Following our holiday in freezing Florida last Christmas the question arose as to what company I would use as a living case teaching financial analysis around the world this year. Disney was a candidate. One has to be tactful. Some companies do not go down well in certain parts of the world. Companies involved in making alcohol are not well received in the Middle East. Other countries are more sensitive about businesses in the defence industry - that now tends to rule out my old favourites Cobham and Rolls Royce. Also a definite no to companies into profiteering - that eliminates most of the financial sector. So very conflicted I settled on Mickey and Co. Would the mouse have the power to entertain the many MBA students worn down by their many classes in strategy (something to do with a Blue Duck is all the rage now I understand), Marketing,and Human Resource Management deperately looking for light relief in the comforting embrace of finance.
Trawling through the accounts of Disney is not quite as entertaining as hurtling around space mountain, in the dark, with no idea where you are going and with an overwhleming desire to throw up. But its not much different. A forensic examination of the financial report revealed that it had been printed with Soy Ink (whatever that is) and that it came from 'mixed sources'. I presumed that meant the paper but I might be wrong.
Disney is happy that even though there has been a recession that the Chinese Government will allow a theme park to be built in Shanghai. They have also taken over Marvel and have released some films that truly reflect the values the company stands for. They have also invested in two new cruise ships to enlarge their growing vacations market
At the headline level the company's returns to common stock holders has declined since its peak in 2005. But the company has put in a solid performance in 2009 and its share price looks very fairly valued at $35. How do I know this? Well so far 12 groups have undertaken a full financial appraisal for the company, forecasted the accounts for the next five years, backtested and stress tested their valuation models and come out with their estimated share price. Now I suspect you can guess the outcome. That's right - some groups did reasonably well and came in within $4 of the share price. Others did less well. Obviously as workshops occured at different times the actual price was different for different groups but taking the deviations from actual and averaging them the estimated price was $34.39. Rather interestingly the spread of results reflected the volatility during the period at about 20%. What does this say about the market and the way it works? Perhaps I will have more to say on this in future posts.