EBIT/EBITDA Multiple Valuation Calculation: FY2019(2) Perspective
Quote:
Originally Posted by
Snoopy
So we can carry on using historical comparative ratios, provided we use EBIT and EBITDA figures calculated under the 'old standard'. Let's begin!
The following valuation is based on historical earnings as listed in the FY2019(2) annual report that covered the ten month period ended 31-12-2019. Generally you would try to value a company on forecast earnings. However, due to Covid-19, these are likely to be significantly disrupted. By using last years results I am effectively 'looking through' the current financial year with the expectation that earnings will recover to FY2019(2) levels by FY2021. It is up to individual investors to judge how realistic that assumption is.
It is common to value a company based on 'enterprise value'. This reflects the fact that anyone acquiring a company for the purposes of control will have to pay the market value for the shares (a positive asset) and take on the book value of the balance sheet value of the net debt (a negative asset).
Enterprise Value = Market Capitalisation +Total Debt − Cash
In this instance the 'Enterprise Value market factor' is determined by historical earnings multiples that the market has determined it would be willing to pay for similar companies. This information can be found in the 'Target Company Statement' as commissioned by 'Restaurant Brands' in response the 'Finaccess' offer to buy a controlling stake in RBD in early 2019.
|
Historical EBITDA |
Historical EBIT |
Reference |
As Reported |
$86.547m |
$59.013m |
AR2019(2) page 80 Note 15 (IFRS 16 effects removed) |
Normalised for full year ( x12/10) {A} |
$103.856m |
$70.816m |
|
Market Multiple {B} |
10.9 |
18 |
RBD Commissioned Independent Advisors Report p32 |
Net Debt @ 31-12-2019 (Total Debt - Cash) {C} |
$119.361m |
$119.361m |
AR2019(2) p60 'Balance Sheet' |
Enterprise Value @ 31-12-2019: {A} x {B} - {C} |
$1,012.674m |
$1155.317m |
|
No. of Shares on Issue@ 31-12-2019 |
124.759m |
$124.759m |
|
Enterprise Value 'per share' |
$8.11 |
$9.26 |
|
The share price closed at $12.07 on Friday. You could argue that since Covid-19 there has been a 'flight to safety' and those companies supplying staples (like food) have been re-rated. You could also argue that lower market interest rates have themselves pushed share valuations higher. However the premium that the market is pricing into these shares does seem very significant (between 30% and 49%). Good as this company is, it looks to me to be too highly priced to reflect any type of historical norm fair value. There is also some uncertainty as to whether the latest Californian restaurant chain acquisition will put pressure on the company's banking covenants as well. Consequently I would suggest new investors avoid putting money into RBD at these prices.
SNOOPY
discl: who nevertheless intends holding onto my own residual shareholding!