Burgundy Asset Management: The Wescast Investment Decision Essay
The firm’s approach was considered concentration and opportunistic since Burgundy tended to Invest In undervalued companies that were either temporarily out of favor because of some worth-term negative event or had been overlooked by Investors and, therefore, were Improperly priced. Strengths: A. Burgundy tends to Invest In undervalued companies that are either temporarily out of favor or have been overlooked by Investors, which means they are Improperly priced. B. Its investment analysis process is based on thought like business people not like risk-taking speculators, with carefully selecting investment portfolios. C.
Burgundy concentrates to evaluate an individual company instead of evaluating the whole economy or many companies. This gives much accurate results as compared to valuating the whole economy or several companies within the same industry. D. Burgundy generates innovative investment ideas by collecting information from publications, subscriptions and industry conference which gives an opportunity to closely track what is happening in company and in industry. E. Burgundy examines the historical performance of the companies to better understand the trend over the years with respect to the events and shows the attractiveness of particular company.
This also helps to provide information of whether this company is a safe investment r not. F. Burgundy also performs a thorough qualitative analysis to validate the legitimacy of company candidate and Justify that future financial statements, potential growth and all statements are factual. They use different techniques to make sure that due diligence is met. G. Burgundy also uses different methods of valuating the candidate company such as: intrinsic value relative to its current market value, discount cash flow, comparable multiple analysis and some other valuation techniques.
The aforementioned processes for valuation of candidate impasses set Burgundy apart and give them advantage when selecting a viable company for future investment. The Information thus collected through this rigorous evaluation process when passed to Investment manager, help make well Informed recommendations and suggestions about the potential Investment In the company. Weaknesses: Besides the arduous process that Burgundy has adopted for selecting candidate companies, following are few factors that company can Improve upon to enhance the selection process. A.
In addition to Independent research of Investment candidate Burgundy should also rely on third party sources to compare the findings. This will help provide a much comprehensive analysis of the company’s future growth and opportunities. B unrevealed stocks are g candidate Tort Torture Investment, out they are much vulnerable to any significant fluctuation in economy and can cause investment companies to lose capital invested. C. Burgundy seems to be conservative in their approach; they should be more aggressive and speculate to maximize the profits for its customers, its not taking risk when investing in company.
They should Ely on their valuation force to make better decisions to generate higher returns. D. Burgundy could take advantage of Top Down approach instead of Bottom Up technique to get a much broader perspective of the whole industry. This would give the sight where to invest money since some companies are doing better in expansions, some in recession and etc.. Also, Burgundy should more focus on cyclical and non-cyclical companies to have better idea where to invest. Question 2 2. Analyze the auto parts industry, including an examination of “competitive forces,” and identify key success factors.
Determine Wastage’s strengths and weaknesses relative to the industry key success factors. Auto parts industry depends on trends of the economy and buyers propensity to purchase new auto mobiles. Auto parts industry is exclusively reliant upon the disposable income of buyers or their ability to spend money on cars. Other key factors are availability of financing option and the replacement cycle for the cars. But the biggest key success factor was creating the supply chain, so called Original Equipment Manufacturer, tier-I auto parts manufacturer and tier-2 auto parts manufacturer.
The MEMO represents big three US supplier and its main function is branding, design and assembly of the automobiles. With tier-I MEMO is eliminating the additional cost of manufacturing the many different parts going into production and tier-I individually becomes an expert in each component part and maximizes the efficiency and lowering costs through mass- production. Tier-2 auto parts supplier represents the smaller component manufacturers that supply their product to either directly to tier-I of MEMO for further assembly.
It requires less sophisticated engineering products. The key success also includes the Memo’s substantial control over design, engineering and pricing. Also, MEMO has power to strive for the lower prices because of high competition. The sophisticated nature and engineering process makes very hard for new player to enter the market, which limits the competition. However, the foreign companies are threat for US companies because they provide diversified customer base in US. In addition, another threat is new technologies and innovations to the operations and manufacturers.
Another threat that in future can be an opportunity is the alternative fuel that can replace existing gas. It is threat for short-term but then suppliers can switch to new parts and components. The strengths of key success factors of Wastes is that the company focuses on key competencies. Through focusing on manufacturing excellence and cost control, company achieved lower scrap rate than competitors, which gave an opportunity to compete on price. Also, Wastes focused on quality which is another advantage over their competitors.
Wastes set industry- leading standards on exhaust flow efficiency and horsepower. The weaknesses that Wastes faces are unpredictable demand of their products. It cannot forecast exact amount AT parts Tanat It snouts supply. Another weakness Is Tanat ten company Is not changing to alternative fuel components that could be vital to add to competitive advantage over other auto parts manufacturer. If the market switches to electrical engines, Wastes could potentially face hard times. Question 3 3. Calculate the intrinsic per share value of Wastes using the free cash flow to firm method.