TOttenham Hotspurs
Question 1: Assumptions: •
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Assuming revenue growth rate = 9% until year 2019, and 4% thereafter
Assuming working capital increases proportionally with revenue increase, thus 9% until year 2019, and 4% thereafter
Assuming CAPEX grows by 4% annually
Terminal value is computed after year 2020
Valuation using the WACC method, and assume the cost of capital = 10.25%
Valuation using the WACC method
Please refer to exhibit DCF Analysis in attached excel file.
Results shown in exhibit DCF Analysis, with an NPV of 142.2166 million and 9.29 million outstanding shares, we compute the share price to be $15.3087. Thus, we believe the stock price of Tottenham Hotspurs is undervalued relative to its current stock price ($13.80).
Question 2: Sorry, but I do not know how to derive and analyze the share price of different comparable companies using multiples. However, in terms of the relative advantages and disadvantages between multiples valuation and DCF valuation, the following is a list I have compiled.
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DCF valuation considers the intrinsic value of the firm, which values the entire business (or cash generating ability) of the firm. This is a more accurate measure to value a firm compared to multiples valuation. Consider if the entire industry is overvalued, thus multiples would not provide an accurate value of that individual firm as valuation is based on a relative approach. DCF is also more accurate as it values a firm using free cash flow, which is a more reliable figure compared to income/earnings. It tracks the money left over for investors.
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Compared to the multiples method however, DCF may be considered rigorous in practice as the method takes a much longer time and resource. DCF valuation also
highly
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•
•
•
Assuming revenue growth rate = 9% until year 2019, and 4% thereafter
Assuming working capital increases proportionally with revenue increase, thus 9% until year 2019, and 4% thereafter
Assuming CAPEX grows by 4% annually
Terminal value is computed after year 2020
Valuation using the WACC method, and assume the cost of capital = 10.25%
Valuation using the WACC method
Please refer to exhibit DCF Analysis in attached excel file.
Results shown in exhibit DCF Analysis, with an NPV of 142.2166 million and 9.29 million outstanding shares, we compute the share price to be $15.3087. Thus, we believe the stock price of Tottenham Hotspurs is undervalued relative to its current stock price ($13.80).
Question 2: Sorry, but I do not know how to derive and analyze the share price of different comparable companies using multiples. However, in terms of the relative advantages and disadvantages between multiples valuation and DCF valuation, the following is a list I have compiled.
-‐
DCF valuation considers the intrinsic value of the firm, which values the entire business (or cash generating ability) of the firm. This is a more accurate measure to value a firm compared to multiples valuation. Consider if the entire industry is overvalued, thus multiples would not provide an accurate value of that individual firm as valuation is based on a relative approach. DCF is also more accurate as it values a firm using free cash flow, which is a more reliable figure compared to income/earnings. It tracks the money left over for investors.
-‐
Compared to the multiples method however, DCF may be considered rigorous in practice as the method takes a much longer time and resource. DCF valuation also
highly