SWM - Mark Moore

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Schweitzer-‐Mauduit's As-‐Stated AEG Sensitivity Analysis Growth Rate Cost of Equity 0.0% -‐10.0% -‐20.0% -‐30.0% -‐40.00% -‐50.00% -‐60.00% 8.39% 1.7 1.76 1.78 1.79 34.73 1.79 1.89.70% 0.9 1.25 1.36 1.41 1.45 1.47 1.4911.01% 0.5 0.93 1.08 1.16 1.21 1.24 1.2712.32% 0.3 0.74 0.9 0.99 1.04 1.08 1.113.63% 0.21 0.61 0.77 0.86 0.92 0.96 0.9814.94% 0.17 0.53 0.69 0.77 0.82 0.86 0.8916.25% 0.17 0.48 0.62 0.7 0.75 0.79 0.8215% Analyst Position Undervalued > $58.6 $43.31 < Fairly Valued < $58.60 Overvalued < $43.31 Schweitzer-‐Mauduit's Re-‐Stated AEG Sensitivity Analysis Growth Rate Cost of Equity 0.0% -‐10.0% -‐20.0% -‐30.0% -‐40.00% -‐50.00% -‐60.00% 8.39% 1.87 2.72 2.97 3.09 3.16 3.21 3.249.70% 1.06 2.04 2.37 2.53 2.62 2.69 2.7311.01% 0.68 1.63 1.97 2.14 2.24 2.32 2.3712.32% 0.51 1.37 1.69 1.86 1.97 2.04 2.0913.63% 0.46 1.2 1.5 1.66 1.76 1.83 1.8814.94% 0.45 1.09 1.36 1.51 1.61 1.67 1.7216.25% 0.47 1.01 1.26 1.39 1.48 1.54 1.5915% Analyst Position Undervalued > $58.6 $43.31 < Fairly Valued < $58.60 Overvalued < $43.31 We used a 15% margin of acceptance, which means any number in between 43.31 and58.60 is fairly valued. The AEG sensitivity analysis shows that for both as stated and restatedthe change in the cost of equity and growth rates results in very small changes to price. It alsoshows that no matter how high or low each variable is, <strong>SWM</strong> is a highly overvalued firm. Wetake great consideration in the AEG model to determine the value of <strong>SWM</strong> because of its highexplanatory power. Therefore, we can safely say that Schweitzer-Mauduit is overvalued.174
Long-Run Residual Income Valuation ModelThe long-run residual income valuation model is much like the residual income model.With the long run residual income model we will use earnings instead of dividends. Aspreviously mentioned, dividends tend to be inconsistent and therefore forecasted earnings willbe more reasonable. The model relies heavily on book value of equity, return on equity, Ke, andgrowth rates to generate a market value of equity on which to derive a share price. The formulathat will be used for this model is:MVE = BVE * [1+ (ROE-Ke) / (Ke-G)]First, return on equity (ROE) must be calculated. We calculate ROE on a lagged basis bytaking the forecasted net income for the year and dividing it by the previous year’s forecastedbook value of equity.2010 2011 2012 2013 2014 2015 2016 2017 2018ROE0.0068 0.06065 0.06628 0.06834 0.06873 0.07567 0.08032 0.0802 0.0801ROERestated0.01299 0.07019 0.07499 0.07405 0.07583 0.08129 0.08466 0.08369 0.08285175
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Schweitzer-Mauduit International,
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Buyers Willingness to Switch……
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Net Sales/Accounts Receivable……
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Enterprise/EBITDA………………
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Competitive ForceRivalry Among Exis
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they spend money devoted to R & D.
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The next part of our financial anal
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Company OverviewSchweitzer-Mauduit
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table also shows that SWM’s sales
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Competitive ForceDegree of Competit
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The size of the firms in the indust
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Total Assets 3500 3000 2500 2000 1
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Excess CapacityExcess capacity aris
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scale in the industry is vital to a
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1400 1200 1000 800 600 400 200 0 Pr
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RelationshipsThe relationships of t
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its product (indirectly), the threa
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it is easy for them to dictate the
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As far as the purpose of tobacco pa
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Volume per BuyersThe volume a buyer
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(SWM 10-K). Considering the overall
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Cost LeadershipCost leadership mean
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likely for the customer to return a
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of pride in being the “the world
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educing product costs. The governme
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It is evident when reading the tabl
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The second of the two accounting po
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SWM for the most part does a suffic
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Schweitzer-Mauduit and its competit
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their economic activity. If firms h
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contracts and, to a lesser extent,
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The ability to do this gives firms
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their sales in U.S. dollars to mini
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Schweitzer Mauduit 2004 2005 2006 2
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ConclusionThe accounting strategy a
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Schweitzer-Mauduit2004 2007 2006 20
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than capitalized. The only reason t
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5 Δ Sales/Cash from Sales 4 3 2
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Δ Net Sales/Accounts Receivable
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Δ Net Sales/Inventory 30 25 20 1
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0.3 CFFO/OI 0.25 0.2 0.15 0.1 0.05
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12 CFFO/NOA 10 8 6 4 2 SWM AOI UVV
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200 Δ Asset Turnover 150 100 50
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4 Δ Total Accurals/ Sales 2 0 -
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ConclusionThe ratios examined above
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of a firm’s financials. The firm
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Restated Income Statement For ye
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Research and Development Schweitz
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New taxes on Net IncomeIn millions
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Amortized Goodwill
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obligations in the past five years,
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1.200 Quick Asset Ratio 1.000 0.8
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2004 2005 2006 2007 2008SWM 25.9881
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comparison. A small ratio shows inv
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6 Inventory Turnover 5 4 3 2 1 SWM
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2004 2005 2006 2007 2008SWM 79.5248
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Profitability Ratio AnalysisProfita
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Operating Expense RatioThe operatin
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15 Operating Pro`it Margin 10 5 0
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Net Profit Margin 2004 2005 2006 20
Page 124 and 125: Return on AssetsThe return on asset
Page 126 and 127: 40 Return on Equity 20 0 -20 -40
Page 128 and 129: Internal Growth Rate 2004 2005 2006
Page 130 and 131: industry average as much as it did
Page 132 and 133: Debt/Equity RatioThe debt-to-equity
Page 134 and 135: Schweitzer-Mauduit is at a low 1.61
Page 136 and 137: Mauduit has stayed pretty stable th
Page 138 and 139: it looks to keep declining, meaning
Page 140: Gross profit is the next step in fo
Page 143 and 144: Balance Sheet143
Page 145 and 146: liabilities, we take the already fo
Page 147 and 148: Statement of Cash FlowsThe statemen
Page 149 and 150: Estimating Cost of CapitalCost of E
Page 151 and 152: Size-Adjusted Cost of EquityThe CAP
Page 153 and 154: The table below shows the liability
Page 155 and 156: The cost of capital is the interest
Page 157 and 158: declared overvalued. Prices falling
Page 159 and 160: P/E ForecastedCompany PPS EPS P/E F
Page 161 and 162: Dividends/Price RatioCompany PPS DP
Page 163 and 164: Price/EBITDACompany Market Cap EBIT
Page 165 and 166: Price/Free Cash FlowCompany Market
Page 167 and 168: November 2, 2009 we had to calculat
Page 169 and 170: Schweitzer-‐Mauduit's Free Ca
Page 171 and 172: Now that we have calculated the tot
Page 173: subtracting the normal earnings for
Page 177 and 178: Cost of EquityReturn on Equity-0.14
Page 179 and 180: Growth RateReturn on Equity-0.14 -0
Page 181 and 182: Return on Equity RestatedGrowth Rat
Page 183 and 184: Once the industry analysis had been
Page 185 and 186: AppendicesSales Manipulation Diagno
Page 187 and 188: CFFO/ OI Change 2004 2005 2006
Page 189 and 190: UVV 2.170832 2.687889 2.78523 2
Page 191 and 192: Capital Structure RatiosDebt to Equ
Page 193 and 194: 3MonthRatesSUMMARY OUTPUT Regressio
Page 195 and 196: Coefficients Intercept 0.035115 X
Page 197 and 198: Total 71 0.987349 Intercept X Vari
Page 199 and 200: Total 35 0.775347 Intercept X Vari
Page 201 and 202: Total 59 1 2 0.939751 Coefficients
Page 203 and 204: Total 23 3 5 0.624714 Coefficients
Page 205 and 206: Residual Total 46 47 0.624852 0.848
Page 207 and 208: Residual Total 70 71 1 1 6 0.7615
Page 209 and 210: Residual Total 34 35 0.519917 0.775
Page 211 and 212: Price Earnings Growth(P.E.G.)Compan
Page 213 and 214: Discounted Free Cash Flowt 0 1 2 3
Page 215 and 216: Price(11/1/1988)Initial Costof Equi
Page 217 and 218: Figures in Millions (Except per S
Page 219 and 220: Growth Rate RestatedReturn on Equit
Page 221 and 222: Return on EquityGrowth RateKe -30%
Page 223 and 224: Schweitzer-‐Mauduit Restated
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Heakal, Reem. "What Are Economies o
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SWM - Mark Moore

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