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SIMULATIONS

Bl de France GM

Bl de France GM

General meeting of Bl de France

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Simulation Bl de France GM   SC_BDF1_US_V5

Scenario of the simulation

At the start of the simulation, you own an account worth  100,000 in cash and 1,000 Bl de France shares.

As a SimTrader, your goal in this simulation is to maximize your trading gains.

In this simulation, you can send all types of orders to the market: market orders (MAR), limit orders (LIM), best limit orders (BL), stop orders (STOP) and stop limit orders (SL).

The duration of the simulation is initially set to ten minute, which corresponds to a 24-hour trading day. Using the TimeLine, you can increase or decrease the simulation speed at any time.

Grading

Your grade for this simulation (100 points) takes into account the following elements:

  • Your trading performance (60 points): your relative performance, that is to say the difference between your gain/loss on your position with your intervention during the simulation and the gain/loss without your intervention (as if you haven't send any order)

  • Your trading activity (25 points): the launching of the simulation (5 points), your determination to go to the end of the simulation (10 points) and the sending of at least one order to the market (10 points)

  • Your grade in the MCQ test at the end of simulaton (15 points): 3 questions about the simulation (5 points by question).

Bl de France firm

Bl de France is a French wheat producer. Its fields are mailny located in the center of France. Bl de France clients are mainly French food-processing firms (in particular firms producing buns for fast foods). It also exports part of its grain crop on the international wheat market.

The firm was created in 1780 by the Turgot de la Beauce brothers, nephews of the famous financial controller of the King of France Louis XVI. The firm is still managed by a descendant of the founders, Charles-Louis Turgot de la Beauce, who is an emblem of the cereal industry in France.

Evolution of the stock price

The ticker symbol for Bl de France shares traded on the market is BDF.

Bl de France was introduced in the French stock market in the 1970s. During the past few years, its stock price soared. This strong price increase can be partly explained by the strong the increase of the wheat prices at the world level.

Over the recent period, the stock price of BDF stocks has fluctuated around  100 depending on the news flow about the company and the price of wheat.

What will happen today...

Today, at 11 am (French time), Bl de France (BDF) invites its shareholders for its annual General Meeting. Charles-Louis Turgot de la Beauce, President of Bl de France, will announce the financial results and will present the business perspectives of the firm.

A dozen of financial analysts follow the BDF stock and participate to the market consensus. The market expects earnings per share of € 10.

Large food-processing firms may also be interested in Bl de France in order to penetrate the sector. Rumours are flying around and it should be clearer by the end of the day.

What is the firm going to anounce? How the market will react to the news? And especially how will you react? That are the questions...

Model for firm value: PER

We present below the PER model. PER stands for Price/Earnings ratio. The PER is defined by the following relation:

PER = Stock price / Earnings per share

The earnings per share (EPS) is the earnings of the firm divided by the number of shares issued by the firm. The latest announced earnings (last quarter) or an expectation of future earnings are often used.

For the Bl de France firm, the PER for BDF stocks is equal to 10.

The estimation of the stock price of shares issued by a firm can be obtained by using the PER model and by assuming a constant PER over time:

Estimation of stock price = PER * Earnings per share

The PER model is a simple model to value firms, which is is quite used in practice.

For the Bl de France firm, the stock price of BDF stocks has been fluctuating for a while around € 100. Such a price is in line with a Price/Earnings ratio of 10 and a market expectation for earnings per share of € 10.

Today, during the General Meeting of Bl de France, which starts at 11:00 am, Charles-Louis Turgot de la Beauce will announce the earnings per share for Blé de France. If the announced EPS is different from the market expectation of € 10, the BDF stock price may change after the announcement. It may deacrease if the announced value is lower than the expected value, or it may increase if the announced value is higher than the expected value.

The table below gives the estimation of the BDF stock price for different values of earnings per share according to the PER model.

Earnings per share €6 €8 €10 €12 €14
BDF stock price €60 €80 €100 €120 €140

This table may be useful to estimate the new price of BDF stocks after the announcement of EPS during Bl de France General Meeting.


What you will learn...

The simulation Bl de france GM deals with the firm valuation. How is a firm valued? How is the value of the firm reflected into the stock price? This simulation looks at a key concept in finance: earnings per share.

Teaching goals: the simulation All orders will be the opportunity to understand deeper how a market with a limit order book works. How do buyers and sellers meet to trade with each other? What is the supply and demand in such a market? How is the limit order book impacted by a new order? How does the limit order book evolve over time? How does a transaction happen? How are prices determined in such a market? How does the market react to your orders? How to combine all types of orders?

Learning objectives: this simulation will help you to learn the following elements of finance:

  • Evaluate a firm

  • Implement a trading strategy based on your own firm valuation

  • Evaluate the degree of market efficiency.

Before or after launching this simulation, you can learn more on information in financial markets by taking related courses to the simulation.

Download the case note to help you during the simulation.

About the authors of the simulation

Gabriel Eschbach
ACE Finance & Conseil

« The key is knowing how to process information. The market is anticipating what will happen, but things never happen as expected. The market reacts to the rumor and adjusts to the new. And you! What do you expect? How will you react? What are you going to do? »

Professor Franois Longin
ESSEC Business School

« Before starting the simulation, remember that the market is always right; and that the market is always right even when it is wrong... »