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SIMULATIONS

Bl de France GM

Bl de France GM

General meeting of Bl de France

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Bl de France GM simulation   SC_BDF1_US_V6

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 (MKT), limit orders (LMT), best limit orders (BL), stop orders (STP) and stop limit orders (STL).

The duration of the simulation is initially set to 10 minutes, 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 sent 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 simulation (15 points): 3 questions about the simulation (5 points by question).

Bl de France firm

Bl de France is a French wheat producer. 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.

Bl de France fields are mainly located in the Beauce area in the center of France.

The sales structure is composed of two parts:

  • Long-term contracts: commitment to sell to food-processing firms fixed quantities of wheat (total of 5 million tonnes per year) at a fixed price (average price of €300 per tonne) for several years

  • Sale of the rest of the production on the international wheat market at the market price.

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 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 11:00 am (French time), Bl de France invites its shareholders for its annual General Meeting. Charles-Louis Turgot de la Beauce, President of Bl de France, will announce the financial results over the past year 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.

          Read the market consensus for Blé de France

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

What is the firm going to announce? How will the market react to the news? And especially how will you react? Those 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 quite used in practice.

For the Bl de France company, 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 decrease 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.

          Read the technical note on PER


What you will learn...

The Bl de France GM simulation 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 Bl de France GM simulation will be the opportunity to understand how a firm is valued.

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 news. 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... »