Dividend Yield and Share Price Essay

Submitted By emily5566
Words: 1255
Pages: 6
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1. Forecasting
1.1 Growth rate of sales
Period
2012
2013
2014
2015
Growth rate of Sales
-1%
3%
2%
2%
According to the economist prediction, economic recession will still last at least 5 years. Europe, America, and Asia all are experiencing a slow or negative growth time since 1922 economic crisis. Under this bad macro economic situation, it is hard to have an optimistic forecast about Goodman fielder’s sales growth rate. Furthermore, in 2011, Goodman fielder experienced a negative sales growth rate which is -3%. In addition, inflation rate is continuous increasing. Therefore, I assume that the sales growth rate will not have a significant increase in 2012. It probably will just keep the same level like 2011. However, the Goodman fielder states that they will have some big reformation in their group structure, such as simplify their product department; invest major funds on major product department. Moreover, they will increase the R&D expenses on their organic food department. Nonetheless, it is hard to say their reformation will immediately bring the fast increase in sales in next few years. Maybe it will have some positive effects on their revenue. Therefore, I predict the sales growth rate will keep a 2 or 3% in next three years rather than 8 or 9% like 2009.
1.2 Profit Margin
Period
2012
2013
2014
2015
Profit Margin
5%
7%
6%
6%
Based on the calculation from 2007 to 2010, the average rate of Profit Margin was 8%. Due to the big impairment on goodwill in 2011, Goodman fielder’s PM decreased to -6%. Given that GFF already impaired their goodwill by 300m, and they will cut some brands which always had a poor performance, it is normal to predict that GFF will have a positive profit margin in next few years. However, considering the bad economic situation, so we just forecast the Profit margin of Goodman fielder will keep at 6%.
1.3 ATO
In forecast appendix1, we compare the forecasted Asset Turnover against its historic value. From 2007 to 2011, ATO was steadily increasing due to the decrease in Net operating assets. Therefore, we continuously predict the ATO should steadily before changing at around 1.1 after the firm reaches a new stage.

2. Valuation
In this assignment, I used four valuation models to calculate the Goodman fielder’s stock total value and share price. (Appendix 3) According to the statistic (Fin analysis 2011), we assumed that the risk free rate is 4.5%, and risk premium is 10%, and Beta is 0.55. Furthermore, based on the CBA business loan interest rate in 2011, the return of debt should be around 6.5%. Therefore, the CAPM of Goodman fielder would be 10% and WACC would be 8 %.( Appendix)
Under the valuation models, AOE will give the highest prediction of share price which is $0.66, and DCF gives the lowest prediction of share price which is $0.37. DDM shows a $0.44 per share and AEM have a closest share price to reality which is $0.52. From the below graph, we can clearly seen the differences between the market price and valuation price.

Recently the GFF’s share price increased from 0.48 to 0.55, it probably because that Goodman Fielder and Allied Mills announced that they had signed a new five year flour supply contract. The agreement provides for Allied Mills to continue to be Goodman Fielder's exclusive Australian supplier of bulk flour for its breads, biscuits and pastry. Allied Mills has been the company’s Australian flour supplier since 2002. After this news, the share price of GFF increases to 0.51 from 0.44. It gives a confidence to pubic that Goodman fielder will still have an increase potential in stock market.

3. Sensitivity analysis
Sensitivity analysis is able to support decision making or the development of recommendations for decision makers. And it also can enhance communication from modelers to decision makers. Increased understanding or quantification of the system and improve the model development. (Business analysis & Valuation 2008)
Below I will
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