University of
Piraeus
Athens, February 2015
Ioannou Natalia
Kobotis Alexandros
Mertiti Eleftheria
Moustakis Ioannis
Papathanasiou Konstantinos
Air Transport Sector, Airline Industry
VALUATION ANALYSI
University of Piraeus
Athens, March 2018
Kalapothakos Nikolaos
Kapsiotis Filippos
Kerma Rey
Papadopoulou Georgia
Stylianos Panagiotis
CFA Research Challenge 2018
VALUATION ANALYSIS
GROUP OF COMPANIES
0
2
4
6
8
10
12
14
S h a r e P r i c e
Current Price as
of 8/3 : €5.58
Target Price
Recommendation
0
2
4
6
8
10
12
14
S h a r e P r i c e
Current Price as
of 8/3 : €5.58
Recommendation
0
2
4
6
8
10
12
14
Current Price as
of 8/3 : €5.58
12m-Target Price
€7.43
S h a r e P r i c e
Recommendation
0
2
4
6
8
10
12
14
S h a r e P r i c e
Current Price as
of 8/3 : €5.58
12m-Target Price
Key Drivers:☞ Expected increase in Greek GDP ☞ Increased market share☞ Store expansion
€7.43
Recommendation
➢ 5 operating countries
➢ 7 IKEA stores
➢ 128 Intersport & Athlete’s Foot stores
➢ 178 expected stores by 2022
Greece
68%
Bulgaria
12%
Cyprus
11%
Romania
5%
Turkey
4%
Revenue by country 2016A
1 IKEA
7 INTERSPORT
1 IKEA
4 INTERSPORT
5 IKEA
50 INTERSPORT
12 ATHLETE'S FOOT
29 INTERSPORT
24 INTERSPORT
2 ATHLETE'S FOOT
1950: Establishment
1988: IPO
1999: Franchise agreement
2014: Abandons Wholesale
2014: Franchise agreement
Industry Overview
& Competitiveness
Company
Analysis RisksFinancial
Analysis
Business
Description Valuation
Business Description
Industry Overview
& Competitiveness
Key Drivers
Retail Sales Index
100.0
129.5
143.3149.6
101.2
75.6 71.0 72.2
89.196.4
86.5
146.6
172.9
213.0
0.0
50.0
100.0
150.0
200.0
250.0
2009 2010 2011 2012 2013 2014 2015 2016 2017
Bulgaria
Greece
Cyprus
Romania
Turkey
Key Points
➢ Significant deterioration in Greece’s retail
index
➢ Turkey, Romania and Bulgaria on the rise
Company
Analysis RisksFinancial
Analysis
Business
Description Valuation
Unemployment Rates
0
5
10
15
20
25
30
2010 2011 2012 2013 2014 2015 2016 2017e 2018e 2019e
Greece Bulgaria Romania Cyprus
GDP Growth Rates
-15
-10
-5
0
5
10
15
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Greece Bulgaria Romania Cyprus Turkey
Key Points
➢ GDP growth rates return to positive levels for
Greece
➢ High correlation (more than > 0.70) with retail
sales
➢ Although unemployment is still high in
Greece, it started to downfall
Macro Drivers
Industry Overview
& Competitiveness
0
1
2
3
4
5Bargaining Power of byers
Threat of substitution
Threat of new entrantsExisting Rivarly
Power of suppliers
Price takers, but low switching costs
No immediate substitute – rapid growth of
online shopping
Considerable requirements for capital,
high taxation and underperformance of
retail industry
Strong relationships with IKEA and
Intersport
Strong competition with the arrival of JYSK.
Price war continuous
• Bargaining Power of Byers – Moderate
• Threat of Substitution – Very Low
• Threat of New Entrants – Low
• Existing Rivalry – High
• Power of Suppliers – Moderate
1 5
Very Low Very High
Porter’s Five Forces
Industry Overview
& Competitiveness
€1352
€1443
€1372
€1367
Companies IKEA MARMARIDIS JYSK PRAKTIKER
No. of Goods 7/7 4/7 6/7 7/7
Basket Comparison
IKEA Marmaridis
JYSK PRAKTIKER
Key Points
➢ We chose 7 common goods frequently seen in
students apartments
➢ We calculated the average price of these 7
goods for each company
➢ Summing these individuals prices we ended up
with these representative baskets
➢ Ikea offers the widest variety of products in the
lowest prices.
Industry Overview
& Competitiveness
Company
Analysis RisksFinancial
Analysis
Business
Description Valuation
Industry Overview
& Competitiveness
Group’s Future
(€20,000)
(€10,000)
€0
€10,000
€20,000
€30,000
€40,000
€50,000
€60,000
€70,000
2012 A 2013 A 2014 A 2015 A 2016 A 2017 E 2018 E 2019 E 2020 E 2021 E 2022 E
Net Income/Loss EBITDA Operating Profit/(Loss)
050000100000150000200000250000300000350000
020406080
100120140160
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Greece Romania Bulgaria Cyprus Turkey sales
Intersport’s Store Expansion Plan
Key Points
➢ Intersport’s 5Y CAGR: 10.2%
➢ IKEA’S 5Y CAGR: 3%
➢ Chain of stores (Intersport & Athlete’s Foot:
178 stores by 2022
➢ Strategic expansion in Turkey, with a total of
46 store
➢ Net Income (2022E): € 27 mil.
Valuation
BUY
Discounted Cash Flows to
the Firm Model
12-month target price of
€7.43
Valuation Model
Industry Overview
& Competitiveness
Company
Analysis RisksFinancial
Analysis
Business
Description Valuation
3.45%
4.3%
2.9%
3.9%
2.17% 2.61%
Terminal Growth Rate
Industry Overview
& Competitiveness
Company
Analysis RisksFinancial
Analysis
Business
Description Valuation
Beta Market
Risk
Premium
Risk
free
0.76% 0.978 13%
13.47%
Cost of Equity
WACC= ?
Tax
Rate
29%
Weighted
Average
Interest rate
4.98%
Cost of Debt
3.53%
Stage B.
Stage C.
WACC
Calculation
Stage A.
10%
Beta Market
Risk
Premium
Risk
free
0.76% 0.978 13%
13.47%
Cost of Equity
WACC= ?
Tax
Rate
29%
Weighted
Average
Interest rate
4.98%
Cost of Debt
3.53%
Stage B.
Stage C.
WACC
Calculation
Stage A.
10%
Beta Market
Risk
Premium
Risk
free
0.76% 0.978 13%
13.47%
Cost of Equity
WACC= ?
Tax
Rate
29%
Weighted
Average
Interest rate
4.98%
Cost of Debt
3.53%
Stage B.
Stage C.
WACC
Calculation
Stage A.
10%
Beta Market
Risk
Premium
Risk
free
0.76% 0.978 13%
13.47%
Cost of Equity
WACC= ?
Tax
Rate
29%
Weighted
Average
Interest rate
4.98%
Cost of Debt
3.53%
Stage B.
Stage C.
WACC
Calculation
Stage A.
10%
0.76%
Beta Market
Risk
Premium
Risk
free
0.76% 0.978 13%
13.47%
Cost of Equity
WACC= ?
Tax
Rate
29%
Weighted
Average
Interest rate
4.98%
Cost of Debt
3.53%
Stage B.
Stage C.
WACC
Calculation
Stage A.
10%
Beta Market
Risk
Premium
Risk
free
0.76% 0.978 13%
13.47%
Cost of Equity
WACC= ?
Tax
Rate
29%
Weighted
Average Interest
rate
4.98%
Cost of Debt
3.53%
Stage B.
Stage C.
WACC
Calculation
Stage A.
10%
12-month target price:
€6.96
MRP:
14%
ERP: 6.63%
GR Rating:
Caa2
12-month target price:
€7.43
MRP:
13%
ERP: 6.63%
GR Rating:
Β3
Rating Upgrade
-1
1
3
5
7
9
11
13
15S h a r e P r i c e
7.43
12.9
4
Bull Case Assumptions
• g=3.88%
• MRP=11%
• Sales growth rate=7%
Bear Case Assumptions
• g=2%
• MRP=14%
• Sales growth rate=4%
Scenario Analysis
Financial Analysis
Companies EBIT Margin Net Income
Margin
Gross Margin
Fourlis 5.70% 1.80% 42.51%
Praktiker 3% 2% 34%
Leroy Merlin -9% -12% 33%
Marmaridis 12% 4% 47%
Sato -17% -17% 35.23%
Average -3% 6% 38%
Key Points
➢ Better operating margins
➢ Profitability ratios going upwards
Key Ratios
Industry Overview
& Competitiveness
Company
Analysis RisksFinancial
Analysis
Business
Description Valuation
2016a
2017e
2.65
2015a
0.16%
4.72%
8.88%
RoE
Year
2.56
7.92%
2.47
2.34
2018e
RoE Decomposition (DuPont)
➢ Leverage main RoE’s component
➢ Tremendous increase in 2016
➢ Net profit margin enhancement
➢ RoE increase overall
FCFFCurrent
Price
5.81 7.43
Buy 33.21%Hold 57.41%Sell 9.4%
Model’s inputs:
➢ Future sales per year
➢ Terminal growth rate
Monte Carlo Simulation
2.69 16.9
Risks
Investment
Risks
Business Risks
Other Risks
Market Risks
Most Important Risks
Foreign
Competitors/
E-commerce
Industry Overview
& Competitiveness
Company
Analysis RisksFinancial
Analysis
Business
Description Valuation
1st Risk
Financing/Funding Risk
Foreign competitors/ E-commerce
Risk about the expansion of the physical network 1
2
New stores our crucial for our valuation since it is based on a L-F-L model
Management constantly achieves and surpasses its goals
Investment
RisksIndustry Overview
& Competitiveness
Company
Analysis RisksFinancial
Analysis
Business
Description Valuation
Risk about the expansion of the physical network
Foreign competitors/ E-commerce
1
2
Fourlis can lose market share from foreign competitors and/or E-commerce
The group must improve its e-commerce part
2nd Risk
Financing/Funding Risk
Investment
RisksIndustry Overview
& Competitiveness
Company
Analysis RisksFinancial
Analysis
Business
Description Valuation
3rd Risk
Risk about the expansion of the physical network
Financing/Funding Risk
Foreign competitors/ E-commerce
1
2
Lack of sufficient funds can bring the group to its knees
However, management is very effective
Investment
RisksIndustry Overview
& Competitiveness
Company
Analysis RisksFinancial
Analysis
Business
Description Valuation
BUY
Profitability
Growth
Competitiveness
Conclusion
Q&A - Appendices
Why use Moving Average for Beta?
• Beta is not a constant number
• Beta Changes with market conditions & company’s status
Calculations
• Fourlis Closing Prices. Y variable
• FTSE ASE Large Cap Index Closing Prices. X variable
Multiple OLS
Regressions Moving Average
Model
Program’s Output
Why did we use only DFCFF model?
• There are not public direct competitors
• Discounting Free Cash Flows only with Cost of Equity can be problematic
-30000
-20000
-10000
0
10000
20000
30000
40000
50000
2017 E 2018 E 2019 E 2020 E 2021 E 2022 E
FREE CASH FLOW TO THE FIRM
Net Income Net NonCash charges (NCC) Int*(1-taxrate)
Inv in fixed capital Inv in working capital
Years 2017E 2018E 2019E 2020E 2021E 2022E
NET INCOME € 13,905 € 16,701 € 18,000 € 21,156 € 24,287 € 27,531
NET NON-CASH CHARGES € 12,167 € 13,281 € 13,413 € 13,564 € 13,731 € 13,915
INTEREST EXPENSE*(1-TAX RATE) € 8,011 € 7,582 € 8,727 € 8,139 € 7,656 € 5,670
INVESTMENT IN FIXED CAPITAL € (11,893) € (11,881) € (11,908) € (11,916) € (11,900) € (11,901)
INVESTMENT IN WORKING
CAPITAL
€ (13,457) € (13,629) € (13,672) € (13,728) € (14,053) € (14,854)
FREE CASH FLOW TO THE FIRM € 8,733 € 12,054 € 14,561 € 17,214 € 19,721 € 20,361
Sales Breakdown
Company
overview
Industry Overview
& Competitiveness
Year 2016 A 2017 E 2018 E 2019 E 2020 E 2021 E 2022 E
Intersport
Revenue136.489 € 151.371 € 169.013 € 186.870 € 205.414 € 225.597 € 246.569 €
IKEA Revenue 290.856 € 291.644 € 298.014 € 305.796 € 316.315 € 327.214 € 338.270 €
Total Revenue 427.345 € 443.015 € 467.027 € 492.667 € 521.730 € 552.811 € 584.839 €
0%
40%
80%
120%
2016 2017 2018 2019 2020 2021 2022
IKEA INTERSPORT