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You are required to write a report which presents the results of your valuation (1500 Words).Your report should:Estimate the intrinsic value of your company and its share price using your pro-forma statement.To assist decision making among investors who are considering the shares of your company for stock selection, include estimates of the profitability ratios, ROE and ROA, as well a valuation ratio like the PE ratio.Suggest and support a recommendation for stock investors from the following:Strong buyBuyHoldUnderperformSellComment on any recent developments discovered in your research that could impact on the business model and management of your company in the future.Please include the output of the first two sections of the assignment as Appendices.I provide first two some previous analysis to give you idea in the file. finc_6021_ramsay_health_care_section2_480530831_.docx section_two.docx section1.docx Unformatted Attachment Preview SID 480530831 Estimate three period interest rate • • • In the short term (1-3 years), I believe the Ramsay still have a considerable revenue, but the Ramsay’s revenue growth rate will slow down because of Coronavirus will influence all Ramsay global business in the world. I consider the revenue growth will below the 10 percent, so I choose 9.5\% as my forecast short term rate on the period 2020 to 2022. In the median term (4-7 years), I believe the Ramsay will continue to maintain a sustained and rapid growth trend on their business income. According to 2020 Global and 2030 Australian (2016), therefore the Ramsay’s revenue growth rate will sustained and considerable increase because of increase demand of health care and increase population. Thus, I take the average of the revenue growth rate of the last decade. I got 13.5\%. I think this revenue growth rate can be my mid-term forecast growth rate. In the long term, I believe the Ramsay’s revenue growth rate will be affected by operating environment. Just like Mr. McNally said in the 2019 annual report, we expect softer economic environment, then we remain optimistic about the long term. With moderate and stable operating environment, we can expect the growth rate approximate the inflation rate. Therefore, I think the long term growth rate will approach to inflation rate. I collect the Australia annual inflation data from 2010 to 2019, and take the average on them. I got 2.1\%. So, I will use 2.1\% as my long term forecast growth rate. Estimate Enterprise value by Pro-forma method I collect last 10 years (2010-2019) financial data for estimating appropriate assumptions. Assumptions Sales Growth(\%) COGS ratio(\%) Depreciation Rate(\%) Interest Rate(\%) Tax Rate(\%) Dividend Payout(\%) AR ratio(\%) Inventory Ratio(\%) Payables Ratio(\%) PPE/ Sales(\%) Share Capital(\%) short term (1-3) 9.5\% 86.4\% 9\% 3.6\% 29\% 51.5\% 13.3\% 2.7\% 20.3\% 40\% -1\% median term(4-7) 13.5\% Long term 2.1\% Most of those ratio, I decide by taking average for last five years on the historical data(20152019). Only dividend payout ratio, I decide by the average over last decade on historical data (2010-2019). Also, I keep my PPE/Sale Ratio at 40\% for forecasting as same as 2019 ratio. After do the pro-forma, I will decide the corporate discount rate base on calculating WACC of the Ramsay Health Care. First I calculate the weight of debt and equity on the total value base on the 2019 net debt and number of share equity. I got 72.7\% on Equity and 27.8\% on Debt. SID 480530831 share price share on issue MV Equity Net debt Total value WEIGHT 62.19 202,081,252.00 12,567,433,061.88 4,849,201,000.00 17,416,634,061.88 Weight(\%) 72.2\% 27.8\% Second, I choose 2019 Interest Exp/Total debt ratio as my cost of Debt, which is 3.6\%. Third, I use two methods to estimate cost of equity, then take the average of the result as my cost of Equity. First method is using the CAPM to estimate the return on equity. I collect 5 years the corporate historical share price data and all ordinary index. I choose appropriate risk free rate (0.89\%) and market risk premium (average of 20 years) for estimation. Then estimate the beta of CAPM. After that, I calculate the return on equity is 5.54\%. The second method base on the dividend payout and long term growth rate. That called COE implied. After the calculation, the implied COE is 5.19\%. My final cost of Equity equal the average of two results, it is 5.37\%. Finally, the WACC of the Ramsay Health Care equal 4.6\%. Following shows my final forecast free cash flow from 2020 to 2026 and estimate the corporate value which is almost $25B. Compare to the corporate value on 2019, I think that the Ramsay health care is worth to invest. Year 2020 2021 2022 2023 2024 2025 2026 FCF 602,066,819.10 552,542,156.46 605,033,661.33 489,590,671.18 555,685,411.79 630,702,942.39 715,847,839.61 TV 29,235,225,769.64 Crop. Value Crop. Value 2019 Difference 24,805,617,383.96 19,447,550,644.00 5,358,066,739.96 Relative valuation I already identify some comparable companies for the Ramsay health care in the peer group review. Healius, Healthscope and Sonic as competitors for the Ramsay provide significant and efficient enterprise valuation data to estimate value of the Ramsay health care. Thus, I will use these comparable companies’ average valuation ratio as a benchmark to identify enterprise value of the Ramsay health care. Healius Sonic Healthscope Benchmark NPATBA Crop.Value P/E RATIO 15.06 21.3 32.6 22.99 655,742,000.00 15,073,322,773.33 Healius Sonic Healthscope Benchmark EBITDA Crop.Value Enterp./EBITDA 13.24 12.34 17.79 14.46 1,585,063,000.00 22,914,727,436.67 SID 480530831 From the table, we can find that estimations are close to corporate valuation ($19B) on 2019 and my forecasting valuation ($25B). Moreover, we can believe that relative valuation method could give a valuation interval between $15B to $23B for my corporate valuation. So, my future valuation is reasonable. Therefore, I have reason to believe that the Ramsay health care could get better and approach a higher value. Reference Ramsay Health care (RHC) Annual Report, Datanalysis Premium Retrieved from: https://datanalysis-morningstar-comau.ezproxy1.library.usyd.edu.au/af/company/corpdetails?ASXCode=RHC&xtmlicensee=datpremium Healius limited (HLS) Annual Report, DatAnalysis Premium, Retrieved from: https://datanalysis-morningstar-comau.ezproxy1.library.usyd.edu.au/af/company/corpdetails?ASXCode=HLS&xtmlicensee=datpremium Healius limited, Yahoo Finance, Retrieved from: https://finance.yahoo.com/quote/HLS.AX/key-statistics?p=HLS.AX Healthscope limited (HSO) Annual Report, DatAnalysis Premium Retrieved from: https://datanalysis-morningstar-comau.ezproxy1.library.usyd.edu.au/af/company/corpdetails?ASXCode=HSO&xtmlicensee=datpremium Sonic Healthcare Limit, Yahoo Finance, Retrieved from: https://finance.yahoo.com/quote/SHL.AX/key-statistics?p=SHL.AX Historical inflation rate for Australia (2010 – 2020), Retrieved form: https://www.rateinflation.com/inflation-rate/australia-historical-inflation-rate Running Head: COMPANY EVALUATION 1 Company Evaluation: Ramsay Health Care Limited Section Two From section one, the percentage growth rate was found to be 10.79\% in 2019. We assume that this rate will apply for the subsequent years in the construction of pro-former of financial statements. The table 1 below was generated based on the A Pencil-and-Paper Forecast approach (Susan et al., 2008). Pro-Former of income statement in thousands of dollars. Income statement Last year (2019) 2020 2021 Revenue/sales $11 415 $12 076 $13 135 Cost of sales $1 592 $1 586 $1 776 Operating profit $1 108 $894 $1 062 847 561 861 Net Income 572 348 477 EPS 2.63 1.53 2.01 1,52 0,63 0,83 Gross profit (Pre-tax profit) Dividend per share Yield 2.10\% 1.04\% 1.37\% Reference Price 72,240 60,910 60,910 Table 1: A table showing the pro-former for financial statement, and an estimate of an appropriate ratio for use in relative valuation Pro-Former Balance Sheet in millions of AUD except for per share items COMPANY EVALUATION 2 Period ending 2019 Assets 12532.64 Liabilities 9989 Equity 2543.64 Total liabilities and 12532.64 shareholder’s equity Total common stock 200.83 share outstanding Preferred shares 2.6 outstanding Ramsay recorded growth in various segments in 2019 for various reasons. In Australia, the company recorded an increase in revenue and EBITDA compared to the previous years due to admission growth in certain crucial areas such as cancer, cardiology, mental health and moderation of the downwards trends in the rate of births in the country. In Europe, it recorded the higher increase in revenue and a decline in EBITIDA. As such the company recorded a relatively low profit in the first half of the year, but a promising improvement in the following years due to the observed trends in the second half of 2019 (Mickleboro, 2019). Ramsay experienced a significant growth in Asia especially in Indonesia and Malaysia because of its acquisitions and opening up of a day surgery centers. The company is targeting a core earnings per share growth in the next five and above years due to its venture in the new markets. COMPANY EVALUATION 3 Pro-former Cash Flow for RHC Period ending 2019 Net income/starting line - Cash from operating activities 903.29 Cash from investing activities -1752.29 Cash from financing activities 812.04 Foreign exchange effects 11.84 Net change in cash -25.12 Beginning balance 770.57 Ending balance 745.45 Free cash flow 309.50 Table 3: shows the RHC Cash Flow in millions of AUD derived from the pro-former income statements The proposed ratio for use in relative valuation Year 2019 2020 2021 P/E Ratio 27/4 39/7 30/3 Table 4: the proposed ratio to be used in relative valuation for the three years from 2019 to 2021. 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝑒𝑑 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 (𝐷𝐹𝐶) = 𝐶𝐹 (1 + 𝑟)𝑛 Where CF is the cash flow in the period, r is the interest rate (the ratio) and n is the period number. COMPANY EVALUATION 4 From the data presented in table 3, the CF = $309,500,000. The projection is for three years; therefore, number of periods is n=3. And finally, the ratio of relative evaluation is 27/4 = 6.75\%. 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡𝑒𝑑 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤 (𝐷𝐹𝐶) = 309500000 (1 + 0.0675)3 = $254423370.80 In three years from 2019, the discounted cash flow will be$254423370.80 COMPANY EVALUATION 5 References Mickleboro, J. (2019). Ramsay Health Care delivers solid profit and dividend growth. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2304493 Susan, S., Robert, C., Robert, B., & John, V. (2008). The Body Shop International Plc 2001: An Introduction to Financial Modeling. McGraw-Hill. Running Head: COMPANY EVALUATION 1 Company Evaluation: Ramsay Health Care Section One Ramsay Health Care Limited Ramsay Health Care (RHC) is an Austrian based health organization operating as a private hospital in the industry. It is the largest private hospital group in the continent, which offers its services in Australia, Asia and Europe. RHC employs approximately sixty thousand people, and it has about 25000 beds for providing care for about any surgical or medical issues for which a patient may need help with. The company has recorded success over the years, making a core net profit of $579.3 million in 2018, 6.8\% higher than the previous year (Ramsay Health Care, 2020). The shareholders have enjoyed the progress of the company through an everincreasing dividend. The RHC and ASX are the only companies in the health industry to have had raised its dividend annually for the past two decades. The sustainability of the company is based on a disciplined approach that follows proven operating principles. Ramsay has had an outstanding strategy emphasizing on organic growth, growth throw acquisition, and brownfield developments, as well as the approach of establishing public/private relationships, has resulted in the consistent growth of the company. These strategies have helped the organization to become one of the leading healthcare companies in the market in which it operates in areas related to mental health, medical issues, surgical, maternity, dialysis, and emergency care and rehabilitation. The growth of Ramsay has been facilitated hugely by its primary strategy to acquire the competing firms, making it to enjoy a monopoly in the region. However, this strategy has changed in recent years since there are few opportunities for Ramsay to acquire hospitals in the region. As such, it refocused the model for growth on the COMPANY EVALUATION 2 aged care sector to salvage the ripe for consolidation. It has noticed that patients make use of healthcare facilities near their homes, and the firm has bought in wealthy areas where people can be insured (Deloitte Access Economics, 2011). The Health Care Industry Growth is essential for any organization, and various factors play a role in determining how the company achieves it. Ramsay operates in the healthcare industry, and it has managed to maintain its marketplace to improve the prices for its products and services. The management of RHC concentrates on its core business of hospital, offering surgical and medical services. The health sector has undergone tremendous changes for the past years due to the emergence of new technologies. These innovations have shaken the industry and the need to make changes to accommodate emerging diseases and adapting to the business environment. In recent years, there has been a growing number of surgical procedures performed in outpatient settings (Allen, 2019). A business operating in the health industry depends on population growth and peoples economic status as well as one ages. Australia has experienced exponential growth for population, employment, and output (Deloitte Access Economics, 2011). The governments of the areas in which Ramsay operates has alluring policies for a healthcare organization. These factors have facilitated the growth of RHC across Asia, Europe, and Australia. RHC, Competitors and Competitive Strategies Mayne Health Limited and Capio AB corporation are some of the main competitors to Ramsay Health Care Limited. Mayne Healthcare Limited has crumbled down slightly as Ramsay overtakes it in the market because of the use of strategies and business models. Although Mayne has all the elements for all sections of the healthcare system like diagnostic imaging and GPs, COMPANY EVALUATION 3 Ramsay has succeeded it because of being able to stick to the core businesses: RHC has focused on running the hospitals as its core business. The ability to innovate the current facilities all the time as well as reinvestment put Ramsay in a better position against the giant competitors (Vinz & Dören, 2007). It has expanded and improved the beds and services at the primary hospitals, including the veterans and collocated hospitals. According to Ramsay annual report (2018), the organization has rolled out several programs that are globally recognized, such as the Vanderbilt University initiated to improve the safety of the patients and expanded clinical trials network to accommodate the latest treatments on terminal diseases such as cancer. The most successful business model for RHC has been the purchase of hospitals in regions where the populations are most likely to have health insurance due to their age or because they are prone to health risks. It has maintained a steady cash flow that is generated from a portfolio of quality facilities and services that are attained through reinvested profits into enhancing the current hospitals and expanding into aged care. Economic Factors Ramsay is an Australian based company that has experienced exponential growth and development due to a conducive business and economic environment set by the nation. Economic factors influence the rate of growth and determine the need for internationalization. The GDP of Australia grew at a rate of 3.3\% annually between 1992 and 2011. The per capita income grew by 75\% within the same period. The countrys economy portrayed strong resilience over the years: there has been no single year that the economy has contracted (Commonwealth Scientific and Industrial Research Organisation, 2016). Economic factors play essential roles in making decisions on how the firm operates because they are connected with services, cash flow, and goods. It is the financial state of the economy at both local and international levels. It COMPANY EVALUATION 4 commands business operations and topics such as taxes, consumer demand, and asset value. Ramsay has established itself in developed countries that experience little or no recession, inflation, stable exchange rates, and better interest rates as well as have suitable demand and supply of the products and services offered. The growth rate of Ramsay is determined by the volume of sales or the revenue earned by the company on annual basis. Consider the three growth rates; Year Revenue 1-3 years 2014 $4, 909, 314 2015 $7, 400, 000 2016 $8,690,272 4-7 years 2017 $8, 700, 000 2018 $9, 176, 000 2019 $11, 515,000 Table 1: showing the revenue earned by Ramsay from 2014 to 2017 From table 1 above: The first growth rate is determined using the revenue from 2014 to 2016; (8690272 − 4909314) 4909314 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 = ∗ 100\% 3−0 = 25.66\% COMPANY EVALUATION 5 The second growth rate is determined using the revenue from 2017 to 2019; (11, 515,000 − 8, 700, 000) 8, 700, 000 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 = ∗ 100\% 7−4 = 10.79\% The third percentage growth is for a long term. Since it is not specific, the growth is expressed as an equation; (Future Value − Present Value ) Present Value 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 = ∗ 100\% 𝑇𝑖𝑚𝑒 (𝑖𝑛 𝑦𝑒𝑎𝑟𝑠) My analysis helped in determining the variables to use in the determination of the three growth rates. The last report released by Ramsay Health Care Limited is dated 2019, and it recorded a revenue of $11, 515,000. The growth rates imply that the company’s revenue will decline in future probably due to the contemporary issues in health sector and competitions. The company had to adjust its strategies in 2018 by reducing acquisitions and focused in expanding the hospitals in the well-established areas in Australia and Europe. COMPANY EVALUATION 6 References Allen, S. (2019). 2020 Global Health Care Outlook: Looking a Foundation for the Future. Nursing Outlook, (1). Commonwealth Scientific and Industrial Research Organisation, C. (2016). Australias economy: an uncertain future. Local Economy: The Journal Of The Local Economy Policy Unit. Deloitte Access Economics. (2011). Long term economic and demographic projections. Australian Economic Review, 1. Ramsay Health Care. (2020). Ramsay Health Care Limited (pp. 5-130). Sydney: Le Pont. Retrieved from https://www.ramsayhealth.com/Investors/Annual-and-FinancialReports/Annual-Report-2018 Vinz, D., & Dören, M. (2007). Diversity policies and practices - a new perspective for health care. Journal Of Public Health, 15(5), 369-376. doi: 10.1007/s10389-007-0148-7 ... Purchase answer to see full attachment