1. PRESENTED BY:

2. INTRODUCTION AND OVERVIEW
OF THE COMPANIES

3. Leaders in the provision of 3D content-to-print
solutions:
• 3D printing, print materials, on demand custom part
services, 3D authoring for consumers
Current details:
• Rank 4th on Forbes ‘Fastest growing Tech Companies’ for
2013
• 46% sales growth from previous year
• 30% EPS growth annually
• Share price: $58.64 (October 25th 2013)

4. Provider of storage systems and data
management solutions predominantly
for
Information
Technology
Infrastructures
 FAS storage System
 E-series System
Current Details:
• 28% increase in profit (relative to previous year)
• Initiation of a quarterly dividend of $0.15 per share
• Share prices: $39.39 (October 25th 2013)

6. 3D SYSTEM: 3D PRINTER INDUSTRY
• High barriers to industry
→ intellectual property rights held by existing firms
• 3D printing industry interrelationship with facets of
the economy
→ education, healthcare, defence

7. NETAPP: ENTERPRISE STORAGE INDUSTRY
•
Also high barriers to entry
•
Rapid development of technological changes
•
Intense rivalry amongst existing firms within
industry
•
Main Competitors involved: Oracle & HP both
largely diversified companies
 Ability to maintain relationship with
customers/partners
 Offers diversified portfolio of products and
services

8. Equity Valuation
Model
1. FCFE
2. Residual
Income

9. FUTURE CASH FLOW TO EQUITY MODELS
(FCFE)
Measures amount of cash that can be paid to the equity
shareholders of the company after accounting for all
expenses, reinvestments and debt repayments
•
‘ T W O S TA G E F C F E M O D E L’ , C O M PA N Y
T H AT I S E X P E C T E D T O I N I T I A L LY G R O W
M U C H FA S T E R T H A N A S TA B L E F I R M
B E F O R E T R A N S I T I O N I N G T O A S TA B L E
R AT E
 3D Systems
•
‘ C O N S TAN T G R O W T H F C F E M O D E L’ ,
C O M PA N Y T H AT I S P R E S U M E D T O B E I N
A S T E A D Y S TAT E O F G R O W T H
 NetApp

10. FCFE METHOD
KEY INPUTS:

11. 3D SYSTEM

12. NETAPP

13. RESIDUAL INCOME APPROACH
(RI)
S T O C K VA L U E = B O O K VA L U E O F E Q U I T Y
+ PV OF EXPECTED RESIDUAL INCOME
MOST APPLICABLE FOR SMALL TO
N O D I V I D E N D C O M PA N I E S W I T H
N E G AT I V E C A S H F L O W S
EXPECTING TO BECOME POSITIVE
KEY INPUTS:
•
•
•
•
•
current book value of equity
Net income
Required return on equity (from CAPM)
Steady-state growth rate (Industry)
A horizon point (2 years)

14. NETAPP
The historical data determines residual income and trends
Shows:
1. Book Value of Equity – at 31/07/13 is $4018M, share price $42.67
2. Net income
3. Residual Income is decreasing but at an increasing rate of 13% in
2012 and 34% in 2013

15. NETAPP CONTINUE…
• Forecasting can be very qualitative
•
Using the trend increasing rate of change, the growth could be extrapolated
to 42% then 80%.
•
Instead of increasing the percentage I used the absolute value 700 (see red
box).
•
The PV of the perpetuity is in the green box.

16. • With all the values, we can find the stock price.
• V0= 4018 + (-644-94) + 889 = $4169M
• This gives $42.67 per share ($1.55 higher than the
price at valuation)

17. 3D SYSTEM
•
On 31 Dec 2012
•
S.P = $53.35
•
B.V = $480.33m
•
Required return on equity = $41.98%
•
Constant growth rate = 4.9%

18. 2008
BV Equity
2009
2010
2011
2012
102.23
104.69
133.12
254.79
480.33
2.41%
27.15%
91.40%
88.52%
1.14
19.57
35.42
38.94
-118.51%
1617.82%
81.03%
9.94%
-41.78
-24.39
-20.47
-68.03
41.63%
16.08%
-232.35%
% Change
Net Income
% Change
Residual Income
% Change
-6.15

19. 3D SYSTEMS CONTINUE..
• Used a 3 year horizon point
• 3D showed large variances and unpredictability with
historical values
• Estimated growth rate of -58%
• Did not correlate with market consensus that 3D had
large potential
• Predicted a negative share price for 3D
 Signalled issues with model

20. 2013
Residual Income
% Growth
PV Residual Income
2014
2015
-107.49
-169.83
-268.34
-58.00%
-58.00%
-58.00%
-75.70
-84.24
-93.75
PV Horizon Value
-252.79
NPV of Company
-26.15
No. of outstanding Shares(millions)
101.61
Estimated Share Price ($, per share)
-0.2574

21. THEORY FOR RI STATES…
• RI is most appropriate for growing
companies without dividends
• Higher emphasis on immediate intrinsic
value
• Less sensitive to terminal value -> limit
errors in forecasting

22. OHLSON, 2000
Residual Income Valuation: The Problems
• RI may not hold when there are expected
fluctuations in outstanding shares
• 3D
Systems
has
a
history
of
issuing
unexpected share options and splits
• Possible reason why the RI did not work in
this case