Tottenham Football Club Plc Harvard Case Solution & Analysis

Tottenham Football Club Plc Case Solution 

. Assuming Tottenham Hotspurs continue in their current stadium following their current player strategy:

  1. Perform a DCF analysis using the cash flow projections given in the case. Based on this DCF analysis, what is the value of the Hotspurs?

By not undergoing any of the three alternatives, the value for Hotspurs as derived by using the DCF analysis is73.89. In order to come up with this value, the WACC as given in the case of 10.25% is used as well as it is assumed that the net working capital is increased by only 1% and the terminal growth after 2019 is assumed to be 4%. By adding the value of cash and cash equivalents which are given in the case of 26.29 in the enterprise value, the company’s value is calculated, which is100.18. From that the value of the net debt which is given in the balance sheet of 43.08 is subtracted to come up with the equity value of the company which is 57.10. In order to come up with the per share value in this case, the enterprise value is divided with the number of outstanding shares, which is 9.29 which gives the value of 8.13 per share.

Enterprise Value   $92.33
     
Firm Value        118.62
     
Equity Value           75.54
     
Per Share Value             8.13
  1. Perform a multiple analysis. Based on the multiples analysis, is the value of Tottenham any different?

In calculating the value of the Tottenham using the multiple analysis, the average of the enterprise value divided by the EBIT is taken for the comparable companies of this club, which is 13.3795. Now in order to come up with the value of the business by using this approach, the EBITDA multiple is multiplied with the current year EBITDA of the club which is 66.8975 which is different from the value as calculated using the DCF analysis.

There are some merits and demerits of using the multiple analysis method over the DCF method. First and the foremost is the easiness of calculation. Moreover,this method takes the value of the comparable companies that are operating the market. On the other hand, the multiples cannot be calculated if there is negative denominator as well as the consistency in the earning is also required.

In the current case, the value as calculated by using the DCF method is more appropriate.

  1. At its current stock price of £13.80, is Tottenham fairly valued?

The value of the stock price which is calculated using the DCF method is 8.13 per share, whereas the current stock price is 13.80 which is significantly overvalued. According to the calculation, the price should be 8.13 per share.

  1. Using a DCF approach, evaluate each of the following decisions:
  2. Build the new stadium

Due to the lower capacity of just 36,500 people in the current stadium, the management of the club is considering building a new stadium, which requires heavy investment of 250 million which can be offset by the after tax selling price of the current stadium. Moreover, it is estimated that the new stadium will increase the revenue of the club as the attendance will be increased by 40%, whereas the sponsorship revenues are estimated to be increased by 20% and this requires the capital expenditure of 3.3 million in the year 2007 which is expected to be increased by 4% each year. Moreover, the depreciation relating to these capital expenditure is estimated to grow in the same proportion of 4% each year.

In substituting the above values to calculate the value of the new enterprise using the DCF method, the value is 164.20.................

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