There is considerable amount of debate among practitioners regarding the appropriate model to use as the benchmark for assessing the cost of equity (and hence the cost of capital) when conducting valuation and fairness opinions. Nicholas was engaged to prepare a thorough and comprehensive assessment of the different methods currently in use for estimating the cost of equity. The key research topic is whether we should be employing the CAPM or the Fama-French model in the cost of capital estimations.
Brady Corporation has seen operating performance improvement which is not being reflected in the stock performance. Its earnings have grown significantly over the past several years but there has not yet been a meaningful expansion in its trading multiple. The company asked Nicholas to address these three questions:
- Is Brady Corporation stock properly valued?
- What actions can management take to help the market recognize its intrinsic value?
- Brady Corporation has a dual class ownership structure. The NYSE trading stock is non-voting. Is the stock discounted to compensate investors for the lack of voting rights and by what magnitude?
Next Testing is focused on becoming a standardized testing and measurement company whose information allows comparison of many athletes. Next Testing requested that Nicholas analyze the following questions in an effort to fund and grow the company:
- Identify when the most significant step ups in the enterprise value will occur.
- Identify possible financial resources the company could tap in order to finance growth.
- What opportunities for product extensions (more value creation) does the team see?
- At what point does the company switch from a mobile delivery platform to brink and mortar sites?
- Which sports can we offer the most value to?
The Nicholas team analyzed the capital structure, cost of capital, cash distribution and retention decisions at Plexus Corporation. The goal of the project was to provide a framework for tracking and analyzing the best use of excess cash and capital generated from operations. Management had three specific questions: 1) What is the optimal level of cash? 2) What is the most efficient use of the excess cash? 3) What is Plexus's cost of capital (identify the key assumptions such as methodology and inputs like beta, market risk premium)?
Westlake manufactures petrochemicals, plastics, and related fabricated products. Westlake would like the Nicholas team to identify options. Most analysts expect a serious downturn in petrochemicals not more than two years from now. 1) Is closely-related diversification an opportunity to reduce cyclicality and volatility of earnings? What industries or companies should be targeted? 2) Should Westlake seek competitive advantage through increased scale? 3) Identify the impact of geographic expansion on other firms? Are there opportunities for Westlake?
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