exhibit5.1 (P83)

Top 5 industries 1.  Construction materials 2.  Energy equipment and services 3.  Integrated oil and gas 4.  Software 5.  Pharmaceuticals

Drivers of revenue growth

1. Portfolio momentum(属する業界自体の成長) •  overall expansion in the market segments

2. Market share performance •  gaining or losing share in any particular market.

3. Mergers and acquisitions •  company buys or sells revenues through acquisitions or

divestment.

73

Components of Growth

74

Portfolio momentum and M&A explain far more of the differences in the growth of large companies than growth in market share does.

Exhibit5.2 (P84)

Total growth

Market share performance

M&A

Por`olio momentum 6.6

3.1

0.4

10.1

Average growth by component

Value of Major types of Growth

Value created Type of growth Rationale

Above average

・Create new markets through new products

・Convince exciting customers to buy more of a product

･Attract new customer to the market

・No established competitors; divert customer spending

・All competitors benefit; low risk of retaliation

・All competitors benefit; low risk of retaliation

Average

･Gain market share in fast-growing　market

・make bolt-on acquisitions to accelerate product growth

･Competitors can still grow despite losing share,moderate risk of retaliation

・Modest acquisition premium relative to upside potential

Below average

・Gain share from rivals through incremental innovation

・Gain share from rivals through product promotion and pricing

・Make large acquisitions

・Competitors can replicate and take back

・Competitors can retaliate quickly.

・High premium to pay; most value diverted to selling shareholders 75

Exhibit5.3(P86)

Variation in growth over product life cycle

76

Sustaining growth is difficult because most product markets have natural life cycles.

Exhibit5.4 (P90)

77

Exhibit 5.9 Unstable Growth for Industries (P96)

Top 5 industries　1967−1977

1.  IT services 2.  Software services 3.  Broadcasting 4.  Computers and peripherals 5.  Paper Packaging

Top 5 industries 1997−2007 1.  Integrated oil and gas 2.  Health-care equipment 3.  Energy equipment and services 4.  Movies and entertainment

Revenue growth decay analysis

78 Growth decays very quickly;high is not sustainable for the typical company.

Exhibit5.10 (P97)

Non financial Companies:ROIC Decay Analysis

79 Companies'rates of ROIC generally remain fairly stable over time.

Exhibit4.8 (P77)

Revenue growth transition probability

80

High growth is very difficult to sustain-much more difficult than high ROIC.

Exhibit5.12 (P99)

Summary of growth

•  Long term revenue growth for large companies is almost exclusively driven by the growth of the markets they operate in and by the acquisitions they undertake.

•  Attracting new customers to an existing products or persuading existing customers to buy more of it also can create substantial value,because direct competitions in the same market tend to benefit as well.

•  The only way to achieve lasting high growth is to continue introducing new products at an increasing rate-which is just about impossible.

81

Reference

【コーポレートファイナンス関連】

•  Brealey,Myers,Allen（2010）「Principles of Corporate Finance」MaGrawHill

•  鈴木一功（2004）「企業価値評価　実践編」ダイヤモンド社

•  伊藤邦雄（2007）「ゼミナール企業価値評価」日本経済新聞社　

•  保田隆明（2008）「実況LIVE 企業ファイナンス入門講座―ビジネスの意思決定に役立つ財務戦略の基本」ダイヤモンド社

•  森生明（2001）「MBAバリュエーション」日経BP社

•  森生明（2006）「会社の値段」ちくま新書

•  石野雄一（2005）「道具としてのファイナンス」日本実業出版社

•  石野雄一（2007）「ざっくり分かるファイナンス経営センスを磨くための財務」光文社

•  砂川伸幸（2004）「コーポレートファイナンス入門」日経文庫

•  中沢恵・池田和明（1998）「キャッシュフロー経営入門」日経文庫

•  佐山展生・山本礼二郎（2009）「バイアウト」日本経済新聞社

【その他応用編】 •  笹山幸嗣・村岡香奈子（2008）「M&Aファイナンス」金融財政事情研究会

•  齊藤誠「金融技術の考え方・使い方―リスクと流動性の経済分析」有斐閣

•  内藤伸浩(2003)「アセット・ファイナンス-資産金融の理論と実践」ダイヤモンド社

•  磯崎哲也（2010）「起業のファイナンス」日本実業出版社

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20130324 第1回valuation勉強会

Economy & Finance