Preview

Financial Analysis and Valuation of Megafon DCF as the Base Model

Powerful Essays
Open Document
Open Document
3561 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Financial Analysis and Valuation of Megafon DCF as the Base Model
Coursework: Financial Analysis and Valuation of OJSC Megafon, Russia using DCF as the base model

Prepared by: Victor Amoasii Word count: 3697

CONTENTS

1. Megafon overview and analysis of agency costs
2. Risk Profile Analysis
3. Weighted Average Cost of Capital
4. Megafon valuation
5. Capital investments risk analysis
6. Capital structure and dividend policy

Megafon overview and analysis of agency costs

Megafon is one of the leading three Russian mobile operators. Its majority shareholder is Alisher Usmanov, who controls 50% plus 100 shares through aseries of holding companies including Garsdale, which also owns stakes in Scartel (Yota) and Euroset. TeliaSonera owns a blocking stake of just over 25%. Megafon was listed on the London and Moscow stock exchanges in December 2012, with a free float of just under 15%.

Agency theorists treat the firm as a nexus of contracts between owners, employees, creditors, and others. Agency theory advocates (a) efficiency as a means to improve firm performance, and (b) the use of governance mechanisms to manage agency costs as the primary means of improving efficiency (Eisenhardt 1989; Fama and Jensen 1983).

In general, agency costs and corporate governance risks are considered to be very high in Russia. The main potential corporate governance risks associated with Megafon are generated by the fact that it is majority controlled by one shareholder, Alisher Usmanov, through a number of holding companies, in which various other assets (both related and unrelated to the telecom industry) are also held. This raises the potential risk of related-party transactions that may, in theory, be more beneficial to the controlling shareholder than to minority shareholders in Megafon.

Mitigating this risk to a large degree is:

(1) the presence of TeliaSonera as a minority shareholder with a blocking stake of

You May Also Find These Documents Helpful

  • Powerful Essays

    finance 340 exam study guide

    • 2722 Words
    • 11 Pages

    We would expect agency problems to be less severe in other countries, primarily due to the relatively small percentage of individual ownership. Fewer individual owners should reduce the number of diverse opinions concerning corporate goals. The high percentage of institutional ownership might lead to a higher degree of agreement between owners and managers on decisions concerning risky projects. In addition, institutions may be able to implement more effective monitoring mechanisms than can individual owners, given an institutions’ deeper resources and experiences with their own management. The increase in institutional ownership of stock in the United States and the growing activism of these large shareholder groups may lead to a reduction in agency problems for U.S. corporations and a more efficient market for corporate control.…

    • 2722 Words
    • 11 Pages
    Powerful Essays
  • Powerful Essays

    Fi363 Week 3 Quiz

    • 4451 Words
    • 18 Pages

    n. Agency theory is a form of asymmetric information problems that affect economic behavior is called agency theory. This theory here to explain why financial structure takes the form it does, thereby explaining the facts outlined at the beginning of the chapter.…

    • 4451 Words
    • 18 Pages
    Powerful Essays
  • Satisfactory Essays

    Bus 475 Wk 2 Quiz

    • 320 Words
    • 2 Pages

    The agency theory is defined as the relationship between a person that has employed another person to carry out his, or her plans, or wants. This may be a relationship between hands off owners and top management, or between managers and other employees that have been designated to complete a task by that manager. As long as the person placed in charge has a personal reason to follow the plan, such as stock options, he or she will not consider following a plan devised to benefit his or her personal…

    • 320 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Finm7044 Solution

    • 1661 Words
    • 7 Pages

    Study period : 10 Minutes duration Writing period : 90 Minutes duration Permitted materials: Non-programmable calculator Paper-based dictionary You must attempt to answer all questions. All questions to be completed in the script book provided.…

    • 1661 Words
    • 7 Pages
    Good Essays
  • Good Essays

    Questions on Finance

    • 2776 Words
    • 10 Pages

    Agency relationships occur when one or more of the principals hire an agent to perform a service on behalf of the principals. Agency costs are costs incurred by the owners of a firm when others manage the firm.…

    • 2776 Words
    • 10 Pages
    Good Essays
  • Powerful Essays

    Firms using minority share ownership plans tend to be larger and have high levels of employment, greater levels of sales and are capital intensive. These firms all have complex tasks in industries such as finance, retail and communication. This leads onto the first reason employee share ownership plans are used. Agency theory (Jensen & Meckling 1976) implies that firms that have a sole owner will have the lowest agency costs. The opportunity for agency costs to incur arise because there is not a sole owner and individuals become agents. The person who delegates work in the firm is called the principal and the person to whom work is assigned is called the agent. Firms use minority share ownership plans because the risk preferences by the agents differ to those of the principals’ and that leads to inefficient decisions being made. Agency theorists explain the use of minority employee share ownership plans as a way of delaying compensation to motivate employees and limit the risk of employees shirking their responsibilities.…

    • 1761 Words
    • 8 Pages
    Powerful Essays
  • Powerful Essays

    Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics 3, 305-360.…

    • 2215 Words
    • 10 Pages
    Powerful Essays
  • Good Essays

    Agency: Contract and Agent

    • 6671 Words
    • 27 Pages

    Agency is a three sided (i.e. "triangular") relationship between the principal, the agent and the third party. The internal aspect of agency is the relationship between the principal and the agent; the external aspect is the relationship between the principal and the third party.…

    • 6671 Words
    • 27 Pages
    Good Essays
  • Best Essays

    This report consists of an explanation of agency theory and three hypotheses that are derived from the theory which are:…

    • 4164 Words
    • 17 Pages
    Best Essays
  • Better Essays

    1. [DCF Valuation and Ownership Concepts] The venture investors and founders of ACE Products, a closely held corporation, are contemplating merging the successful venture into a much larger diversified firm that operates in the same industry. ACE estimates its free cash flows that will be available to the enterprise next year at $5,200,000. Since the venture is now in its maturity stage, ACE’s free cash flows are expected to continue to grow at a 6 percent annual compound growth rate in the future. A weighted average cost of capital (WACC) for the venture is estimated at 15 percent. Interest-bearing debt owed by ACE is $17.5 million. In addition, the venture has surplus cash of $4 million. ACE currently has five million shares outstanding, with three million held by venture investors and two million held by founders. The venture investors have an average investment of $2.50 per share while the founders’ average investment is $.50 per share.…

    • 1755 Words
    • 8 Pages
    Better Essays
  • Satisfactory Essays

    SECTION 1: OVERVIEW DCF in theory and in practice Unlevered vs. levered DCF SECTION 2: MODELING THE DCF Modeling unlevered free cash flows Discounting to reflect stub year and mid-year adjustment Terminal value using growth in perpetuity approach Terminal value using exit multiple approach Calculating net debt Shares outstanding using the treasury stock method Modeling the weighted average cost of capital (WACC) Sensitivity analysis using data tables Modeling synergies…

    • 1400 Words
    • 6 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Below is a free essay on "Paginas Amarelas Case Study" from Anti Essays, your source for free research papers, essays, and term paper examples.…

    • 363 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Corporations Outline

    • 24729 Words
    • 99 Pages

    Agency is a fiduciary partnership that results from the manifestation of consent by one person to another that the latter shall act on the former behalf & subject to his control, & consent by the latter so to act. E.g. Shareholders (principals) – officers (agencies).…

    • 24729 Words
    • 99 Pages
    Good Essays
  • Powerful Essays

    The specific definition of the theory based on the sources investorword.com and investopedia.com defined that the agency theory is a theory explaining the relationship between principals such as shareholders and agents. It is essentially involves the cost and way of resolving the conflicts between the principals and agents and change the something slightly to the correct position and decision related to the two group of conflict. Thus, the main objective of agency theory is to explain how contracting parties design contracts to minimize the costs associated with such problems. Thefreedictionary.com defined agency theory seeks to explain the relationship in order to recommend the appropriate incentives for both parties to behave the same way, or more specifically, for the agent to have the incentive to follow principal’s direction. Jensen and Meckling (1976) defined managers of the company as the ‘agents’ and the shareholders as the ‘principal’ based on their analysis. In other words, the shareholder, who is the owner or principal, delegates day to day decision making in the company directors, who are the shareholder’s ‘agents’.…

    • 1421 Words
    • 6 Pages
    Powerful Essays
  • Powerful Essays

    According to Alawattage and Wickramasinghe, agency theory suggests two fundamental reasons for the agency problem. First is the goal contradiction between the agent and principal. Second reason is the information asymmetry between the agent and principal. Principal does not know the amount of effort the agent is putting in his work. This information it can only be accessed with incurring the additional cost (agency cost). The challenge for the principal is to devise the contract which motivates the agent to a level of effort that would maximise the principals’ profit.…

    • 1229 Words
    • 5 Pages
    Powerful Essays