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Valuation 1 Introduction Valuation

Here are valuations of the companies using different approaches: Adidas: - DCF valuation: €30 billion - Comparable company analysis based on EV/EBITDA multiples: €28-32 billion - Value of substance considering brand value: €35-40 billion Puma: - DCF valuation: €8 billion - Comparable company analysis based on EV/EBITDA multiples: €7-9 billion - Value of substance considering brand value: €10-12 billion Volkswagen: - DCF valuation: €150 billion - Comparable company analysis based on EV/Sales multiples: €140-160 billion - Value in case of

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199 views

Valuation 1 Introduction Valuation

Here are valuations of the companies using different approaches: Adidas: - DCF valuation: €30 billion - Comparable company analysis based on EV/EBITDA multiples: €28-32 billion - Value of substance considering brand value: €35-40 billion Puma: - DCF valuation: €8 billion - Comparable company analysis based on EV/EBITDA multiples: €7-9 billion - Value of substance considering brand value: €10-12 billion Volkswagen: - DCF valuation: €150 billion - Comparable company analysis based on EV/Sales multiples: €140-160 billion - Value in case of

Uploaded by

Ajay Kukreja
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An Introduction to Valuation

Prof. Dr. Martin Uk

What is a company valuation?

the company valuation is a part of investment lesson (i.e. M&As,


IPOs, Spin Offs)
you valuate by two perspectives
Sell Side
Buy Side

At the beginning there is a company analysis (i.e. Due Diligence)


Target function Maximize the SHV
Total Value Sum of operating value + non operating assets

Functions of a company valuation/


For what do we need a company valuation?

Main functions:
Decision making and consulting activities
Mediation
Argumentation
forecasts of company developments and its investments
investment of shareholders = company value
Auxiliary functions
Information
Tax measurement
Contract configuration

Functions of a company valuation/


For what do we need a company valuation?

Objective of Company Valuation:


- to buy Company

- to sell Company
- to give Company away
- to bequeath the Company
- Strategy
- Price
- Risk

Challenge

Company Value Company Price

Methods of Company Valuation

Entire valuation approaches

(Discounted Cash Flow


[DCF], Capitalized Earning Power Approach, Comparable
Company Analysis [CCA], Comparable Transaction Analysis
[CTA])

Single valuation approaches (Value in case of


liquidation, value of substance)

Valuation Methods - Overview

Entire approaches

Single approaches
CCA

Comparison Analysis

CTA

Value of substance

Capitalized Earning Power Appr.


Value in case of
liquidation

DCF-Approaches

Entity Approach

Equity Approach

Weighted Average Cost of Capital (WACC)


Adjusted Present Value (APV)

DCF (WACC) Steps

1. Free Cash Flow-Planning


Through CF determination, different accounting standards
become equilibrated
2. Determination of capital costs

Estimating Beta

3. Discount FCF and Calculate Enterprise Value

4. Calculate equity Value

DCF (WACC) Steps


1. Free Cash Flow-Planning

Receipt of payment from operative business

Overview: Cash flow calculation


-

Pay-outs from operative business

Cash Flow before interest and tax (CF)

Tax in case of complete equity financing

Operating Cash Flow (OCF)

Cash Flow from investment activity

Free Cash Flow (FCF)

Tax Shield

Total Cash Flow (TCF)

+/
-

Cash Flow from financing activity (incl. interest


payments / receipts)

Flow to Equity (FTE)

DCF (WACC) Steps


1. Free Cash Flow-Planning

Looking to the crystal ball

DCF (WACC) Steps


1. Free Cash Flow-Planning

Looking to the Past

DCF (WACC) Steps


1. Free Cash Flow-Planning

Looking to the Future

DCF (WACC) Steps


1. Free Cash Flow-Planning

Looking to the Future

DCF (WACC) Steps


2. Determination of capital costs

weighted average cost of capital (wacc)

E
D D
wacc CAPM r 1 t
V
V
E = Market Value of Equity

V = Company Market Value


D = Market Value of Debt
t = Tax Rate
CAPM = Capital Asset Pricing Model (cost of equity)
rD = cost of debt

DCF (WACC) Steps


2. Determination of capital costs

Capital Asset Pricing Model (CAPM)

CAPM rf r rf
M

CAPM = Capital Asset Pricing Model (cost of equity)


rM = Market Return
rf = Risk Free Rate
Beta

DCF (WACC) Steps


2. Determination of capital costs

Beta

COV ri , r M
VAR r M

ri = expected share return


rM = expected market return

i
i , M
M

DCF (WACC) Steps


3. Discount FCF and Calculate Enterprise Value

EV

Enterprise Value

t 1

FCFt

1 wacct

If: FCF and wacc continuous in the time:

EV
t 1

FCFt

1 wacct

FCF

wacc

Two stage model:

EV
t 1

FCFt

1 wacct

FCF1

1 wacc1

FCF2

1 wacc2

FCF3

1 wacc3

FCFT
waccT

DCF (WACC) Steps


4. Calculate Equity Value

Equity Value EV Debt Value

DCF (WACC)
Valuation of LUKOIL
WACC
Equity-Quota
Debt-Quota
CRP
riksFREE
Market Return
Beta
CAPM
Tax
rD
Debt
Today
g for 2012 & 2013

11,88%
89,01%
11,81%
8,54%
2,89%
11,43%
1,101
12,29%
20,00%
10,00%
7043
06.04.2009
1,00%

Year
t
FCF
PV(FCF)

31.12.2009
0,74
10.659,94

31.12.2010
1,74
5.910,56

31.12.2011
2,74
7.012,71

31.12.2012
3,74
7.082,84

31.12.2013
4,74
7.153,67

TV
4,74
7.153,67

9.813,36

4.863,28

5.157,33

4.655,69

4.202,84

35.370,02

EV

64.062,51

Market Value of Equity

57.019,51

Share Price

67,04

Comparable Company Analysis (CCA)


Basic - Information

CCA want to determine an objective Enterprise Value


CCA is a capital market orientated concept
CCA is influenced by expectations and valuations of the capital
market
CCA is an important part of each research report

CCA has historical and implicated data as its parts

Comparison Analysis
Selection of similar companies (comparable companies CC)
Selection of comparative values CompV (e.g. earnings, turnover, EBIT, )
Calculation of a multiple m (relation between the value of the comparable
company VCCC und the comparative value of this company)
Deduction of the value of the company which is to valuate (value of the
valuation object VCVO)
Based on experience (multiple method), stock exchange prices (Similar
Public Company Approach), proceeds of initial public offerings in the past
(IPO Approach) or realised transaction prices (Recent Acquisition
Approach).

VC VO CompVVO m

VC CC
CompVCC

Comparable Company Analysis (CCA)


Valuation of LUKOIL
Looking for Peers

Comparable Company Analysis (CCA)


Valuation of LUKOIL
Looking for Peers

Comparable Company Analysis (CCA)

MCAP
EV
Sales
EBITDA
CUR_MKT_CAP
CURR_ENTP_VAL SALES_REV_TURNEBITDA
EBIT
ROSN RU Equity
54.050.710.000,00
75.835,70
68.991,00
16.988,00
gazp rm equity
3.268.602.000.000,00
4.437.971,00
2.390.467,00 885.355,00
tnbp ru equity
14.103.660.000,00
16.238,66
25.739,00
8.684,00
nvtk ru equity
7.833.669.000,00
275.926,00
79.272,00
36.798,00

Multiples
EV/Sales
EV/EBITDA
EV/EBIT

1,77
4,71
5,73

EBIT
13.005,00
701.778,00
7.343,00
32.217,00

Company Name
LONG_COMP_NAME
Rosneft Oil Co
Gazprom OAO
TNK-BP Holding
NovaTek OAO

Comparable Company Analysis (CCA)

Lukoil
Number of Shares
LKOH

EQY_SH_OUT
RU Equity 850,56

Sales 2010
BEST_ESALES_NXT_YR
65.915,42

Stock Exch.
EV/Sales
EV/EBITDA
EV/EBIT

EBITDA 2010

EBIT 2010

Debt

BEST_EST_EBITDA_NXT_YR_MEAN
BEST_EEBI_NXT_YR_MEAN
Debt
10.734,78
9.154,08
7.043,00

Estimated Share Price


41,5
Difference to Stock Exch.
128,64
87,14
51,18
9,68
53,42
11,92

Company Valuation
Fair Value LUKOIL

Stock Exch.
EV/Sales
EV/EBITDA
EV/EBIT
DCF
Fair Value

Estimated Share Price


41,5
Difference to Stock Exch.
128,64
87,14
51,18
9,68
53,42
11,92
67,04
25,54
75,07

33,57

Single valuation approaches:


Value of substance

Split off the object of valuation into valuable parts.


Value of reproduction - How much is it to rebuild the company?
Supply market based.
Complete value of reproduction
Immaterial components are considered.

Fractional value of reproduction:


Immaterial components arent considered.

Single valuation approaches:


Value in case of liquidation

Split off the object of valuation into valuable parts.


Fiction of liquidation of the company.
Value the parts with sales market prices.
Adjustment of single values from the balance sheet (e.g. specific
liquidation costs). Debt has to be repayed.
Value of liquidation depends on the intesity and speed of the split off
Value of liquidation is the lower limit of the value of the company.

Single valuation approaches:


Value of substance

Problem: How should the reproduction of a brand or the defence


against competitors be valued?
Unnecessary components for operative business are valued by the
value in case of liquidation
The value of substance is the upper limit of the value of the company.

Excercise

Count the Value of following Companies:


- Adidas
- Puma

- Volkswagen
Compare the Company Value with the Company Price.

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