Tottenham

5009 words 21 pages
BASE CASE
ASSUMPTIONS MADE
• In order to discount the free cash flow to firm (FCFF), the following formula was used: o = ∗ 1 − + − − ∆

• In order to find WACC, the following assumptions were also made for the CAPM: o Market Risk Premium = FTSE CAGR 2002-2007 - fixed risk-free (given) = 4.68% o Debt costs = Interest payment / long-term debt = 5.25%

• Equity ratio = market cap / total value = 128m/182m
• Debt ratio = Market value debt / total = Exhibit 2 figures (not Balance Sheet)
• Net debt for all different scenarios was assumed to be the value from t=0
• NWC = Current assets07 – current liabilities07 – excess cash07 (Working Capital Turnover Ratio: 58% of sales)1 was kept constant • Terminal Value =

2020
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2 ratio)
Share Price
Equity Value (Net debt balance sheet)
Share Price

188.43
169.71
18.27
160.63
17.29

2

MULTIPLES - RATIONALE
For following Multiples calculation were used: Revenue, EBIT, Avg. Points

The EBIT Multiple was adjusted to take out the negative values. The ratios to EBIT are not meaningful if the firm’s earnings are negative, therefore they were not included (see Berk & DeMarzo).

EBITDA and P/E multiples were not considered because the numbers in the case study are not consistent with the ones from the annual reports, therefore it was not accurate to gather outside data.

Applying the multiples (Median) for revenue and avg. points the stock price of GBP 13.80 is too low (stock undervalued), whereas for the EBIT multiple the stock is overvalued

3

MULTIPLES CALCULATION
Team

EV

Net Debt/EV

Net Debt

Revenue

EV/Revenue

EBIT

934
588
345
291
167
156
106
90

0.84
0.53
0.28
0.18
0.46
0.12
0.32
0.16

784.56
311.64
96.6
52.38
76.82
18.72
33.92
14.4

169
134
154
123
87
75
58
50

5.53
4.39
2.24
2.37
1.92
2.08
1.83
1.80

50.00
11.00
-20.00
20.00
6.00
5.00
-8.00
-11.00

18.68
53.45
-17.25
14.55
27.83
31.20
-13.25
-8.18

82
77
74
67
53
51
49
51

11.39
7.64
4.66
4.34
3.15
3.06
2.16
1.76

42.70
38.10
33.90
24.60
2.30
-1.90
-4.90
0.00

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