The seminar ran over five days with 30 other participants and was led by Dr George Athanassakos with the assistance of a number of graduates from Ivey Business School who acted as tutors during our breakout sessions.
The three and half days of lectures were followed by one and a half days of practical exercises in small break out groups where we applied what we learnt to real companies.
Here is a six-point summary of how to establish an intrinsic valuation of a company.
- Look at the strategic position
- is the industry sector attractive is it growing, facing headwinds, or mature?
- Where does the company sit in the sector?
- Who are the other players in the sector?
- Barriers to entry or other competition
- Profitability of the company
- Operating margins
- Revenue
- How long can profitability be passed on to shareholders or will it be competed away
- Financial strength
- Balance sheet strength
- Level of Debt
- What is the capital allocation?
- Management
- History of asset allocation and capital management
- Are they good operators
- Analyse both quantitatively and qualitatively the performance of management
- Any catalyst that will cause the stock to be re-rated – upwards
- Valuation of the stock
- Is the stock undervalued
- Beware of Value traps
While we did spend a lot of time working on valuation methods and processes you can see from the above that the quantitative element of a valuation is the end of result of a lot of qualitative analysis.
A value investor must form their own researched opinion of a company’s value and not just pull out financial ratios from its published accounts.
The core learning for me from the value investing and search for value seminar consolidated something I already practice however I did gain some new methods to utilise. The most thorough method of analysing whether to invest in a company is to; study, read, research and understand a company and its industry and then analyse, understand and make your own adjustment of figures in the financial statements to arrive at an appropriate “intrinsic valuation” to assess whether a business is worth purchasing.