Stock Market and Class A Shares

3069 Words Apr 20th, 2014 13 Pages
EMPRESAS POLAR vs. BAVARIA, S.A
ACQUISITION OF MINORITY BLOCKS OF
BACKUS & JOHNSTON’S VOTING STOCK

A INTERNATIONAL CORPORATE
GOVERNENCE CASE STUDY

CASE SUBMITTED TO:
PROFESSOR LOPEZ DE SILANES

STUDENT DETAILS
NAME

COURSE

MS FINANCE

TRACK

17 JANUARI 2014

VINEETH VIJAYAN
CORPORATE FINANCE & BANKING

ROLL NUMBER 13030






DO A DCF OF BACKUS.

SPELL OUT YOUR ASSUMPTIONS ABOUT THE COMPANY, THE
INDUSTRY AND PERU. IN ADDITION TO ASSUMPTIONS ABOUT
THE GROWTH OF BEER DEMAND IN PERU,
YOU WILL NEED TO USE INFORMATION ABOUT PRICE AND
INCOME ELASTICITY'S TO MAKE YOUR PROJECTIONS.

DCF MODEL ASSUMPTIONS
Key Input Metric


COST OF EQUITY

METRIC

VALUE

REMARK

Risk free rate

4.7%

Peruvian Brady Bonds corrected for country risk
…show more content…
( 11.8)


We multiply average EV/EBITDA multiple with Company EBITDA
(50.47) to arrive at market determined Firm Value ( 596.81
USD Mln)



Dividing by number of open class A shares(87.2 mln), we finally arrive at a Share price of 6.84 USD

RELATIVE VALUATION- A RECAP


We find our classic RV approach using (EV/EBITDA) & (P/S) Method returning a firm value less than that of DCF Method.
FIRM VALUE

VALUE OF SHARE

7,124

11.66

EV/EBITDA

596

06.84

PRICE/SALES

291

03.35

DCF



Class A shares used for computation of shares outstanding for RV method while sum of Class A+ Class I shares used to compute intrinsic value of stock



Due to markets with less than 100% liquidity & synchronisation ( Exhibit 22-23) and less developed stock exchanges, shares are competitively under priced.



stock prices do not reflect the fundamental and intrinsic value due to presence of different class of shares.

RELATIVE VALUATION- ANALYSIS


Company has a higher EV/EBITDA multiple compared to peer group showing it to be undervalued. It also reflects in the value of share computed on lower side (3.5 USD)



A lower EV/EBITDA multiple (< 10) shows a matured industry with concentrated players evident in the company mix in major South
American markets( Exhibit 1-5)



Price/Sales method showing a lower value due to vastly different operating margins of peer group and also

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