MGFB10 – Fall 2020 – Term Project

Introduction
In the term project, you will perform a stock valuation of a publicly traded company. The
objective is to introduce you to the standard valuation techniques used in the finance industry.
You will pick a public company of your choice and perform a rigorous stock valuation. In addition,
you will write a detailed report and prepare a stock pitch presentation to a live audience. Stock
pitches are commonly used in the finance industry. If you apply to almost any equity analyst
position, you will be asked to pitch a stock during your job interview. This project is therefore a
great opportunity to make use of many concepts we learned over the term and to develop skills
useful in your future career (e.g., data collection, assumptions making, creative thinking, etc.).

The table below summarizes the important deadlines for the project. Additional details on the
main steps and expectations are provided below.

Summary of deadlines
Deliverables Due date Notes
Form group, pick company Oct. 27 Fill online form
Choose presentation slot Nov. 20 Fill online form
Submit DCF model Nov. 20 Submit via Quercus - excel file
Submit written report Nov. 27 Submit via Quercus - pdf file, max 2 pages
Submit slides Nov. 27 Submit via Quercus - pdf file, max 10 slides
Your group presentation Nov. 30 - Dec. 3 Online on Zoom, 10 min pres., 10 min Q&A
Attend one other group Nov. 30 - Dec. 3 Online on Zoom, 20 min slot
presentation
Feedback report 1 week after pres. Submit via Quercus - pdf file, max 1 page

Step 1: Form a group and pick a company – due date October 27

Each group will value a different company. The group size is 3-4 students and groups can be
formed across different lecture sections. If you are not in a group by October 27th, you will be
randomly assigned to a group and a company. Once you have formed your group, you need to
choose a publicly traded company that you would like to value. The company should be publicly
traded, that is, its stocks should be trading on a regulated stock exchange. To make that choice,
you need to submit this form by October 27th at the latest:
https://docs.google.com/forms/d/e/1FAIpQLSfe3lZwwIljDkeEa1ECVc7r92RFD2c0DiyO3A__EOzr
XRjPHA/viewform
Companies will be assigned to groups on a first come first serve basis. You will receive an email
from the TA confirming your assigned company. You will get a 1% mark if you form your group
and send your company’s choice by the deadline.

General advice about picking your stock:

1. Take the Warren Buffett approach to valuation: “stick to industries you understand”. E.g.,
if you are really into CS, look at a software company. This will make your research a lot
easier and help you deliver a better stock pitch.
2. You might also choose an industry you think has a positive/negative trend and pick a
good/bad company in that industry. E.g., the covid-19 pandemic has badly affected the
tourism industry. Within that industry, which company has a better/worse competitive
advantage for the future?
3. You can also make a very safe choice by picking an established company with a consistent
record of earnings and dividends, which should make it easy to predict cash flows for
future periods.

Choosing an interesting company that fits your interests will make the valuation project easier
and more fun to work on. It will also give you some material to talk about during your future
job/internship interview. So, choose wisely.

Step 2: Valuation model – due date November 20

The next step is to perform a rigorous stock valuation of your company stock. You will use two
different valuation techniques.

1. Discounted Cash Flow (DCF) model

The DCF model is the central piece of the valuation exercise. Here is how you should build your
DCF model:

- Measure the cash flow to shareholders as the free cash flow to equity (FCFE).
- Forecast the FCFE for 5-10 years and value the remaining cash flows using a perpetuity.
- Discount the cash flows using the cost of equity which you will estimate using an asset
pricing model (e.g., CAPM).
- Obtain the target stock price by dividing the estimated market value of equity by the total
number of shares outstanding.

Note that one can also value a company using the free cash flow to the firm (FCFF) and discount
those cash flows using the weighted average cost of capital (WACC). A sample DCF model will be
posted on Quercus. Try to stay as close as possible to this template. This will not only facilitate
grading but also train you to work with a DCF model format that is consistent with what is used
in the financial industry.
2. Valuation using multiples (comparables)

You will also provide a series of additional price targets using multiples. There are many valuation
multiples that can be used to generate price estimates. Think carefully about which multiples
make more sense given the business of the company and identify the most relevant peer firms.
Note that these are more of a sanity check as the most important price target will still be provided
by your DCF model.

Some general advice about your valuation model:

There is not much debate over the mechanics of valuation. For instance, everyone agrees on how
to compute the present value of a cash flow. Building a financial model, however, requires
choosing a series of inputs such as the discount rate, the growth rates of sales, etc. This
component of valuation is much more debatable and quite often, financial analysts reach
different conclusions about a company.

When building your valuation model, think carefully about the assumptions you are making and
relate those to actual events or industry trends affecting your company. Take this opportunity to
relate to other classes you might have taken before such as marketing, operations, management,
etc.

A good starting point for making forecasts about growth is to think about the events (realized or
potential), that might have a significant impact of the firm growth. For instance,

a. Tesla has started opening factories in China, opening a new market. How is this
going to affect sales in the next few years?
b. Apple just announced a new product that will take Microsoft years to develop in-
house. How would this affect Microsoft market share and its future growth?
c. Patagonia has been a strong advocate for corporate social responsibility. How
would the recent social movements affect the company position in the market?

Be creative, make sensible assumptions and use your judgement! Your valuation model should
be submitted in the form of an Excel file on Quercus by November 20, 2020.

Step 3: Written report – due date November 27

You will have to write a report that summarizes the conclusions of your stock valuation exercise.
The report should contain the following information:

1. Recommendation: based on the target price estimated in Step 2, what recommendation

will you issue to investors?

a. BUY – you think the company stock is underpriced

 b. HOLD – you think the company stock is fairly priced by the market
c. SELL – you think the company stock is overpriced

In your recommendation, specify the current share price, the target price and the
percentage by which it is mispriced as of today (i.e., time 0). Note that you should use
some judgement in deciding your margin of error. If you estimate that your stock is
overpriced by 0.5%, it’s probably too close to call is a SELL given the uncertainty and the
transaction costs involved in the transaction.

2. Company information: the objective is to give a sense of the business of the company.
Provide a quick overview of its core business segments and products/services. What are
the competitive advantages of your company (e.g., think of the Porter’s 5 forces or a
SWOT analysis)? Refrain from making this part too long. Your objective is not to write an
essay on the company – just to give an overview of the company within its industry.

3. Industry overview: describe succinctly the industry in which the company operates. For
instance, is the company a leader in its industry, a monopoly? What are the main
competitors? What are the industry dynamics (dying industry, booming industry), etc. Do
not make this part too long, just summarize the most important points to ensure your
reader has a broad overview of the industry.

4. Investment thesis: in efficient markets, there is no debate about mispriced stocks. In the
investment thesis, you have to convince the reader that you have discovered something
that everyone else is missing. For instance,

a. Does the company have a competitive advantage in its cost structure that will
allow it to perform better in the future?
b. Is there an upcoming event that will benefit the company over its rivals (e.g., the
company just got a new drug approved that could be used to treat other
diseases)?
c. The company has been manipulating its financial statements.
d. The company sells itself as a tech firm to justify its high PE ratio, but its core
business relates more to the traditional car industry. It should trade at far lower
multiples.
e. Etc.

5. Valuation: This is where you talk about the DCF model and how you obtained your target
price. Talk about the assumptions that you have made and tie those to the investment
thesis that you developed earlier. You should also include a brief discussion/table on the
relative valuation you obtained using the comparable approach.

6. Risks: the objective here is to question some of the assumptions you made in your
investment thesis. What if the acquisition that the company is relying on to penetrate the
European market does not materialize? What would be the impact on growth and the
 target price? Try to provide a sense of how likely (e.g., a probability) this adverse event
will happen. What should investors do if that risk materializes, would it change your
recommendation?

a. The risk factors that you identify should be specific to the company. Large
systematic events such as a recession affect all firms in the economy and are not
very informative.
b. Recognize the uncertainty in the parameters. You will quickly notice that your
target price is quite sensitive to your assumptions. To validate your conclusions
about whether a stock is a good investment, you need to quantify this uncertainty
by performing a sensitivity analysis. For instance, what would be your target price
if growth were 30% lower than forecasted, what if my discount rate were 30%
higher, etc. It is always reassuring if the recommendation stays robust to a
sensitivity exercise.

7. Conclusion: Reiterate your target price and recommendation and provides a brief
summary of the investment thesis that allowed you to reach this conclusion.

Some general advice about your written report:

1. The written report should not be text-only. Be creative and use charts and diagrams.
Whatever helps you convey your message.
2. Your valuation model depends on assumptions that are driven in part by your investment
thesis. These will ultimately drive your recommendation. Try to make all the different
parts of your report consistent with each other. You have a thesis/story and you are trying
to convince investors! This also means that it is easier to work on the report and the
valuation model jointly.
3. Your analysis should not have a strong opinion as to an absolute return on the target
stock. You should think and communicate relatively. For instance, do not say “this
company will return +15% over the next year.” Rather say, “we believe this company will
(match/outperform/underperform) the market average by 15%”. It is important that your
analysis recognize that no risky investment in a company is a sure bet. A company will be
successful or unsuccessful in various scenarios and we usually don’t know which scenario
will come to pass. You should think and communicate probabilistically.
4. Do not restrain your focus to the very short term (e.g., next quarter), rather try to identify
the forces that will affect the company in the medium- to long-run.
5. Write succinctly in the active form. It helps getting to the point of what you want to say
and is easier to understand.

The written report should have a length of maximum two pages and be submitted in the form of
a pdf file on Quercus by November 27th, 2020. You can choose your font size and style as well as
the margins, etc. Do not see this as an opportunity to stack lots of text using a small font. Your
report should look professional and be readable, so make those choices judiciously! In Appendix
1 you can find a rubric that details how the written report will be graded.
Step 4: Presentation slides – due date November 27
The presentation slides provide the same message as the written report, albeit in a different
format. So, they should contain the same information. The suggested format is as follows:

- Recommendation – 1 slide
- Industry overview – 1 slide
- Company information – 1 slide
- Investment Thesis – 1 slide
- Valuation & Risks – 5 slides
- Conclusion – 1 slide

Some general advice about your presentation slides:

1. The same general advice about the written report applies to presentation slides, because
again, the information conveyed is the same.
2. Keep in mind that during a presentation, your audience advances at the pace you set.
Your audience cannot pause and read again a paragraph as it would do with a report. That
means that articulating your investment thesis in a succinct and convincing manner is
even more important when using slides.
3. One common mistake is to overload your slides. Try to keep your slides lean and
informative and do not use a lot of text. Use bullet points instead and clever visuals
(diagram, graphs, etc.).

The presentation deck should have a maximum 10 slides and be submitted in the form of a pdf
file on Quercus by November 27, 2020. Do not submit the ppt or the pdf with the animations,
just the 10 slides in pdf format. In Appendix 2 you can find a rubric that details how the slides will
be graded.

Step 5: Stock pitch presentation – sign-up by November 20

It is now time to present your stock pitch. Each group will present their stock valuation, using
their submitted slides, to an online audience which can be composed of a set of graders
(instructor and/or TAs), and one other student group. The presentation will be followed by a Q&A
session.

The presentations will occur online during the week of November 30th. You need to sign-up for
a presentation slot by November 20 at the latest, via an online form that will be communicated
on Quercus. Slots will be distributed on a first come first serve basis. Note that slots will be 40
minutes long because you will also have to sign-up to attend another group’s presentation (see
Step 6 for more details).

Some general advice about your presentation:

1. Practice before hand and be mindful of your pace. Most people, when stressed, tend to
speak too fast. Be aware of that. Presentations are more efficient at a conversational
pace.
2. You will also be graded on the Q&A. Practice answering questions concisely. A common
mistake people often make is to answer in a convoluted way and to take too long to
answer a simple question. Go straight to the point. Remember, you are trying to convince
investors of a course of action – not to confuse them.
3. If you do not know the answer to a question, admit it and move on. Making things up can
get you into trouble.

The presentation length should be 10 minutes at most. We will stop you after 10 minutes, so plan
accordingly. If you go over time and are not able to get your message across, you will lose marks.
Note that every group member must speak during the presentation. In Appendix 3 you can find
a rubric that details how the presentation will be graded.

Step 6: Feedback report – due one week after presentation

Each group is required to attend another group’s presentation and to submit a
formative/constructive feedback to the group. The feedback will be graded and given to the
presenting group but will not form a portion of the grade for the presenting group.

You need to sign-up for an attendance slot by November 20 at the latest, via an online form that
will be communicated via Quercus. Slots will be allocated on a first come, first serve basis.

Being able to constructively develop feedback is beneficial in any setting where you work with
other people. For instance, you are going to have to figure out how to give feedback to your boss!
The feedback report should have a length of 1 page and be submitted in the form of a pdf file on
Quercus one week after the presentation attendance, at the latest. In Appendix 4 you can find a
rubric that details how you will be graded on your feedback.
 Appendix 1: Written Report Rubric
Excellent
80 – 100%
Content (50%)
• Content of written report is
consistent with presentation /
slides.
• Message is correct, complete,
relevant and informed.
• Message is efficient: concise,
non-repetitive, informative.
• Message is logical,
consistent, evidence-based
and persuasive
• Demonstrates strong grasp of
course content
• No errors present.
• Included visuals used
effectively to reinforce
message.
Writing (50%)
Overall • Well-organized
organization • Effective paragraphing,
sections, or bullets
and clarity of demarcating main points.
writing • Audience-appropriate
terminology and technical
(30%) vocabulary used.
• Writing is exceptionally clear
and efficient: concise, non-
repetitive, informative.
Term Project Report Rubric
Good
70 – 80%
• Content of written report is
consistent with presentation /
slides.
• Message mostly correct,
complete, relevant.
• Message reasonably efficient
and informative.
• Message mostly logical,
consistent, evidence-based,
reasonably persuasive.
• Good grasp of course content
demonstrated
• Few or no errors
• Included visuals used mostly
effectively.
• Mostly well-organized
• Good use of paragraphing,
sections, or bullets to
demarcate main points.
• Terminology and technical
detail mostly appropriate to
audience
• Writing is reasonably clear,
efficient and informative.
Competent
60 – 70%
• Content of report is mostly
consistent with presentation.
• Message may have some errors,
omissions, irrelevancies.
• Message may be too repetitive,
lengthy, detailed, or tangential.
• May be some gaps in logic,
consistency, or persuasiveness.
• May be somewhat too detailed
or too broad
• Satisfactory grasp of course
content.
• Minor errors may be present in
places.
• Included visuals may not support
message in places.
• Attempts to organize effectively • Lacks clear organization in
but may appear disjointed in
places.
• Paragraphing, sections, or
bullets could be used more
effectively in places.
• Could be more audience-
appropriate in places
(terminology missing or used
incorrectly).
• Writing may be unclear in places
(repetitive, too detailed,
tangential or vague).
Inadequate or Marginal
< 60%
[Points]
• Content of report may be
inconsistent with presentation.
• Message contains serious
errors or omissions,
irrelevancies.
• Message may be redundant,
repetitive, tangential
(unnecessary information), or
not informative (vague).
• Significant errors in logic or
consistency.
• Student’s understanding of
key concepts is in doubt.
• Significant errors may be
present.
• Visuals included may not be
appropriate.
[Points]
terms of paragraphing,
sections or bullets.
• Inappropriate to audience:
correct terminology or
technical detail is avoided or
used incorrectly.
• Writing may be very unclear in
places (vague, repetitive, too
lengthy or detailed,
uninformative).
 Excellent
80 – 100%
Formatting • Formatting requirements met
(length, font, etc.)
and
• Writing is free of sentence-
Sentence- level grammatical and
level detail spelling errors, and typos.
• Written in active voice.
(20%) • Any included visuals are
clearly formatted and
presented.
Overall Comments:
Good
70 – 80%
• Formatting requirements met
(length, font, etc.)
• Mostly free of sentence-level
grammatical and spelling
errors, and typos.
• Mostly written in active voice.
• Included visuals are clearly
formatted.
Competent
60 – 70%
• Formatting requirements mostly
met (length, font, etc.)
• Some sentence-level errors or
typos that do not inhibit
meaning, or only obscure
meaning in some places.
• Avoids active voice in some
places.
• Included visuals could be better
formatted in places.
Inadequate or Marginal
< 60%
• Formatting requirements may
not be met (length, font, etc.)
• Sentence-level errors
(grammatical, spelling, typos)
inhibit overall clarity of report
or significantly obscure
meaning.
• Not written in active voice /
too much passive voice.
• Included visuals are poorly
formatted / unclear.
[Total]
 Appendix 2: Presentation Slides Rubric
Excellent
80 – 100%
Visuals (Slides)
• Slides and visuals are
informative and central to
explanation (coherence).
• Visuals are very effective,
simple, concise, not
distracting.
• Visuals are easily legible:
sufficient white-space, font-
size, etc.
• Information on slides is
correct, thorough, and
complete.
• Visuals follow guidelines: 10
slides max, minimal text.
Overall Comments:
Total Grade:
Term Project Slides Rubric
Good
70 – 79%
• Slides / visuals mostly support
and inform the central
message / explanation.
• Visuals are mostly effective
and simple.
• Visuals are generally legible
(white space, font-size, etc.)
• Information on slides is mostly
correct and complete.
• Visuals follow guidelines: 10
slides max, minimal text.
Competent
60 – 69%
• Slides / visuals could be more
informative or central to the
explanation; may be redundant,
inconsistent, or tangential.
• Visuals could be more effective, may
be too dense, busy, or distracting.
• May be some challenges with
legibility (ability to see / view.)
• Some relevant information may be
missing from slides in places.
• Too much detail may be provided on
some slides or in places.
• Some errors may be present.
• Visuals attempt to follow guidelines
(10 slides max, minimal text), with
very minor deviations.
Marginal or Inadequate
< 60%
[Points]
• Slides / visuals are not
coherent with explanation:
uninformative, irrelevant, or
inconsistent.
• Visuals are ineffective,
distracting, busy, or
overwhelming.
• Visuals are difficult to read or
see; illegibility interferes with
explanation.
• Significant missing or extra
(unnecessary) information.
• Significant errors present.
• Visuals do not follow
guidelines: 10 slides max,
minimal text.
[Total]
 Appendix 3: Group Presentation Rubric
Excellent
80 – 100
Content
Message / • Message / explanation is
correct, complete, relevant
Explanation
and informed.
• Message / explanation is
(40%) efficient: concise, non-
repetitive, informative.
• Message / explanation is
logical and consistent
(evidence-based and
persuasive)
• Demonstrates strong grasp
of course content
• Pitched at appropriate level
for audience: appropriate
terminology and detail
• Visuals are used effectively
during the presentation
(informative, connected to
message, etc.)
Delivery
Presentation For all presenters:
Skills • Enunciation is
exceptionally clear,
(40%) understandable; natural
intonation (unscripted)
• Pace is appropriate,
minimizing hesitations.
• Demeanor and body
language are authentic,
confident, genuine,
professional.
Group Presentation Rubric
Good
70 - 79
• Explanation mostly correct,
complete, relevant.
• Explanation reasonably efficient
and informative.
• Explanation mostly logical and
consistent.
• Good grasp of course content
demonstrated
• Mostly appropriate to audience
(level of detail and terminology)
• Visuals are mostly used
effectively during the
presentation.
For most but not all presenters:
• Mostly understandable, few
grammar or enunciation errors;
reasonably natural delivery
• Pace is reasonable; hesitations
do not distract.
• Demeanor/body language is
professional, could be more
natural or confident.
• Eye contact generally
maintained; attempt to engage
Competent
60 - 69
• Explanation may have some
errors, omissions, irrelevancies.
• Explanation may be too
repetitive, lengthy, detailed, or
tangential.
• May be some gaps in logic or
consistency
• May be somewhat too detailed
or too broad
• Satisfactory grasp of course
content
• Attempts to use appropriate
terminology; may have some
omissions or errors
• Visuals could be used more
effectively in places.
For some but not most presenters:
• Difficult to understand at times; • Very difficult to understand:
possibly overly scripted or
unclear at times
• Hesitations or pace (too fast /
slow) may distract from
message in places
• Demeanor/body language may
lack authenticity, enthusiasm, or
professionalism in places, or be
distracting.
Marginal or Inadequate
< 60
• Explanation contains serious [Points]
errors or omissions,
irrelevancies.
• Explanation is redundant,
repetitive, tangential
(unnecessary information), or
not informative (vague).
• Significant errors in logic or
consistency indicate gaps in
understanding.
• Inappropriate to audience:
correct terminology is avoided
or used incorrectly
• Visuals not used effectively
during presentation
(unconnected to message,
uninformative, confusing, etc.)
For many or most presenters: [Points]
explanation frequently obscured
• Overly scripted or very
unnatural delivery (or reading
from slides)
• Excessive hesitations or
disfluencies, or pace, interfere
with message.
 • Presenters engage with audience using the online • Engagement / eye contact with • Unprofessional or highly
audience using the online platform audience not maintained distracting demeanor / body
platform and maintain eye • Transitions generally coherent. throughout. language
contact with camera. • All presenters contribute. • Transitions could be smoother / • No attempt at audience
• Transitions among group more logical. engagement online
members are smooth, • All presenters contribute • Transitions disjointed or
logical. (though perhaps not equally) awkward.
• All presenters contribute. • Not all presenters contribute.

Excellent Good Competent Marginal or Inadequate

80 – 100
Q&A • Presenters respond
confidently, competently,
Responsiveness and non-defensively to all
to Audience questions.
• Responses increase
(20%) confidence in team’s
recommendation.
• Presenters share
responses to questions
among group members.
Overall Comments:
70 - 79
• Presenters respond well to most
questions.
• Could be more confident,
informative, or answer
questions more directly
• Responses make audience
reasonably confident in team’s
recommendation.
• Presenters share responses to
questions.
60 - 69 < 60
• Presenters competently • Poor responses to most [Points]
respond to some questions but questions: indirect,
not others. uninformative, or incorrect
• Some responses may be too • Responses are too reactive /
defensive. defensive
• May avoid or re-direct some • Audience may not be convinced
questions by team’s recommendation.
• Audience may doubt team’s • Responses are not shared
recommendation. among group members.
• Responses are
disproportionately from a few
group members.

Total Grade: [Total]

 Appendix 4: Peer Feedback Rubric
Excellent
80-100
Feedback to • Feedback is
formative/constructive and
Student
makes clear
Group recommendations.
• Feedback is specific.
(60%) • Feedback focuses on priority
issues not minor ones.
• Feedback is clearly connected
to assignment criteria.
• Feedback is consistent.
• Feedback uses an appropriate
encouraging tone.
Organization, • Organized into clear coherent
paragraphs or sections.
Writing,
• Uses mostly complete
Formatting sentences; effective (optional)
use of bullet points.
(40%) • Logical order of ideas.
• Writing is free of grammatical,
spelling errors
• Following formatting
guidelines.
Comments:
Peer Feedback Rubric
Good
70-79
• Feedback is mostly formative
and makes good
recommendations.
• Feedback is mostly specific.
• Feedback focuses mainly on
priority issues.
• Feedback is mostly connected
to assignment criteria.
• Feedback is consistent overall.
• Feedback uses mostly an
appropriate tone.
• Mostly clear organization,
good paragraphing / sections.
• Mostly complete sentences
and effective bullet points.
• Order of ideas is mostly
logical.
• May contain minor sentence-
level errors that do not inhibit
clarity.
• Might benefit from more
detailed proof-reading.
• May have minor formatting
mistakes.
Competent
60-69
• Attempts to provide formative
feedback and makes some
recommendations.
• Feedback is somewhat specific.
• Feedback focuses on some
priority issues but also includes
some minor ones.
• Feedback is somewhat
connected to assignment criteria.
• Feedback is somewhat
consistent.
• Feedback uses an appropriate
tone to some extent.
• Attempts organization into
coherent paragraphs / sections.
• Lack of full sentences or effective
bullets inhibits clarity in places.
• Contains some sentence-level
errors that may inhibit clarity in
places.
• Would benefit from more detailed
proof-reading.
• Attempts a logical flow of ideas,
but unclear in some places.
• Minor formatting mistakes.
Marginal or Inadequate
<60
• Feedback is mostly evaluative
not formative.
• Feedback is general and not
specific.
• Feedback focuses primarily on
minor issues instead of priority
ones.
• Feedback is not connected to
assignment criteria.
• Feedback is mostly not
consistent.
• Feedback uses inappropriate
tone.
• No paragraphing / sections or
inadequate organization.
• Few or no full sentences used.
• Organization is ineffective.
• Flow of ideas is not
clear/illogical.
• Sentence-level errors greatly
inhibit clarity.
• Contains major formatting
mistakes or does not follow
guidelines.