Latest / The Investor With Joel Palathinkal / Vanessa Cheung: Impact Investor at Accys

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Vanessa Cheung: Impact Investor at Accys · The Investor With Joel Palathinkal

0:00
So typically we will use two methodologies.
0:04
The first one is multiple approach and the second one is DCF approach.
0:09
So for multiple approach, can see here some of the metrics that we typically see and some of
0:14
you are familiar with.
0:16
So you can compare these metrics against a company owned history or you can compare them
0:22
against different peer group within a different company within the same peer group.
0:28
So I guess one of the questions that you might ask is which metrics should we use?
0:35
Welcome to The Investor, a podcast where I, Joel Palofinkle, your host, dives deep into the
0:41
minds of the world's most influential institutional investors.
0:46
In each episode, we sit down with an investor to hear about their journeys and how global
0:51
markets are driving capital allocation.
0:54
So join us on this journey as we explore these insights.
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OneWebShow here with Vanessa Chung and, excited to have her here.
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She's a venture capitalist and impact investor, and is currently at Axis.
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So and she's gonna actually walk us through discounted cash flow and talk about how to look
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at ESG investment.
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She's a, you know, impact ESG expert, and she's gonna actually teach us stuff and go through
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financial model that she's built.
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Excited to learn from you.
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She, you know, was able to kind of, you know, run through this a couple months ago and then I
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bring her on to kind of share this with the community.
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Vanessa, thanks for being kind enough to share this with us.
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Maybe you can just spend a couple minutes just walking us through your career, your education
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and how you got to where you are now and then we'll jump into it.
1:54
Yeah, sure, definitely, Jo, and thanks for inviting me to the show and it's definitely my
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great pleasure to be here and share my learning, especially in the public investing
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space.
2:04
So yeah, thanks for the introduction and just a little bit about myself.
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So after university, I spent two years in equity research.
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So I was at Credit Suisse covering paper and packaging and building materials.
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So it was certainly a very great learning experience and I learned a lot from it, from
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talking to different investors, to senior management and also during a couple of site
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visits.
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So during that period, as soon as I was learning more about the pavement packaging
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industry and also the cement industry, I got really interested in sustainability because
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those industry, they emit a lot of carbons and a lot of, they use a lot of energy.
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And so there was a lot of talks amongst the investment community to to analyze which
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packaging materials is actually the most sustainable and how can they invest in more
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sustainable companies.
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So that was how I got really interested in the idea.
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And then partly because of that interest and also wanting to gain more experience working
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for corporates, I joined Access Technologies over a year ago.
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So they are a wood science technology company, very eco friendly and also fast growing as
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well.
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So I'm helping them as my role in business development, helping them to form partnerships
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and also expand to the rest of the world.
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And then as you mentioned, on top of that, I'm an investment team in Southern Capital.
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So I'm focused mainly on impact and also in clean tech, which is a fast and growing area
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and certainly very, very interesting and see a lot of different business, different
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technologies emerging currently.
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So very exciting space to be.
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No, absolutely.
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Yeah.
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Well, hey, what are your thoughts just based on the last couple months of learning?
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What are some takeaways that you would take away from just impact and clean tech?
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Yeah, sure.
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Certainly see a lot of different companies and very interesting to talk to founders.
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They all have very great vision how their products can change the world really.
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And certainly I think as you know, and the trend recently is there seems to be more talk
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about the Cleantech two point zero, which is very different from the Cleantech one point
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zero, which was in the early two thousand period.
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So it seems that investors are more focusing on companies that can generate profits as well as
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the social impacts at the same time.
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Whereas in the past, it might be more on the profit side or yeah, it's more difficult on
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that side.
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And then one trend that I'm particularly focused on is the circular economy trend for
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those that you're less familiar with it.
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Basically at the moment we are kind of consuming on a linear model where we make
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things, we consume them and then we just dispose them at the end of life.
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But actually in a circular model, it will be everything.
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The material will be in use in kind of a circular fashion where maybe after we're using
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the products, we can recycle it, we can remanufacture it, or the waste of that product
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can actually be raw material for another industry.
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For example, some companies that I've looked at, they use chicken feather to make packaging
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materials, or they can use other waste materials like plastic, ocean waste plastic to
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make other materials as well.
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So I think that's certainly something that I'm very interested in and great to see a lot of
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these innovative products coming on.
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That's great, cool.
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Well, anybody have any questions about Vanessa's career and how she transitioned
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before we jump in.
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All right, I guess we'll just go ahead and jump in and feel free to message some questions in
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the chat and I'll go ahead and try to call them out as we go, but I'll let you do your thing.
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Oh yeah, any question just please shout at any point and if I not explain it clearly as well.
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So hopefully you can now see the screen.
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Yeah, we can see it.
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Yep, that's great.
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So yeah, today I just wanted to talk about a bit about equity research, what it is, and then
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about valuation in the public stock market as well.
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So I'll walk through different methodologies and also do a case study to value Apple, the
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stock.
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And then I guess one thing to emphasize is valuation.
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As some of you might heard the phrase, it's more about, it's more of an art than a science
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in some sense because it relies on your assumptions and your judgment and what your
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view are on the company.
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So although today I'm going to show you all the tools and the resources you need, ultimately as
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an investor, you need to make that judgment yourself whether you think that company is good
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to invest, as I'm sure, Joe, you agree.
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In the VC world as well, it depends a lot of your judgment and how do you see the world in
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ten, fifteen years time.
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Yeah, absolutely.
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So yeah, firstly, just on a bit about equity research, what it is.
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So basically it's a fundamental analysis on stocks to provide investment ideas.
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So we tend to look a lot in-depth into the company's financials, the industry they operate
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in and also some of the risk involved and the valuation as well.
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So in equity research, we can split into sell side and buy side.
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So the sell side will be all the investment bank, for example, like JP Morgan or Goldman
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Sachs.
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So they will provide research reports or ideas to investors.
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And then these institutional investors who are they?
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They are the buy side clients.
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So they are the pension funds or funds in the likes of Fidelity or BlackRock for example.
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So these are the investors.
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They have actually got the capital to allocate and to invest.
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So they typically invest according to their fund mandates.
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So their fund mandates could be geographical.
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They invest in US for example, or they invest in particular sector like the tech sector.
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So teams, are usually structured by sector.
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And one thing to stress is in the sell side analyst world, they tend to focus on the
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smaller sets of stocks, for example, like 15 to 20, because the ultimate goal is to be the
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expert in your sector and in those 15 to 20 stocks and when the buy side clients they want
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some opinion advice, they will think of you and come to you for your advice and opinion.
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Just to show you what a typical equity research report looks like, So they range widely from
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very short kind of two, three pages to quite long forty, fifty, or even 60 pages depending
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on what you want to write.
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And if you want to write a really thematic industrial piece with a lot of data then you
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can write a lot about it to showcase all your analysis.
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So a typical one based on company would be something that looks like this.
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On the left here we will have the company name and the body of the tax here will mostly
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surround, will be mostly about your investment thesis.
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Why do you think that company is something good to invest in?
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And then we will have the rating here.
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So you have buy, hold or sell.
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Sometimes it depends on the company terminologies as well.
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So in this instance, it's overweight, which means buy and certainly this analyst thinks
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that twenty first Century Fox is a good stock to buy.
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And then you have your price targets which we will come on to later on how we derive that.
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And then you will also have a risk sessions and some of the valuation methodology and you will
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also include a catalyst as well.
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So this could be an event where you think, where you believe your investment thesis will
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materialize.
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So example could be if there's some new regulation coming in, then the catalyst will be
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new when regulation is launched.
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This is when your investment thesis will be materialized.
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So I'll just move on.
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Sure, I thought it'd be kind of interesting to show what a day is like as an equity research
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analyst.
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So I'll focus on the sell side first because this is mostly because this is what I'm
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familiar with.
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So usually it's quite, usually you can divide your year into two period, you will have your
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normal period and you also have your earning season.
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So during normal period is actually very, very early in the morning, we go to work, we arrive
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at our desk at 7AM to catch up all the news and this is when all the big announcement will be
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released.
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So you need to be ready if in case anything happens in the stocks that you cover.
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If you publish your research overnight, then you'll spend your morning meeting with your
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sales and you also call clients afterwards.
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And then the rest of the day, it really varies.
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It can be, you can continue your research work whether they are big industry reports or
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company updates or you can meet with clients or you can speak to a company or industry
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consultants in order to get a more updated view or the recent view on some of the trends that
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is happening in your sector.
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So this is the normal period.
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And then during earnings season which public companies they usually announce their results
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four times a year to update their investors.
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So it can be quite hectic sometime.
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So at 7AM they will release their earnings to show this is the revenue or this is the
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financial they achieved in the past quarter.
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So your goal is to quickly digest the news if there is anything, any surprise or if they
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perform according to your expectation.
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And then you will quickly update clients sales on your view.
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And then at 9AM is usually when the company will present.
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So you will have the CEO, the CFO and the senior management of a company present their
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quarterly results.
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And then there will be also a Q and A session for the analysts to ask questions as well.
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And then for the rest of the day, you'll spend your time digesting the news, thinking about
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updating your company model if the news today affects your forecast of the company and
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publish a new view.
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So this is kind of a overview of the job nature and also a day in the life of an analyst.
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And then something that I just wanted to touch on quickly is about sustainable and ESG
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investing which is fast and growing.
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Recently in recent years, I'm sure a lot of you have heard the phrase ESG which stands for
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environmental, social and governance.
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And certainly it's a big area and there are different strategies within the ESG investing
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space.
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So I just wanted to quickly introduce some of these ideas.
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Certainly there are more resources and I can spend kind of the next hour talking about it
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but this is just more of a high level summary.
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So on the right here, you can see there is a spectrum different strategies.
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You can go from financial only to impact only.
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So this will be just kind of normal traditional investing where you consider all the financial
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results.
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And then here you gradually incorporate more and more different kind of ESG factors into
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your investment consideration.
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And then on the right here, it'll be kind of like a charity or you give out donation or
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grants where you only focus on the impact and then you don't really care about the financial
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return it generates.
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So kind of the ESG investing is sit within these areas where we want to do good for the
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society but then we also want to generate a financial return.
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And there are various strategy within the ESG investing space.
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And nowadays we see more data providers starting to provide these type of information.
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So we've got MSCI and also Sustainalytics which I think recently got acquired by FactSet.
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So they are companies that provide a lot of the sustainable data.
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For example, it's a bit like a credit scoring.
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So for example, I know that MSCI, they're a great company from CCC to AAA according to
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their scores on ESG.
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So if the company scored AAA then they will be doing very great on all the ESG different
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metrics.
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So how investors use these data?
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They can use it by negative screening or they can by kind of screening the bottom by
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screening out the bottom 10% of the company or they can do positive screening by screening in
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the top 10% of the company that performed well under these metrics.
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And then we also have other strategy like thematic investing where investor only invest
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in renewable energy for example, or they only invest in electric vehicle.
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And then at the far end we also have impact investing.
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So this is a strategy that mostly more commonly seen in private equities or financial capital.
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So it is about investing in companies that generate positive impact in social terms of and
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environmental footprint.
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So here you'll be actively seeking companies that do good for society whereas ESG sometimes
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it can be a bit of a screening exercise.
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So yeah, certainly an emerging area and there are lots of new funds that are launching and
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also different strategies as people are starting to incorporate a lot of these
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consideration into their investment strategies.
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Any question from now?
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Or I'll move on to the main topic for today which is about valuation.
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So yeah, typically I'll mostly focus on valuation within the public investing space.
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So typically we will use two methodologies.
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The first one is multiple approach and the second one is DCF approach.
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So for multiple approach, you can see here some of the metrics that we typically see and some
16:17
of you are familiar with.
16:19
So you can compare these metrics against a company owned history or you can compare them
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against different peer group within a different company within the same peer group.
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So I guess one of the questions that you might ask is which metrics should we use?
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And a lot of the time it depends on the company and the type of investor you are.
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For example, if you invest in technology company and maybe they are very early stage and
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they don't even have earnings.
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Yeah, for example, like Uber or Lyft, they generate that income yet.
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So you can't really use price to earnings ratio.
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Investor would typically use divided by sales as a metrics to evaluate those companies.
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And for example, if you are a income investor, you care a lot about dividend, then you will
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use dividend yield as your analysis.
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But in reality, we look at all of them and then we just kind of see what is most appropriate
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according to the company or the sector that you look at.
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So this is kind of a, on the right here is a typical comparative table that you will see in
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a lot of the research reports.
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So firstly, for example, if you want to analyze the beverage sector and you will have a peer
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group, so the first step will be to identify all the relevant peer groups.
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So you've got like Coca Cola here, PepsiCo, and Monster Beverage here, for example.
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And then you will compute all of this data so you can find them on either Bloomberg FactSet
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or Yahoo Finance, for example.
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And then you will compute the multiples.
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And then you will think about, oh, why is Coca Cola trading at a premium compared to PepsiCo?
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Is this fair?
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And if this is not fair, then is there any reason that can justify that?
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Or that, I guess that kind of thinking process can inform your investment thesis.
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For example, if you think that PepsiCo, that seems to be able to grow much quicker or they
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have a new strategy that you believe they can execute on it, that maybe PepsiCo should be
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trading kind of closer to Coca Cola.
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And then that will kind of, that thinking process will kind of inform your view on the
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company whether that valuation is fair or not.
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So yeah, I think this is a quite good approach very quickly that you can see if there is any
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kind of mispricing in the market or if you can justify these gap between the companies.
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But yeah, I'll come back to this again when we go through the Apple case study.
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And then the next valuation method is DCF which I'm sure a lot of you have heard of before.
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So what a DCF is to calculate the valuation of a company and what is a valuation of a company
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is essentially you add up all the future free cash flow a company generates and then you sum
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it all up and then discount it back to today's price.
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So it's a bit like the graph here.
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So firstly you project all the free cash flow in each year and then because you can't really
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project it infinitely so at the end of the period you kind of have a terminal value and
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then you sum it all up, discount it back to today's price.
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So this will give you an enterprise value which is the total value of a company.
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And obviously there are different owners for a company.
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You've got the debt or the debt provider, you've got the equity provider and other
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minority interests as well.
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So as an equity investor, you are most interested in the equity portion.
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So you minus debts, you minus the monetary interest and you'll get to your equity value.
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And then if you divide that equity value by the number of shares, you will get your share
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price.
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So fundamentally this is kind of the concept of it but I'll show you the calculation step by
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step in our case study later.
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So yeah, these are just some of the formulas in order to derive exactly what these things are.
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But yeah, I'll show you in our Excel model go through later on.
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And then just some kind of thinking about the pros and cons for each method.
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In real life, we will use both the multiple approach and DCF approach.
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Usually some analysts, they would take an average of these two approach because each of
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these approach, they have their pros and cons.
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For example, the multiple approach, you can see that it's really easy to get all the datas.
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It relies on fewer assumption, but then sometimes it's really hard to find the
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comparable companies.
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For example, for Apple that I'll come on to later on, it's kind of hard to think of another
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company like Apple.
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I mean, you've got other software internet company like Microsoft or Google, but they are
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more of an internet company and they don't really produce a physical product like Apple.
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So finding a comparable group is sometimes it can be tricky.
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And now on the DCF side is very flexible.
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You can model a lot of things into it.
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You can even split it out into multi stage growth for the company.
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So you can incorporate a lot of the assumptions, but then the cons will be based on
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a lot of assumptions and the sensitivity of the share price will be based on the assumption and
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also on the terminal value as well.
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I think DCF will work particularly well for very stable company.
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For example, like Unilever or Coca Cola perhaps because they are the companies that generates
22:14
certain amounts of cash each year.
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So it's very easy to forecast.
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But then if it is a highly cyclical company, it's very difficult to forecast the kind of
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company performance throughout the business cycle.
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And then in a startup world it's even more difficult because it's very difficult to
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forecast the company in kind of a five to ten years horizon.
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So these are kind of the pros and cons for the two approach.
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And now if there is no question at this point, I'll move on to our case study on Apple.
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Yep, so I choose Apple as an example because all of us know what they do and that we can
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quickly see use the method that we learned so far and apply it to calculate the share price
23:05
of Apple.
23:07
One thing is to stress is this is more of a kind of an exercise rather than any investment
23:12
advice.
23:13
So it's more about going through the methodology that we learned in order to
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calculate the share price for Apple.
23:21
So yeah, some background news recently.
23:24
I guess, yeah, you can see from this chart although it's PE ratio rather than the share
23:28
price but the share price kind of correspond quite nicely to that as well.
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You can see from January 2020 they have a very good run or year to date the share price goes
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up by 40% which is a very, very good return.
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And recently as most of you know, they announced some product release including the
23:49
new iPhone, the five gs version, which kind of contributed some of the spike here.
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And then last week they announced they had an earning release which after that the share
24:01
price kind of drops.
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So it could perhaps be, yeah, it kind of reset investor expectation or they have some other
24:09
concern regarding the company future performance.
24:12
Some of them could be due to COVID or some of them could be due to because they decided to
24:17
delay their five gs phone launch by a few months.
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So that could impact on their company performance.
24:26
So yeah, firstly just using the technique that we've learned so far, the first one will be the
24:31
multiple approach.
24:32
So you can use multiple approach to compare the company with its own history.
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So this is exactly what I did here.
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So you can see on a PE ratio perspective, the company they have been historically trading at
24:47
about 10 times to 12 times PE ratio.
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But then recently it seems that they have gone up really, really massively and they have now,
24:54
I know it's a bit small here, but they are now trading on a 28 times earning next year.
25:00
So I guess as an analyst, need to think about, what's behind the driver of this increase?
25:10
Is it fair or are we overvaluing the company?
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Has there been some fundamental changes to the business itself?
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And then we can see a similar trend for EVEBITDA ratio as well.
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It has gone up massively last year.
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And that another approach will be to compare the different ratio against some of the peer
25:33
group for Apple.
25:35
So in here I've chosen Microsoft, Google and Facebook.
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Although I guess some people would argue they are not a true representative of peer group,
25:44
but I just show it as an illustrative example.
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So we look at, so Apple is the blue color here, whereas think it might be quite interesting to
25:55
compare against Microsoft which is the red color here.
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So you can see that Apple has traditionally been trading as a discount to Microsoft And
26:06
some of the reason could be because Microsoft as a more software company, they typically have
26:11
high margins.
26:13
They can also scale quicker rather than compared to Apple which they produce a tangible
26:18
product.
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So this is kind of the reason why there has been a valuation gap between a company.
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So this valuation gap kind of lasts until 2020.
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And then this is kind of the COVID period.
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And then after that it seems the gap has shrunken.
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So now Apple has been trading very in line with Microsoft as well.
26:40
So a question to think about will be, again, is this justifiable?
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Do we think the market is overvaluing Apple or has there been some fundamental changes to the
26:52
company itself that investors seems to be placing a higher valuation on the stock at the
26:57
moment?
26:58
So again, a similar story for EVEBITDA as well.
27:03
Oh, and then I think I can now show you on the DCF model, how do we actually calculate the
27:12
share price?
27:15
So if I just switch to model.
27:27
Yeah, if I make it slightly larger.
27:33
Okay, so just to recap the formula, DCF we want to forecast all the free cash flow for the
27:43
company.
27:44
We want to sum them up and we also want to include a terminal value and then we discount
27:49
it by a discount factor called WACC.
27:51
So we will go through these all step by step.
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So firstly, will want to forecast the free cash flow firstly, which is this is the formula for
28:02
it.
28:02
Essentially, you just want to add up all the cash item that a company generate per year.
28:08
So for example, why do we want to add back depreciation and amortization because they are
28:13
not a cash item.
28:15
Why do we want to minus CapEx?
28:17
Because CapEx is the actual capital expenditure you spend per year.
28:21
So we want to minus that.
28:23
So it is a cash outflow and that's definitely we want to minus that.
28:27
So in here I did exactly that in this calculation here.
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So I'll have my EBIT here which is just revenue minus the operating cost.
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So I base it all on twenty twenty actuals.
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So my starting point is this year and then I'll forecast it what will the business be like from
28:48
year one to year five, for example.
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So just on the formatting, you can change all the cell in yellow.
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So you can change all of them here and then all of these should just calculate automatically.
29:03
So if you want, you can change it to another company and you should be able to populate
29:07
their share price quite quickly as well.
29:11
So yeah, just on the forecasting.
29:12
So firstly we wanted forecasted revenue item.
29:15
So these are the assumptions that I choose.
29:18
It's kind of arbitrary at this point because if you want to form a informed view, would need to
29:24
go through the company financials and also do a lot of in-depth industry and company research.
29:31
So at the moment I just assume the company will grow by 15% next year just because of the new
29:36
iPhone launch and then assume a 5% growth afterwards.
29:41
For EBIT margin, I assume they will gain by 1% next year and then kind of just grow at a slow
29:48
rate in future period.
29:51
For the items, I just keep them flat for now so that we can focus more on the calculation
29:57
rather than the assumption at this point.
29:59
So this is exactly how I calculate the unlevered free cash flow as I was showing in a
30:04
formula by summing all these items together.
30:09
And then you want to discount this free cash flow back to today's value and that this form
30:15
the first part of our calculation which is summing the cash flow from year one to five.
30:22
And then for a terminal period, we have two methods that we can use.
30:28
So going back to the formula here, we can either use the exit multiple or the perpetual
30:36
method.
30:37
So the exit multiple, just say, imagine Apple get acquired in five years time, what would the
30:45
multiple be and what is the value of the company at that point?
30:49
Another perpetual method is just rather than summing it all these up individually, it is a
30:56
mathematical neat way of saying summing from period three at this point to period end, and
31:04
then this is a mathematical equivalent to that, which is you have the end period free cash flow
31:12
for the end year period, you do one plus the growth rate and then you divide up by the WACC
31:18
minus growth rate.
31:20
So going back to the DCF, this is exactly what I did.
31:25
So go through the multiple exit multiple method first.
31:29
So I take the end year period and the EBITDA for year five, And then I assume an 18 times
31:37
exit multiple.
31:39
I mean, can change it to other multiple, but I think this is kind of appropriate just by
31:46
looking at historical trend and kind of comparing it with peer group.
31:51
So, I choose 18 times in this calculation here.
31:56
And then for the perpetual growth, so this is the calculation that I was showing earlier.
32:03
So, you do the free cash flow for the n year period, multiply it by the growth rate which I
32:08
assume is 3% terminal growth rate and then you do the WACC minus the terminal growth rate.
32:17
We have been through this calculation and then the final session will be how do we come up
32:25
with the discount rate.
32:27
So what the discount rate is, so it's called the weighted average cost of capital.
32:31
It is kind of showing yeah, it's kind of showing the capital structure of a company
32:38
because usually for a company they will require some equity and also some debts and this is
32:42
just the cost of that capital, how expensive or how cheap it is in order for them to access
32:48
that capital.
32:50
So it's kind of a weighted average calculation.
32:53
So I can go through the calculation here at the end, which you can see on this session here,
33:00
the WACC calculation.
33:01
So firstly, on the cost of equity, this is the calculation we typically use.
33:09
So we will use the risk free rate and then we plus the beta times the equity risk premium.
33:14
So that's our cost of equity.
33:16
And then on the cost of debt side, this will be the interest rate the company paid minus the
33:23
tax rate.
33:25
All of this information you can get either from Yahoo Finance or the company financials itself.
33:32
And then on the proportion of debts and equity, so this is the debt Apple has last year and
33:39
then this is the market cap at the moment which is part of the equity.
33:43
And then throughout this calculation, I calculate a WACC of 7.9%, kind of like 8%.
33:51
So we are going back to here.
33:53
We now talk through how do we calculate the terminal value and the free cash flow for the
34:02
initial period.
34:03
So this will be our enterprise value.
34:06
And then now, as I was showing earlier, we need to minus the debts because as an equity
34:11
investor, we are only interested in the equity portion.
34:14
And we also add that cash, which is the cash that we can access to as an equity investor.
34:20
And then we divide it by the number of shares Apple has.
34:24
And then based on these assumption, I calculate that Apple should The kind of the equity value
34:31
for Apple is $98 per share.
34:36
So yesterday when I was looking up, they were trading at 109 yesterday.
34:41
So this is just that based on these assumptions, it would suggest a 10% downside.
34:46
But obviously you can change these assumptions really quickly.
34:48
For example, if you think Apple next year will be growing by 20%, you can quickly change that
34:55
and then you can see the valuation going up.
34:58
I mean, if you're not positive about the iPhone launch then you can change it to 3% that will
35:06
show you some more downside to the current share price.
35:10
So all of this, you can quickly see how as an investor you can calculate based on DCF the
35:16
valuation of company really quickly.
35:19
Any question at this point?
35:23
Yeah Vanessa, the blue cells, the ones with just the blue text, are those just cells that
35:29
are referencing another cell or can you adjust those too?
35:33
Yes, that's right.
35:34
So yeah, it's just referencing another cell.
35:37
So these are the calculation that was done.
35:39
So all of the yellow ones you can change and other ones, it just automatically calculated.
35:45
Cool.
35:47
So hopefully it will be, this is a very step by step walkthrough of this calculation here.
35:56
But I guess just to emphasize the concept is just to add order of cashflow for a company and
36:00
then discount it backwards.
36:02
That's the high level of what this is trying to do.
36:07
And then here you can see the sensitivity because I was talking earlier about how the DCF
36:13
methodology depends a lot of the assumptions.
36:16
So this is just a sensitivity table that I thought we useful to show.
36:20
For example, at the moment we assume about an 8% WACC and also a 3% terminal growth rate,
36:27
which makes our price at about a 100 at the moment.
36:31
But then if we increase our terminal growth rates and if we decrease our WACC, we can
36:37
arrive at this price kind of based on these two assumptions.
36:41
So I think this is just a good way, especially if you are an investor, want to have that
36:46
sensitivity analysis and to make sure you're comfortable with the evaluation that would
36:51
gives you a potential upside.
36:57
So this is the DCF method and then back to the multiples method I was talking about earlier.
37:05
This is again, you can play around with it based on the assumption that you choose.
37:10
For example, if we use a EVEBITDA method, so this will be the Apple's EBITDA for next year
37:18
and that if we believe they can trade, they will trade at an 18 times multiple, then I can
37:24
type in 18 times here.
37:26
And then you can see based on these assumptions, it will suggest a 12% downside to
37:29
the current share price.
37:31
But then if I believe that Apple's, they can sustain a high multiple, for example, two, then
37:37
it will show you the upside that you can generate.
37:41
And I think this is particularly useful sometime when I evaluate some of the startup
37:46
deals as well, because ultimately this will give you a valuation when you want to exit and
37:53
then you can work backwards to see how much valuation upside you can gain as an early stage
37:58
investor.
37:58
And as the company progress, what is the valuation they are likely to achieve And then
38:05
what is the potential there are for foreign investors?
38:13
So yeah, this is just a quick walkthrough of the model.
38:20
Something that I was thinking about showing as well unless there is other question at this
38:25
point.
38:28
Any questions guys?
38:37
So yeah, some of these information I got from KoiFem which is a free platform for people to
38:43
use.
38:43
It's bit like Yahoo Finance but I think it's more, it has got more data and also the user
38:50
interface, quite like it as well.
38:52
Because earlier I was talking about the com table and how does Apple compare to other
38:57
comparison, for example.
38:59
And then in this table here, select all the peer group.
39:03
And then you can see that, for example, if I go to the margins, Apple, they have been Their
39:10
EBITDA margin was about 30% last year.
39:13
But now for Microsoft, which is a software company, they are a 45%.
39:19
So maybe part of the valuation gap can be justified by just the fact that Microsoft has a
39:23
higher margins, for example.
39:26
So this is quite a neat way to show some of the differences in valuation and whether you think
39:34
is justified.
39:36
But yeah, I thought that would be interesting to show.
39:38
For example, Microsoft, they pay a high dividend, which sometimes investors like as
39:43
well.
39:43
And that will certainly be factoring into the high valuation.
39:53
That's great.
39:54
Cool.
39:55
What are some of the pros and cons with Koyfin versus some of the other tools?
40:02
I think maybe what would be helpful if we got a few minutes is what tools you can use, whatever
40:08
you're allowed to share when you do research.
40:10
Because we got Koyfin, got Bloomberg, we got Thompson.
40:15
Coyfin, I think they're a startup, but obviously they haven't been around as long as
40:22
some of these older companies.
40:24
So what are some of benefits?
40:26
Then maybe a couple of workflows that you do when you're researching maybe a new public
40:31
company.
40:32
Yeah, sure.
40:34
I think maybe what should we, we can do a test one for example.
40:42
So yeah, I really like the Khoefan platform because it gives me a lot of data points.
40:48
So for example, I think that the platform, it looks a bit like Bloomberg or Reuters, but I
40:55
think for a retail investor like myself and some people in the audience, we don't have the
41:00
access for Reuters or Bloomberg because they are typically for institutional investors.
41:05
So I think Koinfen is a very good alternative for retail investors like ours.
41:10
So it has all the essential information you need.
41:14
One session that I really like as well is the estimate session because in here you can see
41:19
what do analysts and people in the investment banking world, they forecast in terms of the
41:29
revenue, EBITDA or EPS.
41:31
So you can know that what been for, what been, what is the expectation of this company?
41:37
Because usually when company, when they underperform the expectation that share price
41:45
would come down.
41:46
If they over perform, they over deliver then share price would go up.
41:50
So this is a very quick way for you just to see what is the expectation embedded in the share
41:56
price at the moment and then whether you think it's justified or not.
42:01
Also like the chart sessions because here you can input other security as well.
42:09
So some of the charts I was showing I generated on Poison.
42:14
What is a good stock to choose?
42:22
Maybe I'll show some packaging company that I'm more familiar with.
42:27
So for example Crown, they are a metal beverage can company.
42:34
So you can quickly see their price movement here.
42:37
And then if I want that valuation then I can quickly select the valuations and go into kind
42:44
of the EVEBITDA multiple.
42:46
I can compare it very quickly with another metal beverage company and see the valuation
42:51
gap, for example.
42:53
So again, this is very easy to show.
42:57
And I guess the major benefit of Kotlin is free to use, or at least for now, not sure if they
43:03
are going to charge in the future.
43:06
And then just some workflow or other resources that I use, I typically go on to, so if I'm
43:12
researching a new company, would typically go to the investor relations page, I'll download
43:17
their annual report and see the latest earnings because through that you will see the latest
43:23
trends that the company is going through, how are they performing against expectations and if
43:31
they have any new strategy and things like that.
43:33
And usually in annual reports you can find lots of detailed information on the industry
43:38
structure, some of the trends, some of the driver as well.
43:41
So it's very useful information.
43:43
And then other than that, I'll just go onto this platform and then quickly look at the
43:48
valuation side.
43:49
If I think the valuation potential, then I'll do more in-depth research.
43:54
If I think the company is kind of fairly valued, then I'll just put it on one side and
43:58
then focus on other companies.
44:01
And I think sometime maybe for our cohorts and the startup invest VC investors as well.
44:09
Some of the things that might be useful is just to, because sometimes you ask us what is the
44:16
potential upside or potential exit that our company can have.
44:20
So you can quickly go to the platform that I was showing earlier.
44:26
You can get a list of companies.
44:28
You can see that exit multiples, which could inform you what are the multiples that the
44:36
company in the sector are trading at the moment.
44:38
And from there you can work on your potential exit opportunity for a startup.
44:47
So yeah, this is poison.
44:52
Great.
44:53
Yeah, that was helpful.
44:55
All right.
44:55
Any other questions from the audience?
45:04
Okay, I guess it was so informative that that you answered everybody's questions already.
45:10
Yeah.
45:11
I'm just thinking of exiting.
45:15
Oh, stop sharing.
45:16
There you go.
45:17
Okay.
45:17
I can now see you.
45:18
Yeah.
45:19
There we go.
45:19
Well, good job.
45:20
Thanks so much for sharing that info.
45:21
That was really helpful.
45:24
I think it's a good overview of just kind of playing with the models.
45:27
And I uploaded the links to the deck and the models so people can play with it, know, make
45:33
your I guess for your recommendation, somebody should make a copy of the Excel and possibly
45:39
look up a different company and plug in the numbers and then make some assumptions on how
45:44
much the company is going to grow.
45:46
Yeah, that would definitely be my recommendation.
45:49
You can also choose your favorite company, a company that you're familiar with, and then
45:54
just see if the valuation is what is expecting, the company is currently trading at the moment,
46:00
just to see what the assumption is like and get a feel of it.
46:06
That's great, cool, awesome.
46:07
High
46:10
level, but then if people are interested, there are certainly more advanced models that we use.
46:16
Typically for DCF model, we will we will break down the revenue by segment, for example.
46:22
So for example, in the case of Apple, then we will break down the revenue for iPhone, for the
46:29
iWatch and different components of it.
46:31
We will also forecast the profit by segment as well because that way you get a more detailed
46:39
analysis and detailed forecast which ultimately drives the valuation.
46:44
You all want to have those details in if you are doing it in real life or as career or
46:51
profession.
46:52
In the private markets, look at comps.
46:55
Do you guys also do that as well?
46:57
Maybe other consumer electronic companies, if you're looking at Apple, as far as their EV to
47:06
equity multiple?
47:07
Is that kind of a common practice?
47:09
What's the best way to do that?
47:10
Do you just take the average of the comps of what their multiple is and then just kind of
47:14
use that as a benchmark?
47:17
Yeah, yeah, we will certainly do that as well.
47:19
And it depends on how closely comparable how comparable those peers are.
47:28
Some people just use an average or some people will choose some particular company as
47:33
benchmark and average.
47:35
I think that certainly works well for some industry but less so for others.
47:39
Yeah, I mean in a commodity company like metal packaging, for example, essentially every
47:47
producer, they are producing the same amount, same type of products.
47:51
So you can argue they should be trading on a similar multiple because essentially the
47:56
business are the same.
47:57
But then I guess there are other nuances like different company strategy, different
48:00
geographical region that they are exposed to.
48:03
So a lot of these factors can be, you can incorporate as well.
48:08
So definitely a very fun exercise and yeah and I guess I've seen some stats saying that people
48:15
nowadays because guess everyone kind of in the lockdown period there's been some spike in
48:22
either like Robinhood in US or in The UK we use Free Trade or other apps like that.
48:29
So there has been a spike in retail investor investing or have the time to at least explore
48:34
the opportunity.
48:35
So that's quite interesting.
48:36
Good news for Robinhood, right?
48:39
Yeah.
48:41
Cool.
48:41
All right.
48:42
Well, anybody else have any final questions before we close out?
48:48
Cool.
48:48
I guess not.
48:50
Well, thanks for your time and catch up with you guys soon.
48:54
Cool, sure.
48:56
And thanks for everyone here and looking forward to speaking to you all and get
49:01
connected.
49:03
All right.
49:03
Bye guys.