Dear All,
the aim of his letter is to find out if anyone
of you has ever bumped into a problem like ours or has any idea how to to solve
it.
We are trying to assess the economic value of a
Company whose core business is selling financial produxcts via via Internet
& telephon.The products which are distributesd are:
funds, insurance policies, asset management
products, banking & financial products (credit cards, checks, brokerage on
line, deposits, and so on ). The Company is on a start up phase and it is
supposed to grow at very high rates.
The core business of the Company is only
distribution of financial products issued by third parties or by other
subsidiary of its parent company.
The composition of the revenues, in 2000 and
2001, is the following:
|
2000 |
2001 |
|
Asset Managment |
37% |
44% |
|
Unit Linked/Life Insurance Products |
2% |
1% |
|
Trading on Line |
25% |
27% |
|
Motor & Car Insurance |
0% |
2% |
|
Financial & Banking Products |
37% |
26% |
|
Total |
100% |
100% |
The first years the Company has to make huge Investments
in IT, marketing and consulting.
It will employ about 150 people (50 nworking in
call center , product specialists and management).
The break even in profi&loss will be reached in almost
three years.
As you probably know traditional valuation
models (as Discounted Cash Flows, Multiples and so on ) , do not the market
capitalization of the relevant stocks, which is often much higher than the value
you can assess through traditional models.
We thought a good method could be using real
options, as the market often do to evaluate comapnies involved in Natural
Resource exploitation.
As the underlying asset is not traded we have no
idea how to build the option pricing model.
Morover we do not know if the proper model is
Black & Scholes or the binomial one.
Have you any idea how to use real option
methodology or have you any other suggestion to evaluate this
Company?
If you need more information on the Company,
we can provide more details on it.
Thank you in advance for your help.
Gabriele Susinno
Dr Sc.
Phys.