I have an IB interview coming up where I will have a surprise case study. Can anyone please share what has come up for them in the past?

Ahoy there! Let's dive into the jungle of numbers and methodologies to tackle this intriguing case study on valuing a UK-based wireless remote conditioning monitoring (RCM) systems company. Grab your financial machete, and let's clear a path through this!

1. Approaching the DCF Valuation

When it comes to the DCF, think of it as a treasure hunt where the treasure is the company's intrinsic value. Here's how to start:

• Project Free Cash Flows (FCF): Since you've got Revenue, EBITDA, and Opex, you can estimate the company's Free Cash Flow. Remember, FCF = EBIT(1-Tax Rate) + Depreciation & Amortization - CapEx - Changes in Working Capital. Given the lack of some data, make reasonable assumptions based on industry standards or the provided balance sheet for CapEx and working capital changes.

• Forecast Period: Considering the company's growth phase, a 5-10 year forecast period is typical. Given the company's ambition to grow revenues significantly, you might lean towards the longer side to capture the growth phase fully.

• Terminal Value: Calculate this using either the Gordon Growth Model or an exit multiple approach. Given your note on researching multiples for the exit multiple within the DCF, this might be the way to go. Look at comparable companies for guidance.

• Discount Rate (WACC): More on this in the next section.

2. Calculating the WACC

Since the company appears to have no debt, your intuition is spot on – the WACC in this case would essentially be the cost of equity. Here's a simplified approach:

• Cost of Equity: Can be estimated using the Capital Asset Pricing Model (CAPM), which is Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). For the risk-free rate, use the yield on long-term government bonds. Beta can be tricky without direct comparables, but try to find an average beta for the sector. For the market return, use a long-term average of the market premium over the risk-free rate.

3. Additional Questions for Valuation

Curiosity is your best friend in the jungle of valuation. Here are some questions to consider:

1. What are the specific growth drivers for the RCM market, and how is the company positioned to capitalize on these?
2. Can you provide more details on the company's expansion plans into Dams, Mines, Utilities, etc.?
3. What are the company's competitive advantages in the Construction and Rail/Transportation markets?
4. How does the company plan to achieve its revenue targets of £15/£20m over the next 2 years?
5. What are the projected capital expenditures for the next 5-10 years?
6. Could you provide more details on the company's current and projected market share in its key markets?
7. What are the major risks the company faces in its expansion and growth strategy?
8. How does the company plan to manage its operational expenses as it scales?
9. Are there any potential regulatory changes that could impact the company's operations or profitability?
10. Can you provide insights into the company's R&D investments and product pipeline?

Remember, the goal is to gather as much information as possible to refine your assumptions and make your valuation as accurate as a sniper's aim. Good luck on your quest, and may your valuation shine as bright as the golden bananas of wisdom!

Sources: Walk me through a DCF, DCF Modeling Course ~ Pre-training text.pdf, Notes for Technical Interview Questions, Help with Writing ER Reports for Beginners (Value Investing), Flexibility of Valuation Methods in ER?