MIF AVFA Assignment Solutions_Dec2010

8/7/2019 MIF AVFA Assignment Solutions_Dec2010

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Assignment - Session 1 Reviewing Equity Valuati

Eon - Adjusted versus Reported Net Income (m)

2008 2009

Net income attributable to shareholders of E.ON AG 1,283 8,396

Net book gains -1,324 -4,815

Restructuring and cost management expenses 524 443

Other non-operating earnings 6,260 48

taxes and minority interest on non-operating earnings -1,171 1,104

Special tax effects -103 -20

Income/loss from discontinued operations, net 128 172

Adjusted net income attributable to shareholders of E.O 5,597 5,328

Sector multiple 10

Eon premium 10%

Eon multiple 11

Estimated equity value 58,608

Caveat

This answer assumes that we completely agree with the company's definition of Adjust


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on

d net income - not necessarily the case!


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Assignment - Session 2 Identifying components for enterprise value:

Deutsche Telekom - Balance Sheet (m)

Assets 2009 Liabilities

Current Assets 23,012 Current Liabilities

Cash and cash equivalents 5,022 Financial liabilitiesTrade and other receivables 6,757 Trade and other payables

Current recoverable income taxes 144 Income tax liabilities

Other financial assets 2,001 Other provisions

Inventories 1,174 Other liabilities

Other assets 7,914

Non-current assets 104,762 Non current liabilities

Intangible assets 51,705 Financial liabilities

Property, plant and equipment 45,468 Provision for pensions

Investments accounted with equity method 147 Other provisions

Other financial assets 1,739 Deferred tax liabilities

Deferred tax assets 5,162 Other liabilities

Other assets 541

Total assets 127,774 Total liabilities

Equity

Non controlling interest

Total shareholders' equity

Total liabilities and equity

Financing items to be included in enterprise value

Equity 36,354

Non controlling interest 5,583

Total shareholders' equity 41,937

Liabilities

Current Financial Liabilities 9,391

Non Current Financial Liabilities 41,800

Provision for pensions 6,179

Total Liabilities 57,370Cash and cash equivalent 5,022

Total Enterprise Value at Book Value 94,285

Caveat

The question was about identifying the financing assets and liabilities to be included in enter


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As discussed in class, the book values are not necessarily the right numbers to be included in


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Deutsche Telekom

2009

24,794

9,3916,304

511

3,369

5,219

61,043

41,800

6,179

2,161

7,153

3,750

85,837

36,354

5,583

41,937

127,774

rise value.


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enterprise value


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Assignment - Session 3 NWC at Household & Personal Care

Beiersdorf (m) Henkel (m)

2008 2009 2008 2009

Revenues 5,970 5,748 14,131 13,573

Cost of goods sold 1,979 1,882 8,190 7,411

Cash 1,510 1,722 338 1,110

Receivables 894 906 1,847 1,721

Inventories 634 561 1,482 1,218

Other current assets 254 228 1,146 607

Total current assets 3,292 3,417 4,813 4,656

Trade payables 690 699 1,678 1,885

Other short term liabilities 607 628 1,896 1,568

Total current liabilities 1,297 1,327 3,574 3,453

Net Working Capital - narrow

Absolute amount 838 768 1,651 1,054

As a percentage of sales 14.0% 13.4% 11.7% 7.8%

Net Working Capital - broad

Absolute amount 1,995 2,090 1,239 1,203

As a percentage of sales 33.4% 36.4% 8.8% 8.9%

Caveat

Both using the broad and narrow definitions of working capital should lead to the conclusion t

Using cash conversion ratios would have resulted in the same conclusion.

Assignment - Session 3 ROIC at H&M (SKr m)

2008 2009 2009 Average

Sales 88,532 101,393

EBIT 20,138 21,644

EBIT margin 22.7% 21.3%Tax 26% 26%

NOPAT 14,902 16,017

Operating

Net tangible fixed assets 12,441 14,811 13,626

Goodwill 0 0 0


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Other intangible assets 1,656 1,674 1,665

Other fixed assets 1,775 1,797 1,786

Net Working Capital 766 2,966 1,866 *NWC

Other non debt liabilities -1,818 -2,038 -1,928

Invested Capital 14,820 19,210 17,015

Associated investments 0 0 0

Other investments 0 0 0

Total capital employed 14,820 19,210 17,015

Financing

Total common equity 36,950 40,613 38,782

Minority Interests 0 0 0

Net cash/(debt) -22,130 -21,403 -21,767 *Net Cash

Other debt deemed provisions 0 0 0

Net pension asset 0 0 0

Total capital employed 14,820 19,210 17,015

Associated investments 0 0 0

Other investments 0 0 0

Invested Capital 14,820 19,210 17,015

ROIC 94%

Caveats

Return on Invested Capital is calculated on an average invested capital basis rather than yea

Cash is treated as financing rather than operating. Treating cash as operating requires adjust


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hat Henkel is more efficient than Beiersdorf when defined as net working capital as a % of sa


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A/R +Inventory+Other Current Assets - Current Liabilities

Cash and Cash Equivalents + Long-term debt

end

ments to NOPAT to include interest income


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les


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Assignment - Session 4 Equity betas for European Paper

Equity beta Debt Weighting

SCA 1.16 33%

Stora Enso 1.24 29%UPM 1.17 34%

Equity beta Debt Weighting

SCA 0.85 50%

Assignment - Session 4 Akzo Nobel

Capital structure Cost of WACC

Market capitalization 10,746 Unlevered betaMinority interest 1,250 Corporate Tax Rate

Gross debt 3,679 Risk free rate

Cash 1,595 Equity risk premium

Pension deficit 1,450 Credit spread

Cost of Capital

Total Equity 11,996

Total Net Debt 3,534

Equity weighting 77%

Debt weighting 23%

Debt/Equity factor 29%

Unlevered beta 0.90

Corporate Tax Rate 26%

Equity beta 1.10

Cost of equity 9.4%

Cost of debt 4.4%

Weighted average cost of capital 8.3%

Announced share buy back

Before After

Amount of share buy back 2,000

% of market cap repurchased 19%

Equity 11,996 9,996

Debt 3,534 5,534

Equity weighting 77% 64%

Debt weighting 23% 36%

Debt/Equity 29% 55%


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Cost of equity - post buy back

Before After

Unlevered beta 0.9 0.9

Corporate Tax Rate 26% 26%

Equity weighting 77% 64%

Debt weighting 23% 36%

Debt/Equity weighting 29% 55%

Equity beta 1.1 1.3

Risk free rate 4.5% 4.5%

Equity risk premium 4.5% 4.5%

Cost of equity 9.4% 10.2%

Cost of debt 4.4% 4.4%

WACC 8.3% 8.2%


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Equity Weighting Tax rate Unlevered beta

67% 26% 0.85

71% 23% 0.9466% 16% 0.82

Equity Weighting Tax rate Unlevered beta

50% 26% 1.48

0.9026%

4.5%

4.5%

1.5%


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Assignment - Session 5 EPS impact and M&A

Based on 2011 Estimates

1) All cash offer (2.75 cash+debt)

SAP Sybase Transaction

Sales 12,583 1,056

EBIT 3,991 325

Margin 31.7% 30.8%

Cost synergies 0 0 90

EBIT adjusted 3,991 325

Financing income (expense) 10 -30 -66

Profit before tax 4,001 295

Tax rate 29% 29%

Profit after tax 2,841 209

Number of shares outstanding (m) 1,186

EPS adjusted 2.40

Purchase price 2,750

Interest rate 2.4%

Additional interest charge for acquisition -66

Assignment - Session 5 Cost of capital in M&APre - acquisition Pre - acquisition acquisition val

Diageo Moet Hennesy Moet Hennesy

Asset beta 1.1 0.9 0.9

Marginal Corporate Tax Rate 25% 35% 35%

Equity weighting 44% 57% 67%

Debt weighting 56% 43% 33%

Debt/Equity factor 125% 75% 50%

Equity beta 2.1 1.3 1.2

Risk free rate 4.0% 4.0% 4.0%

Equity risk premium 4.5% 4.5% 4.5%Cost of equity 13.6% 10.0% 9.4%

Risk Free Rate 4.0% 4.0% 4.0%

Credit spread 2.0% 1.5% 1.5%

Cost of debt (pre-tax) 6.0% 5.5% 5.5%

Cost of debt (post tax) 4.5% 3.6% 3.6%


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Weighted Average Cost of Capital 8.5% 7.3% 7.4%

COMPONENTS OF WACC

Total Equity 20,000 4,000 6,000

Total Debt 25,000 3,000 3,000

Total Enterprise Value 45,000 7,000 9,000

Equity weighting 44% 57% 67%

Debt weighting 56% 43% 33%

Total capital 100% 100% 100%

Bid premium 50.0%

Caveat

The cost of capital to value the target company should reflect the cost of capital of the targ


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Combined

13,639

4,316

31.6%

90

4,406

-86

4,320

29%

3,067

1,186

2.59 8.0%

e


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Assignment - Session 6 DDM - HSBC

Dividends

2010 Dividends per share 0.49

Expected Growth rate 4.0%

Cost of equity

Beta of the stock 1.00

Riskfree rate 4.00%

Risk Premium 4.50%

Cost of Equity 8.5%

Gordon Growth Model Value 10.9

implied growth rate in share price of US$ 1.5%

Assignment - Session 6 Nordic Banks

SEB SHB Swedbank

Adjusted ROE 2012E 12.3% 18.8% 10.0%

CoE 10.5% 10.5% 10.5%

Growth 3% 3% 3%

2012E adjusted BVPS 44.6 123.8 72.8

Target Price to Book Value 2011 1.2 2.1 0.9

Implied Fair Value 55.3 260.9 67.9


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Swedbank

12.0%

10.5%

3%

72.8

1.2

87.3

MIF AVFA Assignment Solutions_Dec2010

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