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Corporate Strategy & Valuation 

The value of a company is made up of the value of its existing assets plus its growth potential or Real Options Value (ROV). Empirical evidence shows, for example, that this option value accounts for more than 60% of the value of pharmaceutical companies. Using a bottom-up approach to company valuation, the Real Options Group can help assess the intrinsic value of the company (its target price) by properly valuing its embedded strategic options that drive its growth potential, consistent with management’s strategic plans.

To assess a company’s strategy and value we employ our Strategic Real Options Valuation (S-ROV™) methodology. We start by calculating the basic DCF value for each project (assuming committed investment decisions). Next we perform a strategic analysis to identify growth options embedded in the company’s plans and estimate the input parameters (such as volatility, growth rate etc.). Then we use our ROG software to perform a full Real Options Valuation and determine the company’s total intrinsic value. Finally, we can compare this value with the firm’s market valuation arrived at independently using our statistical top-down approach developed for market/security analysis.

The S-ROV™ process can thus help identify a fair value for the company that takes into account its growth potential, using our independent bottom-up and top-down processes, and then compare this estimate with what we observe in the market. If we believe there is mis-pricing we can help the company develop a credible investor relations strategy that helps to convey the true value of the company to its investors. From the external perspective, identifying mispriced securities can help fund managers and investors generate excess returns. The above analysis also serves the core for generating our company research reports.