Essay on Myer Holdings Limited (Myer)

1993 WordsMar 11, 20138 Pages
Prospective analysis – forecast The previous reports have already approached the industry and financial analysis of Myer. This report will analyze the forecast, valuation and application of Myer, including forecasting the major data, valuating share price under four model and discussing the opportunity and challenge of Myer. 1. Forecast sales growth rate As one of the most important indicators, sales can reflect directly Myer’s financial performance and influence other indicators. Therefore, the forecast of sales growth rate is the foundation for forecasting Myer. Based on the previous annual reports from 2007 to 2011, Myer’s sales are not optimistic and the average growth rate is negative 2.89%. The decline of both global economy and…show more content…
In addition, two ways are used to determine cost of capital, which are CAPM and WACC. In CAPM model, risk-free rate, risk premium rate and βare assumed separately 4.5%, 6.5% and 1.1. It is not easy to determine βbecause it changes every day. Assuming 1.1 forβmeans the fluctuation of Myer share price is a little stronger than the market but not too much . Therefore, cost of capital (Re) is calculated by the formula and equals to 11.65%. This Re is used in DDM and DAE. In WACC model, because Re is 11.65%, Rf is calculated by formula and equals to 11.43%. This Rf is used in DAOE and DCF. The share price is calculated by these 4 different models. (See below chart) Model Forecast Share price in 2012 DDM 1.7423 DAE 2.4548 DAOE 2.5603 DCF 2.5603 DDM is influenced strongly by dividends because this model uses dividends to calculate value of shares. If the company does not pay dividends, the share price would be lower. Myer is estimated to pay dividends in 45% and the share price closes to market share price. (See below chart) Date Last % Change High Low Vol * 24 Oct 2012 1.950 -1.27% 1.962 1.930 6,259,477 This model is easy to understand Myer’s business conditions. However, this is affected by dividends too much and dividends are not always linking the value creation , the valuation model seems

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