ISS A/S THE VALUATION ANALYSIS Harvard Case Solution & Analysis

ISS A/S THE VALUATION ANALYSIS Case Study Solution

PROFITABILITY

We are considering the current profitability of the organization and its current performance on its financial position, we will be looking through the Key performance indicators of the organization which are provided below:

Revenue Growth2002

0.00%

 

2003

-5.03%

 

2004

 

10.38%

EBIT PER SALES5.29%17.82%5.65%
Operating Margin5.28%5.43%5.57%
Profit Before Goodwill2.94%3.26%3.24%
Net Profit Margin0.65%0.79%0.32%
Interest Cover ( times )5.557.416.56
Goodwill Amortization Cover ( times )2.252.201.85

 

The organization had fluctuating revenue growth despite its strategic growth measures with a decrease in the 2003 year of a negative -5%, the 2004 was a growth year for the organization with a positive 10% increase but this can be categorized towards the inorganic growth perspectives.

The Operating margin shows an upward trend from 5.28% to 5.57%, this means that the management of the organization is focusing on the management with limiting the costs to provide at a minimum. Goodwill Impairment is a big loss for the organization as it is a direct 2.94% of the revenue in 2002, increasing to 3.24% in 2004. This is a heavy expense for the organization, but does not include the cash flows in that perspectives which is also a positive sign.

Interest cover during the period is also reducing for the organization due to meeting its needs for acquisition through debt financing; increasing the overall debt of the organization.

In the Key performance indications matter, the organization is increasing its revenue principles but also increasing its financing costs which will limit the organizational capability as it is already affecting the business after tax profits.

 

VALUATION

 

The company has been offered a share value of DKK 470 per share by FS HOLDINGS for acquisition, which leads to an organizational value of DKK 22.1 Billion.

 

DISCOUNTED CASH FLOW METHOD (DCF METHOD)

 

We will be looking at the valuation principles through the Discounted Cash flow method, this is the valuation of the organization considering the required returns expected by the shareholders and the debt requirements. This methods is the most familiar and the most used method by the investors in coming with an amount which will total the organization’s future valuations and its revenue projections. (INVESTOPEDIA, 2018).

 

(Amounts in DKK Millions)200220032004200520062007200820092009-----
Revenue3798436165403554107341804425494330644077
Staff Costs257052441426577
Cost of Sales282526863146
Other Operating Expenses68415877736
Depreciation and Amortization6032032617
EBIT20106446227939394009408041534227
Operating Profit20041964224922302270231023522393
Taxation528553598624636647658670
Profit After Tax14761411165116061634166316931723
Additional Finance Costs on 15 million Debt891891891891891
Additional Working Capital Requirements5088194109127
NET CASH FLOWS206662678693705705
Discount at WACC @ 5%0.9520.9070.8640.8230.784
DISCOUNTED CASH FLOWS196.6600.5585.8569.8552.6
TERMINAL VALUE11268.7
ENTERPRISE VALUE13774.1
No. Of shares44718982
 
PRICE PER SHARE - DKK308.0

 

As per the DCF Method of Calculation being performed, the price per share suggested is at DKK 308 per share providing a value of DKK 13.7 Billion. This price is much higher than the anticipated purchase price of around DKK 470 per share. This amount is provided on the future projections of the organization and its capacity. The previous debt had not been accounted for as the organization has no obligation to pay off its debt previously taken.

The WACC has been calculated on the provided Return on Equity expected by the shareholders and the debt obligations on the organization. The DCF method opposes the Share purchase of ISS Organization.

 

 MULTIPLES VALUATION

 

The other method to be implied in our valuation considerance will be through the market multiples method, this will consider the KPI’s and the profit multiples for the organization, its competitors, and the whole industry; this will provide a more market and realistic figure which will be considering the other factors ignored by the DCF method for appraisal. The calculation for the market multiples are provided below:

VALUATION USING MARKET MULTIPLES
REVENUESEBITDANUMBER OF SHARESMarket ValueEPSPE RATIO
G4S   41,178.00      845.00   1,264.00    24,534.000.668513        29.03
RENTOKIL   23,396.00   5,422.00   1,810.00    40,924.002.99558          7.55
SECURITAS   48,758.00   4,693.00      630.00    41,544.007.449206          8.85
SODEXO   85,627.00   5,356.00      156.00    32,774.0034.33333          6.12
ISS A/S     7,042.76      397.7344.71898    13,818.17          8.89        34.74
ENTERPRISE VALUE OF THE ORGANIZATION     8,902.40

 

According to the market multiples method, the enterprise value of the ISS Organization had been calculated at DKK 8.902 Billion. Which suggests a cash share price of DKK 199.07. This method also opposes the acquisition of the entity because of its low value in its returns and growth perspectives.

CONCLUSION

After looking at the financial analysis of the firm, its internal factors and assessing the value of the organizational profitability, its revenues growth and future projections, and market comparable figures. Both the valuation figures provide a share price of DKK 308 / share and a value of DKK 199.07 / share. These figures considering the amounts are highly negative in support of the acquisition by the F/S HOLDINGS.

If the organization does go ahead and purchase the equity of the ISS Organization, then it would be on the market exposure and the organizational status as a global organization rather than the profitability or the future projections for the organization..........

 

This is just a sample partical work. Please place the order on the website to get your own originally done case solution.

Other Similar Case Solutions like

ISS A/S THE VALUATION ANALYSIS

Share This