Reeby Sports SARY1

GIVEN DAT Balance Sheet Assets

Liabilities 2002 3.12 15.08 20.75 38.95

Cash & Securities Other current assets Net fixed assets Total

2003 3.60 Current Liabilities 16.93 Equity 23.38 43.91 Total

2002 2.90 36.05

2003 3.20 40.71

38.95

43.91

Cash flow Depreciation Pretax profits Tax Aftertax profits Dividends Retained profits

Forecasted profits and dividends (figures in $ millions) 2004 2005 2006 2007 10.47 11.87 7.74 8.40 2.40 3.10 3.12 3.17 8.08 8.77 4.62 5.23 2.83 3.07 1.62 1.83 5.25 5.70 3.00 3.40 2.00 2.00 2.50 2.50 3.25 3.70 0.50 0.90

2008 9.95 3.26 6.69 2.34 4.35 2.50 1.85

Gross investment in fixed assets Investments in net working capital Total

Forecasted investment expenditures expenditures (figures in $ millions) 2004 2005 2006 2007 4.26 10.50 3.34 3.65 1.39 0.60 0.28 0.42 5.65 11.10 3.62 4.07

2008 4.18 0.93 5.11

Cost of Capital Current shares outstanding Shares After equity addition

10% 0.2 mn 0.29 mn

0.09

Expectations for 2011 ROE DPR Growth rate

12% 40% ROE*(1DPR)

7.20%

2009 12.67 3.44 9.23 3.23 6.00 2.50 3.50

2010 15.38 3.68 11.69 4.09 7.60 3.00 4.60

2009 5.37 1.57 6.94

2010 6.28 2.00 8.28

18.30

Question 1: Since company is debt free, interests costs is zero. Hence EBIT+PBT

2004 EBIT=PBT Less :Tax Depreciation Less :Capex change Less: Change in WC FCFF Dividends Dividend Payout Ratio NPV of explicit period Present value of free cash flows in 2003 for forecasted cash flows from 2004 to 2010=

           

8.08 (2.83) 2.40 (4.26) (1.39) 2.00

           

0.38 $8.01

 

2.00  

Free cash flow calcultion (figures in $ millions) 2005 2006 2007 2008 8.77   4.62   5.23   6.69 (3.07)   (1.62)   (1.83)   (2.34) 3.10   3.12   3.17   3.26 (10.50)   (3.34)   (3.65)   (4.18) (0.60)   (0.28)   (0.42)   (0.93) (2.30)   2.50   2.50   2.50 2.00 2.50 2.50 2.50 0.35   0.83   0.74   0.57 $7.68

$8.01 millions $66.95

2009 9.23 (3.23) 3.44 (5.37) (1.57) 2.50 2.50 0.42

58.94

Question 3: Book Value calculations 2004 Start Equity book value Investment Less:Depreciation End Equity book value

       

2005

40.71 5.65 (2.40) 43.96

Calculations for 2011: Net Profit Dividend

figures in mn 2006 2007

       

$7.60 mn $3.04 mn

43.96 11.10 (3.10) 51.96

       

51.96 3.62 (3.12) 52.46

67.11 $3.80

       

52.46 4.07 (3.17) 53.36

2008        

53.36 5.11 (3.26) 55.21

2009 55.21 6.94 (3.44) 58.71 $8.14 8.0532

67.87 $3.26

Using Constant growth DCF Formula Growth Rate PV at horizon in 2010 PV at 2003 Share price expected

7.20% $108.5 mn $63.7 mn $318.5

2005 If company do not Decl 6% $94.97 $ 56.74 $ 283.71

$9.79 $58.97 $68.75 322.25 342.2661

No of share to be 13343.6773 Assuming no growth post 2010: PV at horizon in 2010 PV at 2003 Share price expected

876.511

$76.0 mn $47.0 mn $235.0

So share price should range from $235 to $319 as per DCF valuation Question 2: Comparable Analysis conclusions from Molly Sports' ratios: Molly Sports Ratios George Sports (in mn except share price) 2003 Ratio Name Ratio Value 2010 Valuation Valuation Share Price Market to Book Value 50% $94.97 $56.74 $283.71 Price to Earnings 12 $91.20 $54.81 $274.05 Dividend Yield 3% $101.30 $59.99 $299.95

Conservativ

So share price should range from $274 to $299 as per comparable analysis

Question 4: If $4.3 mn is raised with issue of shares in 2005, then book value will change in 2005: Book Value calculations

Start Equity book value Investment Less:Depreciation End Equity book value

2004 40.71 5.65 -2.4 43.96

Calculations for 2011: Net Profit Dividend

2005 43.96 11.1 -3.1 56.26

8.1 mn 3.2 mn

Using Constant growth DCF Formula PV at horizon in 2010 PV at 2003 Share price expected Assuming no growth post 2010: PV at horizon in 2010 PV at 2003

$115.90 mn $67.48 mn $232.70

$32.45 mn $24.66 mn

figures in mn 2006 2007 56.26 56.76 3.62 4.07 -3.12 -3.17 56.76 57.66

2008 57.66 5.11 -3.26 59.51

2009 59.51 6.94 -3.44 63.01

Share price expected

$85.03

So share price should range from $73 to $264 as per DCF valuation. So dilution is seen.

Question

Given the range of valuations done in Ques 3 above and assuming that Reeby sports needs to go for an IPO of 4.3 mn at the end of 2005, How many shares should be issued and at what price considering all the techniques of valuations?

The 283.79 include the expansion plan so it does not matter where the Financing comes from, So conceptually there will be no change in value of Share price.

Mathematically we have to prove $ 322.25 at 2005 shud be equal to $283.79

With Dividend

2003 $283.68

2004 10

2005 332.25

Without Dividend

2003 $283.64

2004 0

2005 343.2

2010 11.69 (4.09) 3.68 (6.28) (2.00)   3.00 3.00 0.39

2010

3.22

114.9

2010 58.71 8.28 (3.68) 63.31

$0.06 4.0266

FCFF=FCFE since there is zero debt Since dividend is $3.04 mn and min FCFE is equal to max amount of dividend t can be paid SO FCFE= $3.04 mn

are Dividend ($55.69) $4.43 $85.23 96.644 51.7439 483.22 258.7195

$55.69

e

2010 63.01 8.28 -3.68 67.61

 

hat

203.55

Cake Cedar Cid Coat Cure Cape

 

$28.50

$28.05

$21.20

$22.00

$39.00

$38.50

$34.20

$34.50

$33.50

$34.00

$39.00

Fast Feat Fist Foam Fume F1

($0.45) $0.80 ($0.50) $0.30 $0.50 ($39.00)

Daze Dell Dixie Dot Dune

   

$28.00 $20.50

   

$39.50 $34.50

 

$34.00

$0.05 $1.50 ($1.00) $0.00 $0.00

$ 283.71 is the Valuation at 31st Dec 2003, we Need to find for 31st Dec fo If the company decide not to pay any dividends to the existing share hold company valuation at the end of 2005 and per share valuation for the exis OR Company declare dividend or not does its valuation changes or not???

r 2005 and FInd IPO Price. r at the end of 2004 and 2005 . WIll it affect overall ting shareholders at the end of 2005.