Question #2 You are working as a junior analyst for a buy-side firm and the associate...

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Question #2 You are working as a junior analyst for a buy-side firm and the associate you work for wants you to get started on a preliminary valuation model for AssetCo, a public asset manager that runs diversified portfolios in various asset classes and had $40 billion in assets under management (AUM) at the end of 2023. a) The first thing you notice about AssetCo, and the industry in general, is that assets under management (AUM) drives revenue because of fees that are collected on a percentage basis from underlying accounts. Given the invormation in the Table 5 below, calculate an estimate of AssetCo's net Note: You may assume the flows do not participate in the appreciation. Inflows (Billion USD) Outflows (Billion USD) Appreciation of Prior AUM Net Assets (AUM, Billion USD) able 5. AssetCo Flows & AUN 2024E 2025E 2026E $ 2.0 $ 4.0 $ 3.0 1.0 $ 0.5 8.5% 7.5% $ 3.0 $ 20.5% b) Assuming AssetCo generates (and will continue to generate) sales of about 1.5% per dollar of AUM, project the company's revenue for 2024-2026 and populate the approriate field in Table 2 (AssetCo c) Calculate COGs and SG&A costs as a percentage of revenue for 2021-2023. Then use the average values (on a % basis) to project the company's COGs and SG&A for 2024-2026 and populate the d) Assuming AssetCo pays a 10% interest expense on and average debt of $75MM, $45MM and $15MM in 2024, 2025 and 2026 and is taxed at an effective 23.1% rate for at least the next three years, complete the company's Income Statement (Table 2), projecting Net Income from e) Looking at other Asset Managers, you seem to notice that there is a potential relationship between each company's PIE (FY 2024) and its 3-Year Sales Growth and AUM. Construct a multiple linear regression to test this hypothesis. Is either sales growth or AUM a significant predictor (p <0.05) of PIE? Are both? (2pts) Sales Growth AUM Beta p-value Signific Table 1: Asset Manager Characteristics Firm Name FinCo Investments MultiFund Inc Top Portfolios Inc Trailing 3-Yr Sales 2023A AUM 2023 Un- PIE (FY 2024) Growth Rate (Billion) levered Beta 18.0 x 36% $55 1.10 10.0 x 20% $150 1.05 9.0x 15% $20 1.07 Jersey Savings Co 15.0 x 34% $45 1.15 Madison Mutual 12.0x 24% $10 1.12 Forest Financial AssetCo 13.0 x 32% $15 1.20 $40 1.25 Table 2: AssetCo Values in MM USD Income Statement 2021A 2022A 2023A 2024E 2025E 2026E Revenue COGS $ 506 $ 563 $ 608 $ 51 $ 68 $ 73 COGS as % of Sales SG&A 304 $ 332 $ 352 SG&A as % of Sales 101 $ 109 $ 135 Interest (Expense) $ $ $ Taxes 23 $ 80 $ 25 $ 86 $ 31 107 EBIT Net Income Table 3: AssetCo Balance Sheet Values in MM USD 2021A 2022A 2023A 2024E 2025E 2026E Total Assets Cash & Equivalents $ $ 60 151 $ 346 50 $ 143 $ 336 Accounts Receivable $ 5 $ $ 4 Prepaid Expenses $ 5 $ 4 $ 6 Total Liabilities 7 $ 12 $ 100 Accounts Payable Deferred Revenue $ 3 $ $ 3 $ 2 $ $ 3 Accrued Expenses $ Long Term Debt 2 $ 4 $ 4 $ $ $ 90 Shareholders Equity $ APIC 53 $ 139 $ 246 $ 10 $ 10 $ 10 Retained Earnings $ Balance Check 43 $ 129 $ 236 TRUE TRUE TRUE TRUE TRUE TRUE f) Using only the significant predictors in your prior answer, historical sales and your projections for 2024 sales, predict AssetCo's P/E (FY2024) multiple. What do you think of this value? How does it compare to the peer group? (2pts) PIE (FY2024) Comparison? g) Using the multiple you calculated above, calculate a share price for AssetCo at the end of 2024 assuming that the firm has 64 million shares outstanding (Method 1). Repeat this analysis using the average multiple of the peer group (Method 2). (2pts) Table 4: AssetCo Cash Flow Statement Values in MM USD Method 1: Price Method 2: Price h) Project through 2026 Asset Co's Balance sheet and Cash Flow Statement assuming there is no change in any of the Asset and Liability Accounts other than Cash and that AssetCo completely pays 2021A 2022A 2023A 2024E 2025E 2026E Net Income $ Non-Cash Adjs. $ 86 $ $ 107 AWorking Capital $ 7 $ (4) Net Cash From Operations $ 93 $ 103 g Question #2 You are working as a junior analyst for a buy-side firm and the associate you work for wants you to get started on a preliminary valuation model for AssetCo, a public asset manager that runs diversified portfolios in various asset classes and had $40 billion in assets under management (AUM) at the end of 2023. a) The first thing you notice about AssetCo, and the industry in general, is that assets under management (AUM) drives revenue because of fees that are collected on a percentage basis from underlying accounts. Given the invormation in the Table 5 below, calculate an estimate of AssetCo's net Note: You may assume the flows do not participate in the appreciation. Inflows (Billion USD) Outflows (Billion USD) Appreciation of Prior AUM Net Assets (AUM, Billion USD) able 5. AssetCo Flows & AUN 2024E 2025E 2026E $ 2.0 $ 4.0 $ 3.0 1.0 $ 0.5 8.5% 7.5% $ 3.0 $ 20.5% b) Assuming AssetCo generates (and will continue to generate) sales of about 1.5% per dollar of AUM, project the company's revenue for 2024-2026 and populate the approriate field in Table 2 (AssetCo c) Calculate COGs and SG&A costs as a percentage of revenue for 2021-2023. Then use the average values (on a % basis) to project the company's COGs and SG&A for 2024-2026 and populate the d) Assuming AssetCo pays a 10% interest expense on and average debt of $75MM, $45MM and $15MM in 2024, 2025 and 2026 and is taxed at an effective 23.1% rate for at least the next three years, complete the company's Income Statement (Table 2), projecting Net Income from e) Looking at other Asset Managers, you seem to notice that there is a potential relationship between each company's PIE (FY 2024) and its 3-Year Sales Growth and AUM. Construct a multiple linear regression to test this hypothesis. Is either sales growth or AUM a significant predictor (p <0.05) of PIE? Are both? (2pts) Sales Growth AUM Beta p-value Signific Table 1: Asset Manager Characteristics Firm Name FinCo Investments MultiFund Inc Top Portfolios Inc Trailing 3-Yr Sales 2023A AUM 2023 Un- PIE (FY 2024) Growth Rate (Billion) levered Beta 18.0 x 36% $55 1.10 10.0 x 20% $150 1.05 9.0x 15% $20 1.07 Jersey Savings Co 15.0 x 34% $45 1.15 Madison Mutual 12.0x 24% $10 1.12 Forest Financial AssetCo 13.0 x 32% $15 1.20 $40 1.25 Table 2: AssetCo Values in MM USD Income Statement 2021A 2022A 2023A 2024E 2025E 2026E Revenue COGS $ 506 $ 563 $ 608 $ 51 $ 68 $ 73 COGS as % of Sales SG&A 304 $ 332 $ 352 SG&A as % of Sales 101 $ 109 $ 135 Interest (Expense) $ $ $ Taxes 23 $ 80 $ 25 $ 86 $ 31 107 EBIT Net Income Table 3: AssetCo Balance Sheet Values in MM USD 2021A 2022A 2023A 2024E 2025E 2026E Total Assets Cash & Equivalents $ $ 60 151 $ 346 50 $ 143 $ 336 Accounts Receivable $ 5 $ $ 4 Prepaid Expenses $ 5 $ 4 $ 6 Total Liabilities 7 $ 12 $ 100 Accounts Payable Deferred Revenue $ 3 $ $ 3 $ 2 $ $ 3 Accrued Expenses $ Long Term Debt 2 $ 4 $ 4 $ $ $ 90 Shareholders Equity $ APIC 53 $ 139 $ 246 $ 10 $ 10 $ 10 Retained Earnings $ Balance Check 43 $ 129 $ 236 TRUE TRUE TRUE TRUE TRUE TRUE f) Using only the significant predictors in your prior answer, historical sales and your projections for 2024 sales, predict AssetCo's P/E (FY2024) multiple. What do you think of this value? How does it compare to the peer group? (2pts) PIE (FY2024) Comparison? g) Using the multiple you calculated above, calculate a share price for AssetCo at the end of 2024 assuming that the firm has 64 million shares outstanding (Method 1). Repeat this analysis using the average multiple of the peer group (Method 2). (2pts) Table 4: AssetCo Cash Flow Statement Values in MM USD Method 1: Price Method 2: Price h) Project through 2026 Asset Co's Balance sheet and Cash Flow Statement assuming there is no change in any of the Asset and Liability Accounts other than Cash and that AssetCo completely pays 2021A 2022A 2023A 2024E 2025E 2026E Net Income $ Non-Cash Adjs. $ 86 $ $ 107 AWorking Capital $ 7 $ (4) Net Cash From Operations $ 93 $ 103 g