PRESENTED BY:
INTRODUCTION AND OVERVIEW
OF THE COMPANIES
Leaders in the provision of 3D content-to-print
solutions:
• 3D printing, print materials, on demand custom part
services,...
Provider of storage systems and data
management solutions predominantly
for
Information
Technology
Infrastructures
 FAS s...
3D SYSTEM: 3D PRINTER INDUSTRY
• High barriers to industry
→ intellectual property rights held by existing firms

• 3D pri...
NETAPP: ENTERPRISE STORAGE INDUSTRY
•

Also high barriers to entry

•

Rapid development of technological changes

•

Inte...
Equity Valuation
Model

1. FCFE
2. Residual
Income
FUTURE CASH FLOW TO EQUITY MODELS
(FCFE)
Measures amount of cash that can be paid to the equity
shareholders of the compan...
FCFE METHOD
KEY INPUTS:
3D SYSTEM
NETAPP
RESIDUAL INCOME APPROACH
(RI)
S T O C K VA L U E = B O O K VA L U E O F E Q U I T Y
+ PV OF EXPECTED RESIDUAL INCOME

MOST...
NETAPP
The historical data determines residual income and trends

Shows:
1. Book Value of Equity – at 31/07/13 is $4018M, ...
NETAPP CONTINUE…
• Forecasting can be very qualitative

•

Using the trend increasing rate of change, the growth could be ...
• With all the values, we can find the stock price.
• V0= 4018 + (-644-94) + 889 = $4169M

• This gives $42.67 per share (...
3D SYSTEM
•

On 31 Dec 2012
•

S.P = $53.35

•

B.V = $480.33m

•

Required return on equity = $41.98%

•

Constant growth...
2008
BV Equity

2009

2010

2011

2012

102.23

104.69

133.12

254.79

480.33

2.41%

27.15%

91.40%

88.52%

1.14

19.57...
3D SYSTEMS CONTINUE..
• Used a 3 year horizon point
• 3D showed large variances and unpredictability with
historical value...
2013
Residual Income
% Growth
PV Residual Income

2014

2015

-107.49

-169.83

-268.34

-58.00%

-58.00%

-58.00%

-75.70...
THEORY FOR RI STATES…
• RI is most appropriate for growing
companies without dividends
• Higher emphasis on immediate intr...
OHLSON, 2000
Residual Income Valuation: The Problems

• RI may not hold when there are expected
fluctuations in outstandin...
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Cfa presentation

  1. 1. PRESENTED BY:
  2. 2. INTRODUCTION AND OVERVIEW OF THE COMPANIES
  3. 3. Leaders in the provision of 3D content-to-print solutions: • 3D printing, print materials, on demand custom part services, 3D authoring for consumers Current details: • Rank 4th on Forbes ‘Fastest growing Tech Companies’ for 2013 • 46% sales growth from previous year • 30% EPS growth annually • Share price: $58.64 (October 25th 2013)
  4. 4. Provider of storage systems and data management solutions predominantly for Information Technology Infrastructures  FAS storage System  E-series System Current Details: • 28% increase in profit (relative to previous year) • Initiation of a quarterly dividend of $0.15 per share • Share prices: $39.39 (October 25th 2013)
  5. 5. 3D SYSTEM: 3D PRINTER INDUSTRY • High barriers to industry → intellectual property rights held by existing firms • 3D printing industry interrelationship with facets of the economy → education, healthcare, defence
  6. 6. NETAPP: ENTERPRISE STORAGE INDUSTRY • Also high barriers to entry • Rapid development of technological changes • Intense rivalry amongst existing firms within industry • Main Competitors involved: Oracle & HP both largely diversified companies  Ability to maintain relationship with customers/partners  Offers diversified portfolio of products and services
  7. 7. Equity Valuation Model 1. FCFE 2. Residual Income
  8. 8. FUTURE CASH FLOW TO EQUITY MODELS (FCFE) Measures amount of cash that can be paid to the equity shareholders of the company after accounting for all expenses, reinvestments and debt repayments • ‘ T W O S TA G E F C F E M O D E L’ , C O M PA N Y T H AT I S E X P E C T E D T O I N I T I A L LY G R O W M U C H FA S T E R T H A N A S TA B L E F I R M B E F O R E T R A N S I T I O N I N G T O A S TA B L E R AT E  3D Systems • ‘ C O N S TAN T G R O W T H F C F E M O D E L’ , C O M PA N Y T H AT I S P R E S U M E D T O B E I N A S T E A D Y S TAT E O F G R O W T H  NetApp
  9. 9. FCFE METHOD KEY INPUTS:
  10. 10. 3D SYSTEM
  11. 11. NETAPP
  12. 12. RESIDUAL INCOME APPROACH (RI) S T O C K VA L U E = B O O K VA L U E O F E Q U I T Y + PV OF EXPECTED RESIDUAL INCOME MOST APPLICABLE FOR SMALL TO N O D I V I D E N D C O M PA N I E S W I T H N E G AT I V E C A S H F L O W S EXPECTING TO BECOME POSITIVE KEY INPUTS: • • • • • current book value of equity Net income Required return on equity (from CAPM) Steady-state growth rate (Industry) A horizon point (2 years)
  13. 13. NETAPP The historical data determines residual income and trends Shows: 1. Book Value of Equity – at 31/07/13 is $4018M, share price $42.67 2. Net income 3. Residual Income is decreasing but at an increasing rate of 13% in 2012 and 34% in 2013
  14. 14. NETAPP CONTINUE… • Forecasting can be very qualitative • Using the trend increasing rate of change, the growth could be extrapolated to 42% then 80%. • Instead of increasing the percentage I used the absolute value 700 (see red box). • The PV of the perpetuity is in the green box.
  15. 15. • With all the values, we can find the stock price. • V0= 4018 + (-644-94) + 889 = $4169M • This gives $42.67 per share ($1.55 higher than the price at valuation)
  16. 16. 3D SYSTEM • On 31 Dec 2012 • S.P = $53.35 • B.V = $480.33m • Required return on equity = $41.98% • Constant growth rate = 4.9%
  17. 17. 2008 BV Equity 2009 2010 2011 2012 102.23 104.69 133.12 254.79 480.33 2.41% 27.15% 91.40% 88.52% 1.14 19.57 35.42 38.94 -118.51% 1617.82% 81.03% 9.94% -41.78 -24.39 -20.47 -68.03 41.63% 16.08% -232.35% % Change Net Income % Change Residual Income % Change -6.15
  18. 18. 3D SYSTEMS CONTINUE.. • Used a 3 year horizon point • 3D showed large variances and unpredictability with historical values • Estimated growth rate of -58% • Did not correlate with market consensus that 3D had large potential • Predicted a negative share price for 3D  Signalled issues with model
  19. 19. 2013 Residual Income % Growth PV Residual Income 2014 2015 -107.49 -169.83 -268.34 -58.00% -58.00% -58.00% -75.70 -84.24 -93.75 PV Horizon Value -252.79 NPV of Company -26.15 No. of outstanding Shares(millions) 101.61 Estimated Share Price ($, per share) -0.2574
  20. 20. THEORY FOR RI STATES… • RI is most appropriate for growing companies without dividends • Higher emphasis on immediate intrinsic value • Less sensitive to terminal value -> limit errors in forecasting
  21. 21. OHLSON, 2000 Residual Income Valuation: The Problems • RI may not hold when there are expected fluctuations in outstanding shares • 3D Systems has a history of issuing unexpected share options and splits • Possible reason why the RI did not work in this case
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