Financial Analysis
AGT has experienced strong revenue growth the past 3 years with over 20% compound annual growth rate for that period. Though cost of sales has risen have kept pace, AGT has been able to maintain good EBITA margins. The company rebounded in 2015 from some slightly lower earnings per share which have been positive for the past 3 years. With positive net earnings AGT has been able to maintain its $0.15 quarterly dividend with the stock trading at a healthy 3% yield as of the close on November 24, 2017. We see this stable dividend as a positive signal to shareholders for both the current and future strength of the company.
AGT is now in a much stronger and more flexible financial position after the recent issue of a
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Inventory has also been well managed as evidenced by a 4.79 inventory turnover, above the 3.23 of SOY but once again half of the turnover of PBH. This is however not surprising given the global nature of AGT’s business relative to PBH. While the improvement in many of the key ratios in our forecasted financials suggests that managements strategy has the company headed in the right directions, we are particularly encouraged by our forecast for improvements to the liquidity and leverage ratios. Of note is the significant improvement in the debt to equity ratio from 3.17 in 2016 to a more reasonable 1.75 this year. The long-term debt to capital ratio is also forecast to drop from the current .58 to .45, in line with both PBH and SOY.
Valuation
AGT shares have performed very poorly over the past year down over 45% year to date. In comparison to both SOY and PBH we believe AGT shares are significantly undervalued. The shares of AGT trade a discount base on a EV/EBITDA, EV/Revenue and Price/Book. AGT currently trades at 9.2 times EV/EBITDA (2016) versus the average for the group at 15.4 times . At the average for the group AGT would be valued at $46 per share and at 14 times multiple, which is still less than what SOY is valued at, it would trade at $40 a share.
In our DCF model we have calculated a value of $49 per share , suggesting the company is significantly undervalued. The weighted average cost of capital in our model is 5.58%. We have assumed a
Since the IPO the stock have had a generally speaking stable trend. According to Yahoo! Finance, the stock have grown +8.41% points since December 9th, 2011 until the market was closed on Friday December 7th, 2012. Daily the stock is raging from 16.91 to 17.19 per share, and in a 52 week range from 13.90 to 24.75. The following image is showing
Our estimated cost of capital, 20.81%, is lower than Ricketts’ expected return, 30%-50%, thus the investment is worthy. However, it’s higher than other pessimistic members’ expected return, 10%-15%, making the decision more complex and requiring further valuation。
The cost of equity was found using CAPM, with the given market risk premium of 5%, a beta of .88, and risk-free rate of 4.03%. The beta was found by running a regression of Southwest’s percent change in stock price versus the S&P 500’s percent change in stock price for two years (June 28, 2000 to June 28, 2002). The risk-free rate was the return on a ten-year treasury note issued on June 28, 2002, according to the U.S. Treasury’s website. The tax rate of 39% was used to account for tax savings from leverage. In order to calculate the firm’s leverage, the market value of equity was found from the price per share on July 24, 2002 (Yahoo Finance) and the shares outstanding on the balance sheet of the July 10-Q report, as shown in Exhibit X. The debt value was approximated at the book value since data could not be found regarding its market value. This analysis resulted in a debt weight of 11.74% and equity weight of 88.26%. The final approximation for the weighted average cost of capital was 8.64%.
While performing a DCF analysis, a thorough understanding of the business being analyzed is needed to determine the correct assumptions and items used for the analysis. For this reason, Laura believed this was still a good method to value stocks in this industry. This analysis yields a higher company value than current price.
He can use two methods to determine the value of the company: discount cash flow (DCF) approach and /or comparison with similar companies, which are publically traded.
in our calculations, as this company exhibited dramatic value differences to others in the sample, (likely to skew our results and prove misleading). Using the average of the revised sample field for each ratio, we inserted Torrington’s values where appropriate to generate an entity value. The findings generated two values for Torrington, 606 million and 398 million. Taking the average of these two numbers, Torrington exhibited a relative value of 502.41 million. Because of the lack of related information given in the case, and the often large differences in measures amongst competitors, different capital structures, internal management strategies, there remained many unknowns in our model. We decided it would be best to use this valuation to reaffirm our assumptions in our DCF valuation. (Please see exhibits)
In DCF valuation (Chart 2), long-term growth rate is assumed to be 4%. Change in working capital is calculated as the average of 1997 and 1996 figure and is assumed to be constant for simplicity. Terminal value is valued at $69,398.1 million and NPV is $51,525 million. Stock price will be $37.07, indicating an exchange ratio at 0.46. This is a very conservative valuation as our DCF price is lower than Amoco’s current market price.
If the market value of a stock is lower than its intrinsic value, this stock is defined as “trades at a discount”. To figure out whether AGI stock is traded at a discount to comparable companies, as its management believed, we can simply apply multiple which comes from the average multiple of its comparable companies. Considering fluctuation of future after-tax earnings caused by the change in capital structure, we prefer to use TEV/EBITDA multiple in this case. Amtelecom Group consists of two lines of business which has to been taken into consideration. We separately calculate the value of both companies and their
As noted in Exhibit 3, at higher levels of debt, the company’s EPS increase and they are able to raise dividends per share; these factors are likely to make AHP’s stock more attractive and thereby
USG Corporation is currently trading at $34.26 and has a market capitalization of $4.7 billion. I recommend a BUY because of the
The long-term liquidity risk ratio such as LT debt/Equity, D/E, and Total Liabilities to Total Assets all show a decline from year 2005 due to the repayment of debts. The interest coverage ratio also shows a healthy number of 29.45 in comparison to the industrial average of 15.04 indicating a high ability to pay out its interest expense. Such a low relative risk is not surprising due to the nature of its business depending heavily in R&D development and large intangible assets.
We performed a DCF Analysis for two scenarios: 1) assuming the purchase of the residual equity of LIN Broadcasting; and 2) assuming the sale of the residual equity of LIN Broadcasting (See Exhibits 1 & 2). The most critical assumptions impacting value were: 1) discount rate and 2) terminal growth rate. We relied on discount rates between
* 1. Most of the companies that came up were technology based and are currently going through difficult trends. But I did find a company that I liked a lot called AmeriCredit Corp. The company basically seeks to attract consumers who have credit limitations or past credit trouble and to shoppers buying late-model and new automobiles. Even though it does not sound so exciting, their numbers are outstanding. What especially caught my eye was the positive trend in EPS and the fact that the estimated price at the end of the year was higher than the current price. Multiplying the current P/E * estimated earnings = estimated future price. Another factor that finally convinced me to buy the stock was the fact that it had a Stockscouter rating of 9. I bought 170 shares of ACF at $60.87.
The current valuation for the company is based on the DCF valuation model which assumes, valuation based a market risk-free rate of