Introduction to the Company2
Industry Structure (Based On Product Offerings)5
Five Forces Analysis5
Competitive Rivalry (High)5
Bargaining Power of Suppliers (Low)6
Bargaining Power over Buyers (Medium)6
Threat of Substitutes (High)6
Entry of New Players (High)6
Financial Strength Ratios8
Management Effectiveness Ratios8
Discounted Cash Flow Valuation9
Calculation of Weighted Average Cost of Capital9
Cost of Equity Calculation9
Pro Forma Financial Statements10
Pro forma Profit and Loss Statement10
Pro forma Balance Sheet11
Proforma Cash Flow Statement11
DCF using FCFF11
Results and Conclusion12
Introduction to the Company
Pancake House, Inc. is a publicly listed company in the Philippine Stock Exchange. It is a Filipino-owned corporation, principally engaged in the development, operation and franchising of a casual dining chain of restaurants under the trade name “Pancake House”. The consumer brand name has traditionally been associated with specialty pancakes and waffles and has likewise expanded to offer an array of popular international dishes such as spaghetti, tacos and chicken. The Company also owns and operates various restaurant brands directly or through its subsidiaries. These brands include “Dencio’s”, “Teriyaki Boy”, “Singkit”, “Sizzlin’ Pepper Steak” and “Le Coeur De France”.
Total system-wide sales of the Group (total restaurant sales from company-owned, joint venture and franchised stores) reached PHP 2.1 billion, translating to a compounded annual growth rate of 30% over a 3-year period. The Group opened 20 stores in 2007, including one (1) Pancake House outlet in Sunway Pyramid, Malaysia.
The original Pancake House was established in 1970 by Milagros Basa, Leticia Zamora and Carmen Zaragosa. In 1974, Sta. Rosa Food Services Corporation and in 1978, Extrovert Corporation, were incorporated to hold ownership in succeeding Pancake House outlets. It successfully opened its first franchised outlet in Greenhills, San Juan in 1978. On February 15, 2000, a new investor group led by Mr. Martin P. Lorenzo entered into an Asset Purchase Agreement with SRFSC and Extrovert for the acquisition of the “Pancake House” trade name and purchase of all of the latter’s operating assets. Pending the final purchase, a new team of management and employees was organized to take over the company-owned outlets of SRFSC and Extrovert.
On March 1, 2000, the new investor group incorporated Pancake House, Inc. as the acquisition vehicle of the investor group, finalized the purchase of the operating assets. On December 15, 2000, Pancake House, Inc. was listed in the Philippine Stock Exchange.
The total numbers of outlets of Pancake House as of the end of years 2000 up to 2007 and first quarter of 2008 are as follows:
Since its incorporation, the Company has acquired and developed several brands in the market. The table below summarizes the details of the Company’s acquisitions, as well as the number of outlets of each restaurant chain:
← The company has a large number of strong brands in the restaurant business which promise sustained cash flows in the future. ← The company has been growing quickly over the past 5 years and has established a nationwide presence.
← The company does not cater to some important types of speciality restaurants. ← The restaurant market is saturated with a large number of firms. Thus, the company does not have a large amount of flexibility in setting prices.
← The restaurant business is less affected by the...