|
There are two views of value for every listed company – observed
market value and the company’s internal view of intrinsic
value.
Observed market value as reflected in a share price is the value
that a marginal investor is prepared to pay for a share in
the business at a particular point in time. It is the market’s view
of the value of the strategy being pursued by management.
Intrinsic value is the underlying value of the business under a
given strategy. It is the value that has been agreed between the
board and the management team based on their best internal estimate
of future financial performance – taking into account both the
strategy being pursued and the existing competitive position. It is
also the value at which the board and the management team are
attempting to sell their strategy to the market
A higher value strategy is a strategy that will deliver greater
long term cash flow than the current strategy. Its adoption will
result in a higher intrinsic value.
Observed market value will only increase if market expectations
increase. This will only occur through the market buying-in to
management’s promise of enhanced financial performance under the
new strategy – which is in turn influenced by market sentiment.
KBA assists its clients with the effective communication of
new and higher value strategies, and in educating the professional
investment community in the concept of intrinsic value and how it
can be used as a tool to encourage shareholder wealth
creation.
|
