How does the analyst come up with the relative valuation for ER reports?
Title.
I'm trying to write my own reports to get interviews but I'm confused as to how the valuation is calculated.
https://www.resource-capital.ch/fileadmin/researc…
Using this RBC report as an example:
"We are maintaining a Sector Perform rating on Imperial Oil, but have cut our one-year target price by 2% to $48 per share (versus $49 previously). Our target price reflects a 60% weighting toward a multiple of 1.1x our revised Base NAV of $41.86 per share (vs. $42.09) and a 40% weighting toward an unchanged 2014E debt-adjusted cash flow multiple of 10.3x."
60% * 1.1x * $41.86 * 40% * 10x * CFPS(?)
CFPS for 2014E shows 5.94.
All that together does not equal the price target of $48.00
https://www.resource-capital.ch/fileadmin/researc…
Another example with BMO.
"Our $48 target price is based on a 10.5x 2013E debt-adjusted cash flow and is supported by our $49.91 per share NAV estimate (10% dcf). "
Not quite sure where I can find the 2013E debt-adjusted cash flow. Regular cash flow is $5.00 but 10.5x * $5.00 still doesn't equal the target price of $48.00.
Also, is one valuation method enough? I know that the BMO report used a 10% dcf as well but it still seems insufficient?
Hi ER.wannabe, the silence is deafening, sorry about that.... Any of the threads below helpful?
Fingers crossed that one of those helps you.
Hold on, recalculating.
Edited.
Ok, I've looked at for a while now and I'm not completely sure either.
If you're really curious, you can Email the analyst. The two associates don't appear to be at the firm anymore.
Debt-Adjusted Cash Flow is not a per-share number. The multiple being discussed is EV/DACF. Some guys use this multiple because their respective companies don't provide EBITDA (my assumption based on reports I've seen in my firm). You are essentially adding back tax-affected interest to discretionary cash flow.
Wouldn’t use E&P as a base for valuing companies. But if you provided the full report, we could probably piece it together. Feels like you’re omitting something.
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