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Monsanto - Free Cash Flow Model Presentation

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Analyzed the financial statements and the strategy of Monsanto (NYSE: MON) and built a free cash flow model for the company. The team presented and defended the key assumptions of the free cash flow model, as well as the fundamental value.

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Monsanto - Free Cash Flow Model Presentation

  1. 1. Valuation of Monsanto Xinyu Ji Jialing Zhu Ruiqi Liu Usman Riaz Zhifan Li
  2. 2. General Company analysis • Background: • Monsanto Company is an agricultural company which operates in two segments, Seeds and Genomics, and Agricultural Productivity. • Five forces : • Competitive rivalry: There are several large players and many smaller firms in the biotech industry, specifically in agriculture products including seeds, genetics, and herbicides. • Power of customers: Demand for products depends on public acceptance of genetically modified foodstuffs, a highly regulated and controversial topic. • Power of suppliers: The chemical manufacturing industry is not very concentrated, with many firms having fewer than 20 employees. , if one supplier is no longer desirable others can easily be found. • Threat from substitutes: The biotechnology industry is highly regulated and has very highly valued intellectual property making substitute products difficult to produce. • Threat from new entrants: . Barriers to entry are increasing as the industry matures and more regulations come about. • FCFE model used: leverage is relatively stable, and expect not to change in the future.
  3. 3. Growth Growth Drive 14.00% 8.40% Bullish Bearish Obstacles Below the line Business Growth •Global business portfolio drives gross profit expansion •R&D grow slower than historically Return Value to shareholders Worry of GM food •2 billion, 3- year buyback program •Dividends remain a priority •Genetically modified foods are not accepted by some countries FY 2013 Ongoing Earnings Growth of >20% Economic Downturn Current Ratio Analysis 2009A 2010A 2011A 2012A 2013A Sales growth EBITDA growth EPS growth 3.2% 10.8% 4.97% -10.4% -39.5% -47.11% 12.6% 41.0% 47.26% 14.2% 21.0% 28.04% 10.0% 11.0% 21.37% Gross margin EBIT margin EBITDA margin Tax rate Net margin 57.7% 26.5% 31.1% 28.5% 18.0% 48.4% 15.3% 21.0% 24.8% 10.6% 51.4% 21.2% 26.3% 30.2% 13.6% 52.2% 23.3% 27.9% 30.2% 15.1% 51.5% 24.0% 28.2% 26.7% 16.7% Return on equity (ROE) 20.8% 10.9% 13.7% 17.0% 19.5% Payout Ratio 26.2% 52.0% 37.5% 31.4% 32.3% Retention Ratio 73.8% 48.0% 62.5% 68.6% 67.7% Hight Growth 2014E 2015E Stable Growth 2016E 2017E 2018E 2019E 5.9% 6.5% 9.8% 9.3% 8.3% 6.9% 8.9% 8.5% 18.1% 13.5% 12.0% 10.5% 20.00% 19.00% 18.00% 17.00% 16.00% 14.00% Bullish 6.00% 6.400% 6.800% 7.200% 7.600% 8.40% Bearish 52.2% 51.2% 51.7% 51.8% 51.7% 51.7% 22.1% 21.2% 22.3% 22.6% 22.4% 22.1% 26.9% 26.1% 27.1% 27.2% 27.1% 26.9% 30.6% 27.2% 31.1% 27.6% 31.6% 30.0% 15.3% 15.4% 15.4% 16.3% 15.4% 15.5% 16.4% 17.0% 35.9% 35.9% 64.1% 64.1% 17.0% 16.2% 34.9% 34.9% 65.1% 65.1% 17.6% 15.3% 33.9% 33.9% 66.1% 66.1% 18.2% 14.5% 32.9% 32.9% 67.1% 67.1% 18.8% 13.7% 32.0% 32.0% 68.0% 68.0% 20.0% Bullish 12.0% Bearish 30% Bullish 30% Bearish 70.0% Bullish 70.0% Bearish
  4. 4. Beta & Cost of Equity Beta calculated through regression Analysis for the years 2006 to 2013: 1.0234 Estimated Risk Premium through Gordon Growth Model: 0.25 0.2 0.15 0.1 y = 1.023x + 0.000 R² = 0.371 0.05 Series1 Linear (Series1) 0 value of stock expected dividend expexted growth rate 104.88 -0.15 -0.1 -0.05 0 -0.05 1.900772 0.1 0.15 -0.1 0.1580 0.05 -0.15 -0.2 ↑ Rf (high growth) 2.65% Rf (stable) 4.65% b(high growth) 1.0234 b(stable) 1.0000 E(Rm) 17.61% 70% bullish E(R)+30% bearish E(R) Cost of Equity High Growth Period: 17.96% Stable Period: 17.61%
  5. 5. FCFE Free Cash Flow to Equity (Year Ending August 31) Net Income Add: Depreciation Less:Capital Expenditures Inventory, net Total Current Assets Cash and Cash Equivalents at End of Period Accounts payable Income taxes payable Dividends payable Customer payable Non-Cash Working Capital 2009A 2010A 2011A High Growth 2014E 2978.4 $2,482 2630.9 615 3.00% 633.45 741 2.00% 755.82 Current 2012A 2013A $2,109 $1,109 $1,607 $2,045 548 916 602 755 613 540 622 646 2,934 7,883 2,739 7,122 2,591 8,809 2,839 9,658 1,956 676 79 145 307 7,654 1,485 752 66 151 83 7,324 2,572 839 117 161 94 7,617 3,283 794 75 200 14 8,131 (330) 293 514 (101) Less:Change in Non-Cash Working Capital 2015E 3544.3 2799.3 652.45 770.94 2016E 4182.2 2989.6 672.03 786.36 2017E 4893.2 3204.9 692.19 802.08 2018E 5676.1 3448.4 712.95 818.12 Stable Growth 2019E 6470.8 bullish 3738.1 bearish 734.34 834.49 2,947 10,077 3,668 995 91 228 12 8,030 102% 8150.4 8272.7 8396.8 8522.7 8650.5 8780.3 Short-term debt proceeds 75 75 84 30 22 Long-term debt proceeds 0 0 299 499 32 Short-term debt reductions (45) (101) (74) (42) (29) Long-term debt reductions (71) (4) (193) (629) 120.45 122.26 124.09 125.95 127.84 130.00 (2) Plus: Net Cash Inflow from Borrowings FCFE ($41) $1,700 ($30) $1,256 $116 $1,503 ($142) $1,365 $23 $2,480 ($15) ($15) ($15) ($15) ($15) ($15) $2,721 $3,289 $3,929 $4,642 $5,428 $6,226 bullish $ $ $ $ $ $ 2,373 2,544 2,736 2,954 3,200 3,493 bearish
  6. 6. CONCLUSION Bullish (70%) Bearish (30%) Cash Flow (High Growth) $ 11,837.04 $ 8,433.33 Terminal Price (Stable) $ 69,811.10 $ 16,848.67 Total Value $ 81,648.14 $ 25,282.00 Components of Value 539.70 Shares Outstanding Total Value per Share Potential Appreciation Recommendation $ 163.83 55.8% Actual Target price 539.70 $ 46.84 -55.45% $105.15 128.74 22.75% BUY

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