Valuation Report of Two Degree Mobile Limited †Free Samples

Question: Discuss about the Valuation Report of Two Degree Mobile Limited. Answer: Brief Overview of Two Degrees Mobile Limited This report provide discussion in the valuation of Two Degree Mobiles Limited which is a company operating primarily in New Zealand. The company engages in the business of telecommunication and its been serving the customers since quite long. In the recent years, the growth of the company has been phenomenal. Its revenues and the earnings before depreciation interest and tax have been observed to be increasing. This growth is putting the company in a favorable position in the market and this is the reason that the companys stock may be valued upside (2degreesmobile, 2017). Description of the Valuation Approach There are various models and techniques that could be applied for the purposes of valuation of the companys stock, for example, PE multiple model, dividend discount model, discounted cash flow model, and net assets model (Shim Siegel, 2008). The choice of a particular model or technique would depend upon the prevailing circumstances and the purpose of valuation. In the current case of Two Degree Mobile Limited, the valuation models such as discounted cash flow model, PE multiple model, and net assets value have been applied in order to value the stock of the company. As per the net assets value method, the value of stock of Two Degree Mobile Limited is arrived at $0.28 as shown in the table given below: Net assets value $'000 Total assets 573,608.00 Less: Outsider liabilities (461,614.00) Net assets 111,994.00 No of shares 403,809.00 Net assets value per share 0.28 However, this method of valuation is least preferred because it does not take into account the market value of the assets. It provides only the book value of the stock (Poitras, 2010). As per PE Multiple valuation model, the stocks value of the company has been arrived at $0.71 as shown in the table given below: PE Multiple PE ratio of competitor (Chorus Limited) (Yahoo finance, 2017) 21.5 EPS of Two Degree 0.03 Stock of Value of Two Degree 0.71 In this model, the PE ratio of the competing company namely Chorus Limited has been used to compute the stocks price of the company. It is assumed in this model that the company which is under valuation will also carry on the same PE ratio. The reliability of the results under the PE ratio will depend upon the characteristics of the competing company. If the characteristics of the competing company are similar, the value of the stock would be more reliable (Poitras, 2010). Under the discounted cash flow model, the value of the companys stock is computed with reference to the present value of the future cash flows that the business will generate for the shareholders. Under this method, the company stocks value has been arrived at $0.23 as shown in the table given below: Free Cash Flow for Equity Model Operating cash flows of 2016 107,705.00 Growth rate assumed 20% Return on equity (for discounting) 11.92% Year Free cash flows ($'000) PVF@12% Present value 2016 107,705.00 0.893 96,165.18 2017 129,246.00 0.797 103,034.12 2018 155,095.20 0.712 110,393.70 2019 186,114.24 0.636 118,278.96 2020 223,337.09 0.567 126,727.46 554,599.42 Value of debt 461,614.00 92,985.42 No of shares ('000) 403,809.00 Value per share ($) 0.23 Reverences 2degreesmobile. 2017. 2degrees FY15 results strong growth continues Revenue lifts 43.1% - EBITDA up 43.9% - mobile network reaches 95% population coverage. Retrieved October 20, 2017, from https://www.2degreesmobile.co.nz/company/news-and-media-releases/2degrees-fy15-results-strong-growth-continues-revenue-lifts-43-1-ebitda-up-43-9-mobile-network-reaches-95-population-coverage/ Yahoo finance. 2017. Chorus Limited (CNU.AX). Retrieved October 20, 2017, from https://finance.yahoo.com/quote/CNU.AX?p=CNU.AX Shim, J.K. Siegel. J.G. 2008. Financial Management. Barron's Educational Series. Poitras, G. 2010. Valuation of Equity Securities: History, Theory and Application. World Scientific.