Valuing Rapid Growth Companies and Sectors

Course Overview:

This advanced valuation and modelling course looks at the valuation approaches to be taken to enable participants to value sectors which may be at differing stages of development and growth profiles. Traditional valuation techniques assume a simple two or three stage growth profile and a terminal value or basic multiple based valuation tools. This course looks at some of the more difficult companies to value based on the underlying fundamentals of the sector in which the company operates.

The course covers companies at the rapidly growing phase of development which, depending on the geographic location, may cover media, telecoms and pharmaceutical sectors. As well as discussed some of the current issues with traditional cash flow and multiple based valuation approaches the course will cover more advanced valuation approaches such as decisions trees, simulations, scenario analysis and real option valuation. The course will also consider the role of risk assessment in the valuation process and how macro-economic analysis can affect the valuation approach taken.

Examples are provided to illustrate each issue.

Participants will be required to bring a laptop to the course.

Course Content:

Overview of valuation approaches

• Intrinsic valuation – traditional cash flow techniques
• Relative valuation – multiple based analysis
• Probabilistic valuation – scenario analysis, decision trees and simulations
• Real options valuation – additional value created through optionality

Other valuation issues

• Assessing risk – the risky risk free rate and other current valuation issues
• The economic cycle – incorporating macro-economic factors into a valuation

Valuing rapid growth companies and sectors

• A life cycle view of rapid growth companies
  • The rapid growth company in context
• Characteristics of growth companies and sectors
  • How are growth companies different?
• Valuation issues – intrinsic value
  • Existing assets
    • How asset life may develop in the high growth phase
    • How existing assets differ in a rapid growth business
  • Growth assets
    • Capital intensity and the rapid growth business
  • Discount rates
    • The development of risk during the growth phase
  • Terminal value
    • The stage at which a terminal value should be calculated for a rapid growth business
  • Value of equity claims
    • The differing equity claims in a rapid growth business
• Valuation issues – relative valuation
  • Peer groups
    • Finding similar growth businesses – different sectors?
  • Risk measures
• Valuing a growth business in practice
• • Main errors made in valuing growth businesses
  • Top down approach to a valuation
    • Dealing with immature markets
    • Assessing product cycles
  • Bottom up approach to a valuation
    • Ability to execute – the key driver
  • Valuing the operating assets
    • How operating asset lives develop in the high growth phase
  • Ensuring consistency in a valuation
  • Reinvestment and growth
  • • Assessing investment requirements – the returns and reinvestment equation