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- [00:01]
A
Hey y'.
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B
All.
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A
This is Maggie Freeling, host of the podcast up and Vanish Weekly. Tune in each week as I dive into some of the most interesting unresolved cases. Search up and Vanish weekly in your podcast app to follow the show.
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C
Welcome to the Investor, a podcast where I, Joel Palo Thinkle, your host, dives deep into the minds of the world's most influential institutional investors. In each episode, we sit down with an investor to hear about their journeys and how global markets are driving capital allocation. So join us on this journey as we explore these insights. One web show here with Vanessa Chung and excited to have her here. She's a venture capitalist and impact investor and is currently at Axis. So and she's going to actually walk us through discounted cash flow and talk about how to look at ESG investment. She's a, you know, impact ESG expert and she's going to actually teach us stuff and go through financial model that she's built. So excited to learn from you. She, you know, was able to kind of, you know, run through this a couple months ago and that I bring around to kind of share this with the community. So Vanessa, thanks for being kind enough to share this with us. Maybe you can just spend a couple minutes just walking us through your career, your education and how you got to where you are now and then we'll jump into it.
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B
Yeah, sure, definitely, Jo. And thanks for inviting me to the show and it's definitely my great pleasure to be here and share my learning, especially in the public investing space. So. So yeah, thanks for introduction and just a little bit about myself. So after university I spent two years in equity research. So I was at Credit Suisse covering paper and packaging and building materials. So it was certainly a very great learning experience and I learned a lot from it, from talking to different investors, to senior management and also doing a couple of site visits. So during that period, as I was learning more about the the paper packaging industry and also the cement industry, I got really interested in sustainability because those industries, they emit a lot of carbons and they use a lot of energy. And so there was a lot of talks amongst the investment community to actually to analyze which packaging materials is actually the most sustainable and how can they invest in more sustainable companies. So that was how I got really interested in the idea. And then partly because of that interest and also wanting to gain more experience working for corporates, I joined Access Technologies over a year ago. So they are a wood science technology company, very eco friendly and also fast growing as well. So I'm helping Them as my role in business development, helping them to form partnerships and also expand to the rest of the world. And then as you mentioned, on top of that, I'm an investment team in Southern Capital, so I focus mainly on impact and also in clean tech, which is a fast and growing area and certainly very, very interesting and see a lot of different business, different technologies emerging currently. So very exciting space to be.
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C
No, absolutely. Yeah. Well, hey, what are your thoughts just based on the last couple months of learning, what are some takeaways that you would take away from just impact and clean tech?
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B
Yeah, sure. Certainly see a lot of different companies and very interesting to talk to founders. They all have very great vision how their products can change the world, really. And certainly I think, as you know, and the trend recently is there seems to be more talk about the CleanTech 2.0, which is very different from the CleanTech 1.0, which was in the early 2000 period. So. So it seems that investors are more focusing on companies that can generate profits as well as the social impact at the same time. Whereas in the past it might be more on the profit side or. Yeah, it's much more difficult on that side. And then one trend that I'm particularly focused on is the circular economy trend for those that you're less familiar with it. Basically at the moment, we are kind of consuming on a linear model where we. Where we make things, we consume them, and then we just dispose them at the end of life. But actually in a circular model, it will be everything. The material will be in use in kind of a circular fashion where maybe after we using the products, we can recycle it, we can remanufacture it, or the waste of that product can actually be a raw material for another industry. For example, some companies that I've looked at, they use chicken feather to make packaging materials or they can use other waste materials like plastic, ocean waste plastic to make other materials as well. So I think that's certainly something that I'm very interested in and great to see a lot of these innovative products coming, coming on.
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C
That's great. Cool. Well, anybody have any questions about Vanessa's career and how she transitioned before we jump? All right, I guess we'll just go ahead and jump in and feel free to message some questions in 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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B
Sure, yeah. Any question, just please shout at any point and if I not explain it clearly as well so fully, you can now See the screen?
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C
Yeah, we can see it.
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B
Yep. That's great. So, yeah, today I just wanted to talk about a bit about equity research, what it is, and then about valuation in the public stock market as well. So I'll walk through different methodologies and also do a case study to value Apple the stock. And I guess one thing to emphasize is valuation, as some of you might heard the phrase is more about, it's more of an art than a science in some sense because it relies on your assumptions and, and your judgment and what your view are on the company. So although today I'm going to show you all the tools and the resources you need, ultimately as an investor you need to make that judgment yourself whether you think that company is good to invest. As I'm sure Joe, you agree in the VC world as well, it depends a lot of your judgments. And how do you see the world in 10, 15 years time?
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C
Yeah, absolutely.
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B
So, yeah, firstly just on a bit about equity research, what it is. So basically it's a fundamental analysis on stocks to provide investment ideas. So we tend to look a lot in depth into the company's financials, the industry they operate in and also some of the risk involved and the valuation as well. So in equity research we can split into sell side and buy sides. So the sell side will be all the investment bank, for example, like JP Morgan or Goldman Sachs. So they will provide research reports or ideas to the institutional investors. And then these institutional investors, who are they? They are the buy side clients. So they are the pension funds or hedge funds in the likes of Fidelity or BlackRock, for example. So these are the investors, they have actually got the capital to allocate and to invest. So they typically invest according to their fund mandates. So their fund mandates could be geographical. They invest in US for example, or they invest in particular sector like the tech sector. So teams, they're usually structured by sector. And one thing to stress is in the sell side analyst world they tend to focus on the smaller sets of stocks, for example, like 15 to 20, because the ultimate goal is to be the expert in those in your sector and in those 15 to 20 stocks. And when the buy side clients, they want some opinion advice, they will think of you and come to you for your advice and opinion just to show you what a typical equity research report looks like. So they can range widely from very short, kind of two, three pages to quite long, 40, 50 or even 60 pages depending on what you want to write. And if you want to write a really thematic industrial piece with a lot of Data then you can write a lot about it to showcase all your analysis. So a typical one based on company would be something that looks like this. On the left here we will have the company name and the body of the tax year would be mostly surround will be mostly about your information thesis. Why do you think that company is something good to invest in? And then we will have the rating here. So you have buy, hold or sell it. Sometimes it depends on the company terminologies as well. So in this instance it's overweight, which means buy. And certainly this Analyst thinks that 21st Century Fox is a good stock to buy. And then you have your price targets which we will come onto later on how we derive that. And then you will also have a risk sessions and some of the valuation methodology. And you will also include a catalyst as well. So this could be an event where you think where you believe your investment thesis will materialize. So example could be if there's some new regulation coming in, then the catalyst will be when the new regulation is launched. This is when your investment thesis will be materialized. So I'll just move on. Sure. I thought it would be kind of interesting to show what a day is like as an equity research analyst. So I'll focus on the sell side first because this is mostly because this is what I'm familiar with. So usually it's quite. Usually you can divide your year into two period. You have your normal period and you also have your earnings season.
- [10:13]
A
Hey y'. All. This is Maggie Freeling, host of the podcast up and Vanish Weekly. Tune in each week as I dive into some of the most interesting unresolved cases. Search up and Vanish weekly in your podcast app to follow the show.
- [10:27]
B
So during normal period is actually very, very early in the morning. We go to work. We arrive at our desk at 7am to catch up all the news. And this is when all the big announcement will be released. So you need to be ready if in case anything happens in the stocks that you cover. If you publish your research overnight, then you spend your morning meeting with yourselves and you also call clients afterwards. And then the rest of the day it really varies. It can be you can continue your research work, whether they are big industry reports or company updates, or you can meet with clients or you can speak to company or industry consultants in order to get a more updated view or the recent view on some of the trends that is happening in your sector. So this is the normal period. And then during earnings season, which public companies they usually announce their result for four times a year to update their investors so it can be quite hectic sometime. So at 7am they will release their earnings to show this is the revenue or this is the financial they achieved in the past quarter. So your role is to quickly digest the news if there is anything any surprise or if they perform according to your expectation. And then you will quickly update clients sales on your view. And then at 9am is usually when the company will present. So so you will have the CEO, the CFO and the senior management of a company present their quarterly results and then there will be also a Q and A session for the analysts to ask questions as well. And then for the rest of the day you spend your time digesting the news, thinking about updating your company model if the news today affects your forecast of the company and publish a new feed. So this is kind of an overview of the job nature and also a day in life of an analyst. And then something that I just wanted to touch on quickly is about sustainable and ESG investing, which is fast and growing recently, in recent years, I'm sure a lot of you have heard the phrase esg, which stands for environmental, social and governance. And certainly it's a big area and there are different strategies within the ESG investing space. So I just wanted to quickly introduce some of these ideas. Certainly there are more resources and I can spend an hour talking about it, but this is just more of a high level summary. So on the right here you can see there is a spectrum of spectrum of different strategies. You can go from financial only to impact only. So this will be just kind of normal traditional investing where you consider all the financial results and then here you gradually incorporate more and more different kind of ESG factors into your investment consideration. And then on the right here it will be kind of like a charity or you give out donation or grants where you only focus on the impact and you don't really care about the financial return it generates. So how the ESG investing is set within these areas where we want to do good for the society, but then we also want to generate a financial return. And there are various strategies within the ESG investing space. And nowadays we see more data providers starting to provide this type of information. So we've got MSCI and also sustainlytics, which I think recently got acquired by factsets. So they are companies that provide a lot of the sustainable data. For example, it's a bit like a credit scoring. So for example, I know that msci, they rate company from triple C to AAA according to their scores on esg. So if their company score on triple A, then they will be doing very great on all the esg different metrics.
- [14:24]
A
So Hey y', all. This is Maggie Freeling, host of the new podcast up and Vanish Weekly. Tune in each week as Payne, Lindsay and I are joined by other true crime experts to take a fresh look at some of the most puzzling crimes and shine a spotlight on the cases that have stumped investigators for far too long. So go right now and search up and Vanish Weekly in your podcast app to follow the show. Listen for free wherever you get your podcasts.
- [14:54]
B
How do how do investors use this data? They can use it by negative screening or they can by kind of screening the bottom by screening out the bottom 10% of the company or they can do positive screening by screening in the top 10% of the company that perform well under these metrics. And then we also have other strategy like thematic investing where investor only invest in renewable energy for example, or they only invest in electric vehicle. And then at the far end we also have impact investing. So this is a strategy that more commonly seen in private equities or venture capital. So it is about investing in companies that generate positive impact in terms of their social and environmental footprint. So here you'll be actively seeking companies that do good for society, whereas ESG sometimes it can be a bit of a screening exercise. So yeah, certainly an emerging area and there are lots of new funds that are launching and also different strategies as people starting to incorporate a lot of these considerations into their investment strategies. Any question from now or I'll move on to the main topic for today which is about valuation. So yeah, typically mostly focus on valuation within the public investing space. So typically we will use two methodologies. The first one is multiple approach and the second one is DCF approach. So for multiple approach you can see here some of the metrics that we can we typically see and some of you are familiar with. So you can compare these metrics against the company own history or you can compare them against different peer group within different company within the same peer group. So I guess one of the question that you might ask is which metrics should we use? And a lot of the time it depends on the company and the type of investor you are. For example if you invest in technology company and maybe they are very early stage and they don't even have earnings yet, for example like Uber or Lyft, they don't generate net income yet. So you can't really use price to earnings ratio. Then investor will typically use EV divided by sales as a matrix to evaluate those companies. And for example, if you are a income investor, you care a lot about dividend, then you will use dividend yield as your analysis. But in reality we look at all of them and then we, we just kind of see what is most appropriate according to the company or the sector that you look at. So this is kind of a. On the right here is a typical comparative table that you will see in a lot of the research reports. So firstly is a. So firstly, for example, if you want to analyze the beverage sector and you will have a peer group, so the first step will be to identify all the relevant peer groups. So you've got like coca cola here, PepsiCo and Monster Beverage here, for example. And then you will compute all of this data so you can find them on either Bloomberg FactSet or Yahoo Finance, for example. And then you will compute the multiples and then you will think about, oh, why is Coca Cola trading at a premium compared to PepsiCo? Is this fair? And if this is not fair, then is there any reason that can justify. I guess that kind of thinking process can inform your investment thesis. For example, if you think that PepsiCo seems to be able to grow much quicker, or they have.
- [18:56]
A
Hey y'.
- [18:57]
B
All.
- [18:57]
A
This is Maggie Freeling, host of the new podcast up and Banish Weekly. Tune in each week as Payne, Lindsay and I are joined by other true crime experts to take a fresh look at some of the most puzzling crimes and shine a spotlight on the cases that have stumped investigators for far too long. So go right now and search up and Vanish weekly in your podcast app to follow the show. Listen for free wherever you get.
- [19:24]
B
Your podcasts have a new strategy that you believe they can execute on it. That may be PepsiCo should be trading kind of closer to Coca Cola. And then that will kind of that thinking process will kind of inform your view on the company whether that valuation is fair or not. So yeah, I think this is a quite good approach very quickly that you can see if there is any kind of mispricing in the market or if you can justify this gap between the companies. But yeah, I'll come on to it, come back to this again when we go through the Apple case study. And then the next valuation method is dcf, which I'm sure a lot of you have heard of before. So what a DCF is is to calculate the valuation of a company. And what is evaluation of a company is essentially you add up all the future free cash flow a company generates, then you sum it all up and then discount it back to today's price. So it's a bit like the graph here. So you firstly you project all the free cash flow in each year and then because you can't really project it infinitely, so at the end of the period you kind of have a terminal value and then you sum it all up, discount it back to today's price. So this will give you an enterprise value which is the total value of a company. And obviously there are different owners for a company. You've got the debt provider, you've got the equity provider and other minority interest as well. So as an equity investor you are most interested in the equity portion. So you minus debt, you minus the monetary interest and then you get to your equity value and then if you divide that equity value by the number of shares, you will get your share price. So fundamentally this is kind of the concept of it. But I'll show you the calculation step by step in our case study later on. So yeah, these are just some of the formulas in order to derive exactly what these things are. But yeah, I will show you in our Excel model go through later on. And then just some kind of thinking about the pros and cons for each method. In real life we will use both the multiple approach and DCF approach. Usually some analysts, they will take an average of these two approach because each, yeah, because each of these approach they have their pros and cons. For example the multiple approach, you can see that it's really easy to get all the data, it relies on fewer assumptions. But then sometimes it's really hard to find comparable companies. For example for Apple that I will come on to later on it's kind of hard to think of another company like Apple. I mean you've got other software Internet company like Microsoft or Google, but they are more of an Internet company and they don't really produce a physical product like Apple. So finding a comparable group is sometimes it can be tricky. And now on the DCF side is very flexible. You can model a lot of things into it, you can even split it out into multi stage growth for the company. So you can incorporate a lot of the assumptions but then the cons will be based on a lot of assumptions and the sensitivity of the share price will be based on the assumption and also on the terminal value as well. I think DCF will work particularly well for very stable company, for example like Unilever or Coca Cola perhaps because they are the companies that generate certain amounts of cash each year. So it's very easy to forecast. But then if it is A highly cyclical company, it's very difficult to forecast the kind of company performance throughout the business cycle. And then in a startup world it's even more difficult because you don't, it's very difficult to forecast the company in kind of a 5, 10 years horizon. So these are kind of the pros and cons for the two approach. And now if there is no question at this point then I'll move on to our case study on Apple. Yeah, so I choose Apple as an example because all of us know what they do and then we can quickly see, use the method that we learned so far and apply it to calculate the share price of Apple. One thing is to stress is this is more of a kind of an exercise rather than any investment advice. So it's more about going through the methodology that we learned in order to calculate a share price for Apple. So yeah, some background news recently I guess you can see from this chart, although it's PE ratio rather than the share price, but the share price kind of correspond quite nicely to that as well. You can see from January 2020 they have a very good run year to date their share price goes up by 40% which is a very, very good return. And recently as most of you know they announced some product release including the new iPhone, the 5G version which kind of contribute to some of the spike here. And then last week they announced they had an earning release which after that the share price kind of drops. So it could perhaps be kind of reset investor expectation or they have some other concern regarding the company future performance. Some of them could be due to Covid or some of them could be due to because they decided to delay their 5G phone launch by a few months. So that could impact on their company performance. So yeah, firstly just using the technique that we've learned so far, the first one will be the multiple approach. So you can use multiple approach to compare the company with its own history. So this is exactly what I did here. So you can see on a PE ratio perspective the company they have been historically trading at about 10 times to 12 times PE ratio. But then recently it seems that they have gone up really, really massively and they have now it's a bit small here but they are now trading on a 28 times earning next year. So I guess as an analyst you need to think about what's behind the driver of this increase. Is it fair or are we overvaluing the company? Has there been some fundamental changes to the business itself? And then we can see a similar trend for EV EBITDA ratio as well. It has gone up massively last year. And then another approach would be to compare the different ratio against some of the peer group for Apple. So in here I've chosen Microsoft, Google and Facebook. Although I guess some people would argue they are not a true representative of the of the peer group. But I just show it as an illustrative example. So if we look at so Apple is a blue color here, whereas I think it might be quite interesting to compare against Microsoft which is the red color here. So you can see that Apple has traditionally been trading as a discount to Microsoft. And some of the reason could be because Microsoft as a more software company, they typically have high margins. They can also scale quicker than compared to Apple which they produce a tangible product. So this is kind of the reason why there has been a valuation gap between the company. So this valuation gap kind of lasts until 2020 and then this is kind of the COVID period. And after that it seems the gap has shrinked. So now Apple has been trading very in line with Microsoft as well. So a question to think about will be again, is this justifiable? Do we think the market is overvaluing Apple or has there been some fundamental changes to the company itself that investors seems to be placing a higher valuation on the stock at the moment. So again a similar story for EV EBITDA as well. Oh, and then I think I can now show you on the DCF model, how do we actually calculate the share price? So if I just switch to my model. Yeah, if I make it slightly larger. Okay, so just to recap the formula, tcf, we want to forecast all the free cash flow for the company. We want to sum them up and we also want to include a terminal value and then we discount it by a discount factor called wacc. So we will go through these all step by step. So firstly we will want to forecast the free cash flow firstly, which is this is the formula for it. Essentially you just want to add up all the cash item that a company generate per year. So for example, why do we want to add back depreciation and amortization? Because they are not a cash item. Why do we want to minus capex? Because capex is the actual capital expenditure you spend per year. So we want to minus that. So it is a cash outflow and therefore we want to minus that. So in here I did exactly that in this calculation here. So I'll have my EBIT here, which is just revenue minus the operating cost. So I base it all on 2020 actuals so my starting point is this year and then I'll forecast it. What will the business be like from year one to year five, for example? So just on the formatting you can change all the cell in yellow, so you can change all of them here and then all of these should just calculate automatically. So if you want you can change it to another company and you should be able to populate the share price quite quickly as well. So yeah, just on the forecasting. So firstly we want to forecast a revenue item. So these are the assumptions I choose. It's kind of arbitrary at this point because if you want to form a informed view, you need to go through the company financials and also do a lot of in depth industry and company research. So at the moment I just assume the company will grow by 15% next year just because of the new iPhone launch and then assume a 5% growth afterwards. For EBIT margin I assume they will gain by 1% next year and and then kind of just grow at a slow rate in future period. For the other items I just keep them flat for now so that we can focus more on the calculation rather than the assumption at this point. So this is exactly how I calculate the unleveled free cash flow as I was showing in a formula by summing all these items together and then you want to discount this free cash flow back to today's value. And then this form the first part of our calculation which is summing the cash flow from year one to five and then for the terminal period we have two methods that we can use. So going back to the formula here we can either use the exit multiple or the perpetual method. So the exit multiple just say imagine Apple get acquired in five years time. What would the multiple be and what is the value of the company at that point. And then the perpetual method is just rather than summing it all these up individually, it is a mathematical neat way of saying summing from period three at this point to period end. And then this is a mathematical equivalent to that which is you have the free cash flow for the N year period, you do one plus the growth rate and then you divide it by the WACC minus growth rate. So going back to the dcf, this is exactly what I did. So go through the multiple exit multiple method first. So I take the end year period, the ebitda for year five and then I assume an 18 times exit multiple. I mean you can change it to other multiple. But I think this is kind of appropriate just by, just by looking at historical trend and kind of comparing it with PE Group. So I choose 18 times in this calculation here and then for the perpetual growth. So this is the calculation that I was showing earlier. So so you do the free cash flow for the end year period, you multiply it by the growth rate which I assume is 3% terminal growth rate and then you do the WACC minus the terminal growth rate. So we have been through this calculation and then the final session will be how do we come up with the discount rate? So what the discount rate is. So it's called the weighted average cost of capital. It's kind of showing what. Yeah, it's kind of showing the capital structure of a company because usually for a company they will require some equity and also some debts. And this is just the cost of that capital, how expensive or how cheap it is in order for them to assess that capital. So it's kind of a weighted average calculations. So I can go through the calculation here at the end which you can see on this session here the WACC calculation. So firstly on the cost of equity, this is the calculation we typically use. So we will use the risk free rate and then we plus the beta times the equity risk premium. So that's our cost of equity. And then on the cost of debt side this will be your the interest rate the company paid minus the tax rate. All of these information you can get either from Yahoo Finance or the company financials itself. And then on the proportion of debts and equity, so these are, this is the debt Apple has last year. And then this is the market cap at the moment which is part of the equity. And then throughout this calculation I calculate a WACC of 7.9%, 8%. So we are going back to here. We now talk through how do we calculate the terminal value and the free cash flow for the initial period. So this will be our enterprise value. And then now as I was showing earlier, we need to minus the debts because as equity investor we are only interested in the equity portion. And we also add that cash, which is the cash that we can access to as an equity investor. And then we divided it by the number of shares Apple has. And then based on these assumptions I calculate that Apple should the kind of the equity value for Apple is $98 per share. So yesterday when I was looking up they were trading at 109 yesterday. So this suggests that based on these assumptions it would suggest a 10% downside. But obviously you can change this assumption really quickly. For example, if you think Apple next year will be growing by 20%, you can quickly change that and then you can see the valuation going up. I mean if you are not positive about the iPhone launch then you can change it to 3%. That will show you some more downside to the current share price. So all of this you can quickly see how, how as an investor you can calculate based on DCF the valuation of company really quickly. Any, any question at this point?
- [36:18]
C
Yeah Vanessa, the blue cells, the ones with just the blue text, is that just. Are those just cells that are referencing another cell or can you adjust those too?
- [36:29]
B
Yes, that's right. So yeah, it's just referencing another cell. So these are the calculation that was done. So all of the yellow one you can change and other ones it's just automatically calculated.
- [36:40]
C
Cool.
- [36:43]
B
So hopefully it will be. This is a very step by step walkthrough of this calculation here. But I guess just to emphasize the concept is just to add order of cash flow for a company and then discount it backwards. That's the high level of what this is trying to do. And then here you can see the sensitivity because I was talking earlier about how the DCF methodology depends a lot of the assumptions. So this is just a sensitivity table that I thought would be useful to show. For example, at the moment we assume about an 8% WACC and also a 3% terminal growth rate which makes our price at about 100 at the moment. But then if we increase our terminal growth rate and if we decrease our wacc, we can arrive at this price kind of based on these two assumptions. So I think this is just a good way especially if you are investor, you want to, you want to have that sensitivity analysis and to make sure you're comfortable with the evaluation that would give you a potential upside. So this is the DCF method. And then back to the multiples method I was talking about earlier. This is again you can play around with it based on the assumption that you choose. For example, if we use a EV EBITDA method, so this will be the Apple's EBITDA for next year. And that if we believe they can trade, they will trade at an 18 times multiple, then I can type in 18 times here. And then you can see based on these assumptions it will suggest a 12% downside to the current share price. But then if I believe that apples they can sustain a high multiple, for example 22, then it will show you the upside that you can generate. And I think this is particularly useful sometime when I evaluate some of the startup deals as well because ultimately the this will give you a valuation when you want to exit and then you can work backwards to see how much valuation upside you can gain as an early stage investor and as the company progress, how much, what is the valuation they are likely to achieve and then what is the potential there are for the investors. So yeah, this is just a quick walkthrough of the model, something that I was thinking about showing as well. Unless there is other question at this point.
- [39:23]
C
Any questions guys?
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B
So yeah, some of this information I got from Koi Fun which is a free platform for people to use. It's a bit like Yahoo Finance but I think it's more, it has got more data and also the user, the interface. I quite like it as well because earlier I was talking about the. Com table and how does Apple compare to other comparison for example and then in this table here I select all the peer group and then you can see that for example if I go to the margins Apple they have been, their EBITDA margin was about 30% last year but now for Microsoft which is a software company, they are 45%. So maybe part of the valuation gap can be justified by just the fact that Microsoft has a higher margins for example. So this is quite a neat way to show some of the differences in valuation and whether you think it's justified. But yeah, I thought that would be interesting to show for example Microsoft, they pay a high dividend which some sometimes investor like as well and that will certainly be factoring into the high valuation.
- [40:48]
C
That's great. What do you, what are some of the pros and cons with Koi Fin versus some of the other tools? I think maybe what would be helpful if we got a few minutes is you know, what, what tools you can use, you know, whatever you're allowed to share when you do research, you know because we got Koifin, we got, we got Bloomberg, we got Thomson. So you know Koifin I think is like, I think they're a startup but they're you know, obviously they haven't been around as long as some of these older companies. So what are some of the benefits? And then, and then maybe maybe a couple workflows that you do when you're researching, you know, maybe a new public company.
- [41:28]
B
Yeah, sure. I think maybe what should we, we can do? Tesla for example. So yeah, I really like the Koi FM platform because it gives me a lot of data points. So for example I think the platform, it looks a bit like Bloomberg or Reuters. But I think for a retail investor like myself and some people in the audience, we don't have the access for Reuters or Bloomberg because they are typically for institutional investors. So I think Koifun is a very good alternative for retail investors like us. So it has all the essential information you need. One session that I really like as well is the estimate session because in here you can see what do analysts and people in the investment banking world they forecast in terms of their revenue, EBITDA or ETFs. So you can know that what has been for what has been, what is the expectation of this company because usually when company they, when they underperform the expectation then share price will come down. If they over perform, they over deliver, then share price will go up. So this is a very quick way for you just to see what is the expectation embedded in the share price at the moment and then whether you think it's justified or not. I also like the chart sessions because here you can input other security as well. So some of the charts I was showing I generated on Koifun. What is a good stock to choose? Maybe I will choose some packaging company that I'm more familiar with. So for example Crown, they are a metal beverage can company so you can quickly see their price movement here. And then if I want that valuation then I can quickly select the valuations and go into kind of the EV EBITDA multiple. I can compare it very quickly with another metal beverage company and see the valuation gap for example. So again this is very, very easy to show. And I guess the major benefit of Coiffon is free to use or at least for now not sure if they are going to charge in the future. And then just some workflow or other resources that I use I typically go on to. So if I'm researching a new company I would typically go to that investor relations page, I'll download annual report and see the latest earnings because through that you will see the latest trends that the company is going through, how are they performing against expectations and if they have any new strategy and things like that. And usually in annual reports you can find lots of detailed information on the industry structure, some of the trends, some of the driver as well. So it's very useful information. And other than that I'll just go on to this platform and then quickly look at the valuation side. If I think the valuation potential then I'll do more in depth research. If I think the company is kind of fairly valued then I'll just put it on one side and then focus on other companies. And I think sometime maybe for our cohorts and the startup investors or the VC investors as well. Some of the things that might be useful is just to. Because sometimes you ask us what is the potential upside or potential exit that our company can have. So you can quickly go to.
- [45:19]
C
The.
- [45:20]
B
Platform that I was showing earlier. You can get a list of companies, you can see the exit multiples which could inform you what are the. What are the multiples that the company in this sector are trading at the moment. And from there you can work on your potential exit opportunity for a startup. So yeah, this is Toyfen.
- [45:47]
C
Great. Yeah, that was helpful. All right, any other questions from the audience? Okay, I guess it was so informative that you answered everybody's questions already.
- [46:05]
B
Yeah, I'm just thinking of exiting. Oh, stop sharing. There you go. Okay, I can now see you.
- [46:13]
C
Yeah, there we go. Well, good job. Thanks so much for sharing that info. That was really helpful. I think it's a good overview of just kind of playing with the models. And I uploaded the links to the deck and the model so people can play with it. I guess for your recommendation, somebody should make a copy of the Excel and possibly look up a different company and plug in the numbers and then make some assumptions on how much the company's going to grow.
- [46:41]
B
Yeah, that would definitely be my recommendation. You can also choose your favorite company, a company that you're familiar with, and then just see if the valuation is what is expecting, what the company is currently trading at the moment. Just to see what the assumption like and get a feel of it.
- [47:01]
C
That's great. Cool. Yeah, awesome.
- [47:03]
B
Very high level. But then if people are interested, there are certainly more advanced models that we use. Typically for DCF model, we will also, we will break down the revenue by segment, for example. So for example, in the case of Apple, then we will break down the revenue for iPhone, for the iWatch and different components of it. We will also forecast the profit by segments as well because that way you get a more detailed analysis and detailed forecast which ultimately drives the valuation. So you want to have those details in if you are doing it in real life or as a career or profession.
- [47:47]
C
We all, you know, in the private markets we look at comps. So do you guys also do that as well like, you know, maybe other consumer electronic companies? If you're looking at Apple as far as their, you know, EV to equity multiple, is that kind of a common practice? And what's the best way to do that? Do you just take the average of the comps of what their multiple is and then just kind of use that as a benchmark?
- [48:12]
B
Yeah, yeah, we will certainly do that as well. And it depends on how closely comparable, how comparable those peers are. Some people just use an average or some people will choose some particular company as a benchmark. And average. I think that certainly works well for some industry, but less so for others. Yeah. I mean in a commodity company like metal beverage, metal packaging, for example, essentially every producer, they are producing the same amount, same, same, same type of products. So you can argue they should be trading on a similar multiple because essentially they are the business are the same. But then I guess there are other nuances like different company strategy, different geographical region that they are exposed to. So a lot of these factors can, can be. You can incorporate as well. So definitely a very, very fun exercise. And yeah, and I guess I've seen some stats saying that people nowadays because I guess everyone kind of in the lockdown period, there's been some spike in either like Robinhood in US or in, in the UK we use free trade or other like, like other, other apps like that. So there's been a spike in retail investor investing or have the time to at least explore the opportunity. So that's quite interesting.
- [49:32]
C
Good news for Robinhood, right?
- [49:35]
B
Yeah.
- [49:36]
C
Cool. All right, well, anybody else have any final questions before we close out? Cool. I guess not. Well, thanks for your time and catch up with you guys soon.
- [49:49]
B
Cool. Sure. And thanks. Thanks for everyone here and looking forward to speaking. Speaking to you and yeah, get connected.
- [49:58]
C
All right, bye guys.
- [50:15]
A
Hey, y'. All, this is Maggie Freeling, host of the podcast up in Vanish Weekly. Tune in each week as I dive into some of the most interesting unresolved cases. Search up and Vanish Weekly in your podcast app to follow the show.