LAURA MARTIN: REAL OPTIONS AND CABLE INDUSTRY SOLUTION Case Solution
INTRODUCTION
This case is about Laura Martin’s presentation at the credit Suisse First Boston (CSFB) 1999 broadband conference in which she introduced the real options valuation model in front of leaders of the cable industry.In. that conference, she held a firm view that real option valuation of firms operating cable industry will give them more appropriate value of their company than any other valuation method, such as EBTDA multiple analysis or DCF. She came to this conclusion after her time in cable industry, where she was a sell side analyst for CSFB, she worked there for five years.At. CFSB,she observed changes in the cable industry over the passage of time and realized that real option valuation technique can give a more applicable valuation figure.
The document includes discussion on Laura Martin’s role and her possible stance in case of negative or positive recommendation on companies and her incentives. The first purpose of this report is to evaluate the Martin terminal value multiple for Cox communications.Moreover,this report includes the equity valuations and target price of shares under different circumstances and lastly, the Black Scholes model is applied to calculate the option value and the recommendation as a buy side analyst on whether Cox Communications should be purchased or not.
WEB OF RELATIONSHIPS BETWEEN LAURA MARTIN, THE ‘SELL-SIDE’ EQUITY ANALYST AT CREDIT SUISSE FIRST BOSTON (CSFB), AND THE COMPANIES SHE COVERS.
As we all know that whether it is buy side or sell side, they both play a key role in determining the value of the company’s current value and future business prospects.In this case, Laura Martin is a sell side equity analyst, where her comments on the companies under her consideration will be very valuable to her clients because the investors will consider her recommendation before taking any investment decision of hold, sell or buy. Equity research analyst is normally being incentive by offering her recommendations to institutional investor clients or she will get paid on the provision of advice to various other clients. Any negative comment, which will catch an investor focus would tempt him to sell his holdings in the company and any positive comment from Laura Martin will result in more funds being invested in the companies she is covering by her clients.In short, her recommendation change the risk appetite of her clients. Sell-side analysts may develop an information advantage through feedback on their ideas from their own institutional clients, while it is difficult to assess the value of most information sources. There is indeed a web of relationship between Laura Martin and her other clients......................
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