MscBA 2012 - Advanced Corporate Finance Coursework-2

5/24/2018 MscBA 2012 - Advanced Corporate Finance Coursework-2

1/78Daniel Serra Lopes Felipe Martins Brand da Costa Hugo Miguel Sismeiro Reis Joana Filipe Santana Joana Dias Serrano

Tottenham Hotspur plcCase Study Analysis

MscBA Master in Science of Business Administration

Advanced Corporate Finance Professor Helena Pinto de Sousa

April 2012


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Agenda

Case Study Introduction

Valuation for the Base Scenario

Discounted Cash Flow (DCF) Valuation

Adjusted Present Value (APV) Valuation

Is Tottenham Hotspur PLC fairly valued? The Rationale.

DCF Valuation for the new likely scenarios

To build the new stadium

To sign a new striker

To build the new stadium and sign a new striker

Final wrap-up

Tottenham Hotspur PLC Case Study


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Agenda










Final wrap-up



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As it is described throughout the case, Tottenham Hotspur Football Club is contemplating a bold move for the organizatiothis requires a significant investment in physical assets. They want to gain competitive advantage, as some of theicompetitors have achieved, and they want to strengthen their financial stability and long-run success.

The organization believes that one way to acquire it is through the construction of a new stadium. They want to accommmore people and they believe that they will be able to increase the club expected attendance revenue and sponsorship rev

Besides, these added revenues would allow the club to compete more competitively in the acquisition market for supinternational players. The clubs success does not only depend on financial resources and the teamsexpected improvwould also contribute to their success, both cultural and financial. Therefore, besides constructing a new stadium theconsidering strengthening their position in the player acquisition market.

The main goal of the case is to evaluate these assets, in order to understand the relevance of the stadiumsconstruction anthe club can proceed in the player acquisition market to be able to benefit from it. This implies to understand the impact ofdecisions in the value of the company, to compare it with the initial scenario, to determine the impact in terms of the comstock valuation and also to study the market reaction when one or both of them are pursued. Only through this analys

possible to determine if these strategies are rational and reliable.


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Agenda










Final wrap-up



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Valuation for the Base ScenarioMain assumptions considered (I)


InfofromF

ORBESANALYSIS

31/12/2012(Exhibit2

1

EV - Forbes 156

2

Net Debt/EV 0,12

3

Revenue - Forbes 75

4

Operating Income 5

5

Avg. Points (98-07) 51

6

Avg. Net Goals (98-2007) -1,9

7

Net Debt (Market Value) 18,72

8

Debt (Market Value) - Estimated 45,01

9

Equity (Market Value) - Estimated 137,28

10Operating Income 5

ACCOUNTINGandMARKE

TDATA31/12/2007

(Exhibit1

and4)

11 Excess Cash (Accounting) 26,29

12 Company Tax Rate (t) 35%

13 Interest (M) 2,26

14 Tottenham Equity (Levered) Beta 1,29

15 Tax free rate - Rf 4,57%

16 (1 - t) 65%

17 Market Capitalization (Accounting) 128,2

18 Taxes (M) 0,19

19 Long-term Debt (Accounting) 43,08

20Leverage Ratio (L) 0,25


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Valuation for the Base ScenarioMain assumptions considered (II)


(1) Enterprise Value (EV)

Measure of the company's value and it is often used for evaluatingthe entire firm. It is the market cap of the firm, minus the cash, plusthe debt EV = Equity + Debt - Excess Cash. This value can be foundin the case, Exhibit 2.

(3) Revenue

Amount of money that is brought into a company throughout itsbusiness activities, during a specific period. It can be define as thegross income figure from which costs are subtracted to determinenet income. This value can be found in the case, Exhibit 2.

(4) Operating income

Amount of profit realized from a business's operations after takingout operating expenses and depreciation. This value can be foundin the case, Exhibit 2.

(7) Net debt

Measure of a company's ability to repay all its debt if it was calledimmediately. Since we know the value of the Net Debt/EV ratio (2)

and EV (1), we computed Net Debt by multiplying (2)x(1).

Main assumptions

(8) Debt (Market Value)

We estimated the value of the debt adding the value of the Nand the value of the Excess Cash since we know that Net DDebt (8) Excess Cash (11) and both (7) and (11) are knothis type of analysis we have to use the market value of the

(9) Equity (Market Value)

We computed the value of the Equity by subtracting the valEV and the Net Debt. Using the formula

EV(1)=Equity(9)+DExcess Cash (11) we can deduct (9) as we know all the other

(10) Operating income

This value can also be found in the cases financial reports 5, Tottenham Pro Forma Income Statementas it matches tof the EBITDA for the current year.

(11) Excess Cash

The value of excess cash can be found in Tottenham BalanceExhibit 4under the item Cash and Equivalents. It can be dethe income derived from mortgages or other assets backing

that is in excess of what is needed to retire the bond.


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Valuation for the Base ScenarioMain assumptions considered (III)


(12) Tax rate (t)

The value of the company tax rate can be found in the case, Exhibit1. This is the rate at which the business is taxed on income.

(13) Interest

This value can be found in the case Exhibit 5, Income Statement and it is related to the current year. It is the fee that is paid for theuse of borrowed assets as a form of compensation to the owner.

(14) Equity (levered) Beta (Bl)It measures the total corporate risk that is the sum of the businessand financial risks. Tottenham equity beta, also known as leveredbeta, can be found in Exhibit 1.

(15) Tax free rate (Rf)

The value of the 20-year risk free rate is given in the case, Exhibit 1.This is the tax associated with the long-term obligations.

(16) (1-t)

Since we already know the value of the tax rate (12), we only need

to deduct it from one.

Main assumptions

(17) Market Capitalization

Market capitalization is calculated by multiplying a coshares outstanding by the current market price of one shinvestment community uses this figure to determine a cosize. The value can be found in the Balance Sheet, under Land Stockholder Equity.

(18) Taxes

The value of the taxes paid, during the current year, can be Exhibit 5, Income Statement.

(19) Long-term debt

Long term debt is the amount of loans and financial obligatlast over one year. This value can be found in the Balanunder the item long-term debt and deferred interest, net oportion

(20) Leverage Ratio (L)

The leverage ratio was estimated using the formula: (8)/[(8Debt/(Debt + Equity). This measures how much of the orga

is financed by the debt holders.


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Valuation for the Base ScenarioDetermining company Betas and Discount rates for 2007 (I)


Today: 31 of December 2007

21 (D/E) 32,79%

22 Cost of Debt (rd) 5,02%

23 Market Expected Return (rm) 10,49%

24 Market Premium (rm - rf) 5,92%

25 Debt Beta (Bd) 0,08

26 Unlevered Beta (Bu) 1,08

27 Opportunity Cost of Capital (ru) 10,94%

28 Equity Cost (re) - Method 1 12,21%

29 Equity Cost (re) - Method 2 12,21%

30 Adjusted Cost of Capital 10,00%

31 WACC 10,00%

Define assumptions

(21) Debt-to-equity ratio (D/E)

The debt-to-equity ratio indicates the relative proportionshareholdersequity and debt that is used to finance comassets. It was calculated dividing the market value of debtthe market value of equity (9);

(22) Cost of debt (Rd)

We computed the cost of debt using the market value of th(8), and not the accounting value, because the WACC is com

using the marginal cost of the debt and its market value. Thdivided the amount of the interest and the market valuedebt (13)/(8). 5,02% is the effective rate that the companon its current debt;

(23) Market Expected Return (Rm)

The way we computed the Rm will be explained in slide 11

(24) Market Premium (Rm-Rf)

Market premium is given by the difference between the exreturn on a market portfolio and the risk-free rate. Theref

computed it using the following formula: (23)-(15).


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Valuation for the Base ScenarioDetermining company Betas and Discount rates for 2007 (II)


(25) Debt Beta (Bd)

The value of the debt beta, that measures the risk of the companysdefaulting on its debt, was computed by:Cost of debt Risk-free rate/ Market Premium = (Rd-Rf)/(Rm-Rf)

(26) Unlevered Beta (Bu)

The value of the unlevered beta, that measures the business risk,

was computed by:[Bl+Bd*(1-t)*(D/E)]/[1+(1-t)*(D/E)]

(27) Opportunity cost of capital (Ru)

The opportunity cost of capital, that is the expected return that thecompany is giving up by investing in the project rather than in adifferent investment activity, was computed by:Rf + Bu*(Rm-Rf)

Main assumptions

(28) Equity cost (Re)

The value of the equity cost, that is the return that the stockrequire for the company, was computed by:Ru+(1-t)*(Ru-Rd)*(D/E)

(29) Equity cost (re)

We also computed the equity cost using the formula:

Rf + Bl*(Rm-Rf)

(31) Weight ted Average Cost of Capital (WACC)

In order to compute the companys cost of capital, in whcategory of capital is proportionately weighted, we used tformula:Re*(1-L)+[(1-t)*Rd*L]


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Valuation for the Base ScenarioAssumption for the expected Market Return (rm)


We have analysed FTSE historical data in order to estimate a Market Return to be considered

FTSE Historical Data 2003 2004 2005 2006 2007

1st January (Open) value 3940,40 4476,90 4814,30 5681,50 6220,8

31st December (Last) value 4476,90 4814,30 5681,50 6220,80 6456,9

Total Yearly Variation 536,50 337,40 867,20 539,30 236,1

Yearly % of Change 13,62% 7,54% 18,01% 9,49% 3,80%

Average to Year @ 2003 13,62% 10,58% 13,05% 12,16% 10,49%

Average to Year @ 2007 10,49% 9,71% 10,43% 6,64% 3,80%

SOURCE: http://www.forexpros.com/indices/uk-100-historical-data

We have proceeded as follows:

Checked for the Index Valuation at the beginning and end of each year from 2003 to 2007;

Computed the yearly variation and the implicit return (Variation/Open Value);

Computed averages and decided to consider a full average for the 5 years: 10,49%.

Note: It is possible to realize, however, that the there is a clear tendency for the market return to decrease overtime. If we comthe 2008 forecast we can find an expected return of 5,19%. However, for the sake of the analysis and assuming that in 200

could not be able to expect as clearly the consequences of the Financial Crisis, we have chose to assume the plain 5 years avera


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Valuation for the Base ScenarioDetermining the FCFF Free Cash Flow for the Firm (I)


General Assumptions considered and the outputs that would be computed

General Assumptions:

All the values considered in the following evidences (1, 2, ) are presented in Million of Pounds ();

We have decided to compute the whole analysis (not only for the DCF approach but to the entire case resolution) using cuor nominal prices (yearly prices) instead of constant prices (which we could have preferred as we are given the annual inflrate). As we would assume a steady inflation condition, we can conclude that the impact on the Cash Flows would berelevant regarding the Depreciation portion of the Free Cash Flow for the Firm (in order to compute the Firm Value

constant prices we would have to compute both the inflation impact on the EBITDA, CAPEX and Net WC, as well as the con(real) Discount Rates the total impact on the final Firm Value would be equal to zero except for the Depreciation portiothese non-monetary expenses wouldntbe un-inflated). So, to sum up, if we have considered the real prices the Depreciatimpact would have been over-considered.

3 different ways to determine the Equity Value using the DCF Method:

METHOD A: Considering a fixed WACC throughout the entire period of analysis;

METHOD B: Considering a dynamic (floating) WACC with a fixed Cost of Equity (fixed Beta Levered);

METHOD C: Considering a dynamic (floating) WACC with a dynamic Cost of Equity (floating Beta Levered).


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Valuation for the Base ScenarioDetermining the FCFF Free Cash Flow for the Firm (II)


Information from the Tottenham Pro Forma Income Statement (millions of pounds) from Exhibit 2, 5 and Case (I

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Revenue

2 Attendance 17,40 18,97 20,67 22,53 24,56 26,77 29,18 31,81 34,67 37,79 41,19 44,90 48,94

3 Sponsorship 15,70 17,11 18,65 20,33 22,16 24,16 26,33 28,70 31,28 34,10 37,17 40,51 44,16

4 Broadcast 28,70 31,28 34,10 37,17 40,51 44,16 48,13 52,46 57,19 62,33 67,94 74,06 80,72

5 Merchandise 5,20 5,67 6,18 6,73 7,34 8,00 8,72 9,51 10,36 11,29 12,31 13,42 14,63

6 Other 7,10 7,74 8,44 9,19 10,02 10,92 11,91 12,98 14,15 15,42 16,81 18,32 19,977 Total 74,10 80,77 88,04 95,96 104,60 114,01 124,27 135,46 147,65 160,94 175,42 191,21 208,42

YoY(%) - 9,0% 9,0% 9,0% 9,0% 9,0% 9,0% 9,0% 9,0% 9,0% 9,0% 9,0% 9,0%

8 Operating Costs

9 Payroll 50,92 56,01 61,62 67,78 74,56 82,01 90,21 99,23 109,16 120,07 132,08 145,29 159,82

YoY(%) - 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0%

10 Stadium Operating Expenses 16,38 17,04 17,72 18,43 19,16 19,93 20,73 21,55 22,42 23,31 24,25 25,22 26,22

11 Other 1,80 1,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,88

12 Total 69,10 74,92 81,28 88,23 95,82 104,13 113,22 123,16 134,04 145,95 158,99 173,28 188,92

YoY(%) - 8,4% 8,5% 8,6% 8,6% 8,7% 8,7% 8,8% 8,8% 8,9% 8,9% 9,0% 9,0%

These projections figures are given in the Case

E


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Valuation for the Base ScenarioDetermining the FCFF Free Cash Flow for the Firm (III)


0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

13 EBITDA 5,00 5,85 6,76 7,73 8,77 9,88 11,06 12,30 13,61 14,99 16,43 17,93 19,49

14 Depreciation 2,20 2,29 2,38 2,47 2,57 2,68 2,78 2,90 3,01 3,13 3,26 3,39 3,52

YoY(%) - 4,09% 3,93% 3,78% 4,05% 4,28% 3,73% 4,32% 3,79% 3,99% 4,15% 3,99% 3,83%

15 EBIT 2,80 3,56 4,38 5,26 6,20 7,21 8,27 9,41 10,60 11,86 13,17 14,55 15,97

16 Interest 2,26 2,46 2,69 2,93 3,19 3,48 3,79 4,13 4,50 4,91 5,35 5,83 6,36

17 Taxes 0,19 0,38 0,59 0,82 1,05 1,30 1,57 1,85 2,13 2,43 2,74 3,05 3,37 18 Net Income 0,35 0,71 1,10 1,52 1,96 2,42 2,91 3,43 3,96 4,52 5,09 5,66 6,25

19 Inflation 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50% 2,50%

20 Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

21 Capital Expenditure (Maintenance) 3,3 3,4 3,6 3,7 3,9 4,0 4,2 4,3 4,5 4,7 4,9 5,1 5,3

YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

One should note that the yearly variations for the Total Revenues, Total Costs, Depreciation and Capital Expenditure

(Maintenance) were computed and they are all equal to 4% - this piece of information is useful to make sure that we can

assume a terminal growth rate of 4%, as stated in the case, as we will demonstrate later

Information from the Tottenham Pro Forma Income Statement (millions of pounds) from Exhibit 2, 5 and Case (II

E


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Valuation for the Base ScenarioDetermining the FCFF Free Cash Flow for the Firm (IV)


Determining the Free Cash Flow for the Firm (I)

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 EBIT 2,80 3,56 4,38 5,26 6,20 7,21 8,27 9,41 10,60 11,86 13,17 14,55 15,97

2 Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

3 EBIT (1-t) 1,82 2,31 2,85 3,42 4,03 4,69 5,38 6,12 6,89 7,71 8,56 9,46 10,38

4 Depreciation 2,20 2,29 2,38 2,47 2,57 2,68 2,78 2,90 3,01 3,13 3,26 3,39 3,52

5 Operational Cash Flow 4,02 4,60 5,23 5,89 6,60 7,37 8,16 9,02 9,90 10,84 11,82 12,85 13,90

6 Capital Expenditure 3,30 3,43 3,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28

YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

7 Increases in Non-Cash Net WC 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

8 Free Cash Flow for the Firm 0,72 1,17 1,66 2,18 2,74 3,35 3,98 4,67 5,38 6,14 6,94 7,77 8,62

YoY(%) - 62,78% 41,44% 31,32% 25,84% 22,34% 18,75% 17,44% 15,19% 14,09% 12,92% 11,99% 10,94%

E

The 2020 FCFF has a YoY(%) increase of 4%


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Valuation for the Base ScenarioDetermining the FCFF Free Cash Flow for the Firm (V)


Determining the Free Cash Flow for the Firm (II)


The FCFF figures will be similar for all the methods that will be demonstrated afterwards and also for the Adjusted PreValue approach;

As we cannot find any piece of information stating the opposite, we have assume that in the Base Scenario the Increases in Cash Net WC are always equal to zero. This is a simplifying assumption, as it likely that this value would increase overtimthe total EBITDA also increases. For other scenarios, as we would note later, it is possible to estimate an annual increas

this item;Rationale and Computing Formulas:

The Free Cash Flow for the Firm is computed as follows:

FCFF = EBIT (1-t) + Depreciation Capital Expenditure Increases in Non-Cash Net WC

The Operational Cash Flow is computed as follows: OCF = EBIT (1-t) + Depreciation

We are given the 2007 value for the CAPEX and we have computed the value for the following years assuming a growth ra4%, as stated on the Case;


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Agenda










Final wrap-up



18/78

Valuation for the Base ScenarioFrom the FCFF and the Discount Rates to the Target Price for Share (I)


Using Method A we have considered a fixed WACC throughout the entire period of analysis

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

9 WACC 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0% 10,0%

10 Actualization Factor @ WACC 1,000 1,100 1,210 1,331 1,464 1,610 1,771 1,949 2,143 2,358 2,594 2,853 3,138

11 Terminal Value @ WACC with g = 4% 149,39

12 FCFF @ 2007 Prices @ WACC 0,72 1,07 1,37 1,64 1,87 2,08 2,25 2,40 2,51 2,61 2,67 2,72 50,35

13 EV - Enterprise Value 74,25

14 Excess Cash 26,29

15 FV - Firm Value 100,54

16 Financial Debt (Market Value) 45,01

17 Equity Value 55,53

18 # of Shares (M) 9,29

19 Target price for Share 5,98

Note that both the WACC figure (9) and the FCFF were computed before

E


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Valuation for the Base ScenarioFrom the FCFF and the Discount Rates to the Target Price for Share (II)


Estimated price for share using Method A is 5,98


Constant WACC: this implies a constant D/E ratio, a constant Cost of Debt and Cost of Equity and a constant tax rate forcompany. Given the projections that were presented, we can assume that is most likely that this ratio and Discount Ratenot remain constant throughout the entire period, as we will understand later;

As all of the portions that determine the value of the FCFF can hold a yearly increase of 4%, we can assume a growing rate the same dimension:g = 4%

Rationale and Computing Formulas:

The actualization factor is computed in order to get all the values in 2007 prices. It is computed as follows:

For 2007: AF = 1; For 2008+: AF(n) = AF(m-1) * WACC (n)

The Terminal Value is computed as follows:Terminal Value (n) = FCFF (n+1) / [ WACC ( n+1) g (perpetual) ]

The Enterprise Value is computed as follows: EV = FCFF @ 2007 Prices @ WACC

The Firm Value is computed as follows: FV = EV + Excess Cash (this can be found on Finantial Statements)

The Equity Value is computed as follows: Equity Value = FV Finantial Debt (market value, that we got from Exhibit 2)

The Target price for share is computed as follows: TPS = Equity Value / Shares Outstanding The target price for srepresents the fair value for each share of the company, according to the assumptions that were defined;


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Valuation for the Base ScenarioFrom the FCFF and the Discount Rates to the Target Price for Share (III)


Using Method B we have considered a dynamic (floating) WACC with a fixed Cost of Equity (fixed Beta Levered) (I

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Equity 137,28 137,63 138,34 139,44 140,96 142,92 145,34 148,25 151,68 155,64 160,16 165,25 170,9

2 Debt 45,01 48,993 53,574 58,354 63,532 69,307 75,481 82,253 89,622 97,787 106,55 116,11 126,6

3 Debt + Equity 182,29 186,62 191,91 197,79 204,49 212,23 220,82 230,5 241,3 253,43 266,71 281,36 297,5

4 YoY Variation - 4,3332 5,2907 5,8798 6,6981 7,7356 8,5939 9,6814 10,799 12,126 13,283 14,65 16,21


6 Cost of Debt (rd) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

7 Debt to Equity Ratio 0,3279 0,356 0,3873 0,4185 0,4507 0,4849 0,5193 0,5548 0,5909 0,6283 0,6653 0,7026 0,741

8 Leverage Ratio (L) 0,2469 0,2625 0,2792 0,295 0,3107 0,3266 0,3418 0,3568 0,3714 0,3859 0,3995 0,4127 0,425

9 (1-t) 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65%

E


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Valuation for the Base ScenarioFrom the FCFF and the Discount Rates to the Target Price for Share (IV)


Using Method B we have considered a dynamic (floating) WACC with a fixed Cost of Equity (fixed Beta Levered) (I

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

10 Beta Debt 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08

11 Beta Levered (FIXED) 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290 1,290

12 Beta Unlevered 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08

13 Rf 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57%

14 Rm 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49%

15 Market Premium 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92%

16 Rd (CAPM) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

17 Ru (CAPM) 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94%

18 Re (CAPM) 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21% 12,21%

19 Re (MM) 12,21% 12,32% 12,44% 12,56% 12,68% 12,81% 12,94% 13,08% 13,22% 13,36% 13,51% 13,65% 13,80%

E


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Valuation for the Base ScenarioFrom the FCFF and the Discount Rates to the Target Price for Share (V)


Using Method B we have considered a dynamic (floating) WACC with a fixed Cost of Equity (fixed Beta Levered) (II

From the previous computations we got a decreasing WACC as the D/E ratio increases (rd < re)


29 # of Shares (M) 9,29


0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

20 WACC 10,0% 9,9% 9,7% 9,6% 9,4% 9,3% 9,2% 9,0% 8,9% 8,8% 8,6% 8,5% 8,4%

21 Actualization Factor 1,00 1,10 1,21 1,32 1,45 1,58 1,72 1,88 2,05 2,23 2,42 2,62 2,84


23 FCFF @ 2007 Prices @ WACC 0,72 1,07 1,38 1,65 1,90 2,12 2,31 2,49 2,63 2,76 2,87 2,96 74,74






29 # of Shares (M) 9,29


E


23/78

Valuation for the Base ScenarioFrom the FCFF and the Discount Rates to the Target Price for Share (VI)


Estimated price for share using Method B is 8,70

General Assumptions and Formulas:

Using this method, we have assume a floating WACC rate, taking into consideration that we have used a constant cost of Eq(re). The rational for this decision will be explained later;

The Beta Unlevered (Bu), Beta Debt (Bd), Cost od Debt (rd) and Cost of Opportunity (Return on Assets, ru) are consaccording with the CAPM model;

We are given in the case an estimation for the total Interest until 2020. As we assume the Cost of Debt as being constant, w

compute an estimation for the total Debt structure in each year (Financial Debt) as follows:Debt (n) = Forecasted Interest (n) / Cost of Debt

In order to estimate the Equity structure in each year, we have assume the following formula:

Equity (n) = Equity (n-1) + Net Income (n-1) + Other Explicit Equity Increases

In order to guarantee that the analysis makes sense, we have checked if the total variation on Equity + Debt was at leamuch as the CAPEX for each year (checked if 4 > 5). This is true for every year;


24/78

Valuation for the Base ScenarioFrom the FCFF and the Discount Rates to the Target Price for Share (VII)


Using Method C we have considered a dynamic (floating) WACC with a dynamic Cost of Equity (floating Beta Levered

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Equity 137,28 137,63 138,34 139,44 140,96 142,92 145,34 148,25 151,68 155,64 160,16 165,25 170,91

2 Debt 45,01 48,993 53,574 58,354 63,532 69,307 75,481 82,253 89,622 97,787 106,55 116,11 126,67

3 Debt + Equity 182,29 186,62 191,91 197,79 204,49 212,23 220,82 230,5 241,3 253,43 266,71 281,36 297,58

4 YoY Variation - 4,3332 5,2907 5,8798 6,6981 7,7356 8,5939 9,6814 10,799 12,126 13,283 14,65 16,215


6 Cost of Debt (rd) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

7 Debt to Equity Ratio 0,3279 0,356 0,3873 0,4185 0,4507 0,4849 0,5193 0,5548 0,5909 0,6283 0,6653 0,7026 0,7411

8 Leverage Ratio (L) 0,2469 0,2625 0,2792 0,295 0,3107 0,3266 0,3418 0,3568 0,3714 0,3859 0,3995 0,4127 0,4257

9 (1-t) 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65%

E


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Valuation for the Base ScenarioFrom the FCFF and the Discount Rates to the Target Price for Share (VIII)


Using Method C we have considered a dynamic (floating) WACC with a dynamic Cost of Equity (floating Beta Levered

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

10 Beta Debt 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08

11 Beta Levered (Dynamic) 1,290 1,308 1,329 1,349 1,370 1,392 1,415 1,438 1,461 1,485 1,509 1,534 1,559

12 Beta Unlevered 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08

13 Rf 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57%

14 Rm 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49% 10,49%

15 Market Premium 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92%

16 Rd (CAPM) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

17 Ru (CAPM) 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94%

18 Re (CAPM) 12,21% 12,32% 12,44% 12,56% 12,68% 12,81% 12,94% 13,08% 13,22% 13,36% 13,51% 13,65% 13,80%

19 Re (MM) 12,21% 12,32% 12,44% 12,56% 12,68% 12,81% 12,94% 13,08% 13,22% 13,36% 13,51% 13,65% 13,80%

E


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Valuation for the Base ScenarioFrom the FCFF and the Discount Rates to the Target Price for Share (IX)


The WACC is also decreasing, even though it is decreasing less than in Method B

Using Method C we have considered a dynamic (floating) WACC with a dynamic Cost of Equity (floating Beta Levered)

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

20 WACC 10,0% 9,9% 9,9% 9,8% 9,8% 9,7% 9,6% 9,6% 9,5% 9,5% 9,4% 9,4% 9,3%

21 Actualization Factor 1,00 1,10 1,21 1,33 1,46 1,60 1,75 1,92 2,10 2,30 2,52 2,75 3,01


23 FCFF @ 2007 Prices @ WACC 0,72 1,07 1,37 1,64 1,88 2,10 2,27 2,44 2,56 2,67 2,76 2,82 58,93






29 # of Shares (M) 9,29


E


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Valuation for the Base ScenarioFrom the FCFF and the Discount Rates to the Target Price for Share (X)


Estimated price for share using Method C is 6,94


In this particular case we have assumed a floating Beta Levered, which means that as the capital structure changes the Levered will also tend to adjust (the risk profile of the company changes), so we have a double impact on the WACC (the Bchange and the D/E ratio also changes);

The Beta Levered was computed according to the CAPM model, as follows:

Bl (CAPM) = Bu + (Bu Bd) * (1 t) * (D / E)

Even though the D/E Ratio is increasing (which leads to a lower WACC) the Beta Levered is also increasing (which tenincrease the Cost of Equity (re) and has a increasing impact on the WACC). The overall outcome is that the WACC is decreabut not as much as the one we can find on Method 2;

As the WACC for 2020 will be higher using this method when comparing to Method 2, then the terminal value will be lower

Once again, we are able to consider a terminal growth rate of 4% (g = 4%), and we have assumed a constant CoOpportunity for the Capital (ru) and a constant Cost of Debt as the Beta Unlevered and the Beta Debt remain steady;

All the other assumptions and computing formulas were explained previously.


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Valuation for the Base ScenarioConclusions regarding Tottenham base scenario valuation using the DCF appro


Final conclusions on the 3 different values for the companys equity that were computed

Final Results using the DCF approach:

According to Method A, the Target price for share is 5,98;

According to Method B, the Target price for share is 8,70;

According to Method C, the Target price for share is 6,94;

Rational: The FCFF is the same regardless of the method that we choose. So, it all comes down to the Discount rates that are used;

The same WACC computed with the companysrisk profile of 2007 for the entire period will have the most negative impathe Equity Value as, according to our methodology and the company projections, the Debt level is expected to grow infuture (and the Cost of Debt is lower than the Cost of Equity);

Furthermore, if we assume that the Beta Levered will remain constant and only the capital structure will change, we can fsituation where the Target price in least affected.


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Agenda


Methodology: our approach









Final wrap-up



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0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 EBIT 2,80 3,56 4,38 5,26 6,20 7,21 8,27 9,41 10,60 11,86 13,17 14,55 15,97

2 Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

3 EBIT (1-t) 1,82 2,31 2,85 3,42 4,03 4,69 5,38 6,12 6,89 7,71 8,56 9,46 10,38

4 Depreciation 2,20 2,29 2,38 2,47 2,57 2,68 2,78 2,90 3,01 3,13 3,26 3,39 3,52

5 Operational Cash Flow 4,02 4,60 5,23 5,89 6,60 7,37 8,16 9,02 9,90 10,84 11,82 12,85 13,90


YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

7 Increases in Non-Cash Net WC 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

8 Free Cash Flow for the Firm 0,72 1,17 1,66 2,18 2,74 3,35 3,98 4,67 5,38 6,14 6,94 7,77 8,62

YoY(%) - 62,78% 41,44% 31,32% 25,84% 22,34% 18,75% 17,44% 15,19% 14,09% 12,92% 11,99% 10,94%

Valuation for the Base ScenarioDetermining the Equity Value using the APV Approach (I)


When using the APV approach the FCFF figures keep the same

E


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Valuation for the Base ScenarioDetermining the Equity Value using the APV Approach (II)


The required discount rates (Cost of Opportunity and Cost of Debt) for the APV approach were also computed befor

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

1 Opportunity Cost of Capital (ru) 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94% 10,94%

2 Actualization Factor for FCFF @ ru 1,00 1,11 1,23 1,37 1,52 1,68 1,86 2,07 2,30 2,55 2,83 3,13 3,48

3 Terminal Value @ ru with g = 4% 129,0

4 FCFF @ 2007 Prices @ ru 0,72 1,06 1,35 1,59 1,81 1,99 2,13 2,26 2,35 2,41 2,45 2,48 39,58

5 FCFF @ 2007 Prices @ ru 62,19

When considering the APV approach we can divide the Enterprise Value in two portions: the present value of the FCFF and

the present value of the Tax shields:

- The first portion that comprises the Enterprise Value when using the APV approach is computed considering the FCFF that arediscounted with the Opportunity Cost of Capital (ru). The discount rate was previously computed;

- The second portion of that comprises the Enterprise Value when using the APV approach is computed considering the Tax Shieldthat are discounted with the Cost of Debt (rd), as we assume that the Tax Shields are as risky as the Debt itself.

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Valuation for the Base ScenarioDetermining the Equity Value using the APV Approach (III)


The required discount rates (Cost of Opportunity and Cost of Debt) for the APV approach were also computed before

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

6 Interest (forecast) 2,26 2,46 2,69 2,93 3,19 3,48 3,79 4,13 4,50 4,91 5,35 5,83 6,36

7 Tax Shield @ Current Year prices 0,79 0,86 0,94 1,03 1,12 1,22 1,33 1,45 1,58 1,72 1,87 2,04 2,23

8 Cost of Debt (rd) 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02%

9 Actualization Factor for TS @ rd 1,00 1,05 1,10 1,16 1,22 1,28 1,34 1,41 1,48 1,55 1,63 1,71 1,80

10 Perpetual Value of Tax Shield @ rd 46,08

11 Tax Shield @ 2007 Prices @ rd 0,79 0,82 0,85 0,89 0,92 0,95 0,99 1,03 1,06 1,11 1,15 1,19 26,83

12 Tax Shield @ 2007 Prices @ rd 38,57

E


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Valuation for the Base ScenarioDetermining the Equity Value using the APV Approach (IV)


Using the APV approach we get a target price for share that is similar to the one computed for the DCF approach, met

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

13 FCFF + Tax Shield @ 2007 Prices 100,76

14 Enterprise Value 100,76





19 # of Shares (M) 9,29


E


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Valuation for the Base ScenarioDetermining the Equity Value using the APV Approach (VI)


Estimated price for share using the APV approach is 8,83 (I)

Main Conclusions and Formulas:

Once again, when computing the Enterprise Value considering the APV approach we are assuming that the Beta Unleveredthe Beta Debt are constant, which means that we can also find a constant Cost of Opportunity (ru) and Cost of Debt (rd);

As it can be implied from the previous slides, we have computed the EV as follows:

EV (@ APV) = (FCFF @ 2007 Prices @ ru) + (Tax Shield @ 2007 Prices @ rd), and:

(FCFF @ 2007 Prices @ ru) = [ FCFF (n) / ((1+ru) n) ]

(Tax Shield @ 2007 Prices @ rd) = [ Tax Shield (n) / ((1+rd) n) ]

The Tax Shield is computed as follows:

Tax Shield = Forecasted Interest * Tax Rate (35%)

l f h


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Valuation for the Base ScenarioDetermining the Equity Value using the APV Approach (VII)


Estimated price for share using the APV approach is 8,83 (II)

Why have we computed Method B on the DCF analysis?

There is a theoretical background to assume that under certain conditions the DCF approach would yield a similar EnterpValue as the APV approach (we do not think that it is appropriated to demonstrate it here);

In itssimpler formulation, we understand that this theoretical condition is related with the assumption that we can compWACC for the terminal value considering a constant D/E ratio and a constant value for the Cost of Debt, the Tax Rate andCost of Equity (on the DCF approach);

In this particular situation the APV was calculated under no assumption of a constant D/E and neglecting the Cost of Equityas it only considers the Cost of Debt (rd) and the Cost of Opportunity of Capital (ru);

So, in order to get both the analysis to yield similar outcomes we have simulated a DCF analysis with similar assumptions aprevious APV approach: a floating D/E ratio and constant Cost of Equity (re), this is, our Method B;

Indeed, we can conclude that under this conditions both the analysis have similar Target Prices for Share:

DCF (Method B): 8,70

APV: 8,83

As the remaining methods on the DCF analysis have different underlying assumptions, it is understandable that the outcmust be also different one another.

A d


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Agenda











Final wrap-up


T h l i


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Tottenham valuationIs the company fairly valued?


Considering the current stock price of 13,80 and regardless of the method used either the Discounted Cash Flow or the AdjusPresent Value all the results we computed allow us to infer that the price of Tottenham shares are overvalued:

Using the Discounted Cash Flow, the price of each share was 5,98, 8,70 and 6,94, for method A, B and C, respectively. In the Adjusted PrValue, the value estimated was 8,83. These values highlight that, in both cases, the market price is too high and it does not reflect the trueof the Tottenham shares.

Some reasons why Tottenham stock might be overvalued and respective impacts

Tottenham stock overvaluation may result from an emotional buying spurt, which inflates the stock's market price. This is coherent wiemotional dimension that this sports entails and, therefore, the emotional connection established, most of the times, between people arespective club. This way, a stock may be overvalued due to a surge in demand driven primarily by investor perceptions;

Another reason for this to happen may come from a recent deterioration in the company's financial strength. As it is stated in the case,key competitors were able to leverage their revenues and, this way, gain competitive advantage in some dimensions. Therefore, the stomay become overvalued if its fundamentals (i .e. revenue, earnings, growth projections, balance sheet, ect.) decline while its marketprice remains constant;

Overvalued companies have better access to both equity and debt capital and they will generate lofty profits for a while but, eventuallwhen the company's fundamentals - its true earning potential - surface, investors are likely to experience severe losses.

A d


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Agenda











Final wrap-up


V l ti f th S i


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Valuation for other ScenariosThree Scenarios: Construct a new stadium, purchase a new player and both

Brief Problem Explanation

Introduction for the potential investments

The clubsdirectors are analyzing three possible investment scenarios, namely: scenario a) construction of a new stadiupurchase of a new striker, c) both of them. To analyze the market reaction of each announcement and consequently to evaeach decision, it is important to observe which factors are affected by such decisions.

Brief explanation of the three scenarios:

Scenario A: Construct a new stadium. The forecasts suggest that this investment would raise revenues in two main items, ware attendance and sponsorship rights, and in other hand would raise costs with the normal construction cost and witincreasing of maintenance ones;

Scenario B: Purchase a new player. This decision must be well though, as the investment is quite significant and the rmight not correspond to it. So, the costs that should be analyzed are related to the purchase of the new player and its ansalary. The potential revenues are more subjective and so harder to forecast, nevertheless they might become from factorsas attendance and merchandise, which are the items more correlated and sensible to the teamsperformance. Besides thascenario has two particularities that regards to the possible playersinjury and the limitation of the stadium size;

Scenario C: Construct a new stadium and purchase the new player. This scenario would allow to avoid the second restricti

scenario B, and so earn all potential revenues from the playerspurchase plus the construction of the new stadium.

A d


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Agenda











Final wrap-up


Val ation for the Scenario A


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Valuation for the Scenario AMain impacts for this scenario

Particularities of Scenario A

Potential change in revenues:

Once the stadium will allow to bear approximately 60 thousand people, it is expected to increase the attendance revenues by 40the forecasted values for the existing stadium;

As the stadium will bear more people that it actually does, it is normal that there should be more companies interested in sponsthe team, and so it is expected to increase the sponsorship revenues by 20% relative the forecasts for the next years;

The other revenues, such as broadcast, merchandise and others, are not expected to be influenced by the construction of astadium.

Potential change in costs:

The construction of a new stadium will require a place to build it, and so the landspurchase is expected to be the same value selling of the existing stadium, and so we do not took it into account for this analysis, as the net value would be zero;

It is known that the stadium will require an investment in Capital Expenditure of 250 million, which will be paid in installments at the end of both years of construction, this is, end of years 2008 and 2009;

Regarding stadium maintenance costs, those are expected to be 14% higher than the ones that were forecasted to the actual stad

Another important cost, though it does not implies an outflow of money, is the cost that reflects the usage of the stadium, whi

the depreciations. A special tax incentive will allow the team to depreciate the construction value over 10 years following compl

Valuation for the Scenario A


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Valuation for the Scenario ADetermining the FCFF Free Cash Flow for the Firm (I)


Total revenues with the new stadium Scenario A

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenue

Attendance (base scenario) 17,4 18,97 20,67 22,53 24,56 26,77 29,18 31,81 34,67 37,79 41,19 44,9 48,9Attendance (aditional) 0,00 0,00 0,00 9,012 9,824 10,71 11,67 12,72 13,87 15,12 16,48 17,96 19,5Total Attendance with new stadium 17,4 18,97 20,67 31,54 34,38 37,48 40,85 44,53 48,54 52,91 57,67 62,86 68,5

Sponsorship 15,7 17,11 18,65 20,33 22,16 24,16 26,33 28,7 31,28 34,1 37,17 40,51 44,1Sponsorship (aditional) 0,00 0,00 0,00 4,066 4,432 4,832 5,266 5,74 6,256 6,82 7,434 8,102 8,83Total Sponsorship with new stadium 15,7 17,11 18,65 24,4 26,59 28,99 31,6 34,44 37,54 40,92 44,6 48,61 52,9

Broadcast 28,7 31,28 34,1 37,17 40,51 44,16 48,13 52,46 57,19 62,33 67,94 74,06 80,7Merchandise 5,2 5,67 6,18 6,73 7,34 8 8,72 9,51 10,36 11,29 12,31 13,42 14,6Other 7,1 7,74 8,44 9,19 10,02 10,92 11,91 12,98 14,15 15,42 16,81 18,32 19,9

Total Revenues with new stadium 74,1 80,77 88,04 109 118,8 129,6 141,2 153,9 167,8 182,9 199,3 217,3 236YoY(%) - 9,00% 9,00% 23,84% 9,01% 9,01% 9,00% 9,01% 9,00% 9,00% 9,00% 9,00% 9,00%

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Valuation for the Scenario ADetermining the FCFF Free Cash Flow for the Firm (II)


Total operating costs with the new stadium Scenario A

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Operating Costs

Payroll 50,92 56,01 61,62 67,78 74,56 82,01 90,21 99,23 109,2 120,1 132,1 145,3 159,YoY(%) - 10,00% 10,02% 10,00% 10,00% 9,99% 10,00% 10,00% 10,01% 9,99% 10,00% 10,00% 10,00

Stadium Op. Expenses (base scenario) 16,38 17,04 17,72 18,43 19,16 19,93 20,73 21,55 22,42 23,31 24,25 25,22 26,2Stadium Op. Expenses (aditional) 0,00 0,00 0,00 2,58 2,682 2,79 2,902 3,017 3,139 3,263 3,395 3,531 3,67

Total Stad. Op. Exp. with new stadium 16,38 17,04 17,72 21,01 21,84 22,72 23,63 24,57 25,56 26,57 27,65 28,75 29,8

Other 1,8 1,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,88

Total Op. Costs with new stadium 69,10 74,92 81,29 90,81 98,51 106,92 116,12 126,17 137,18 149,20 162,39 176,81 192,5YoY(%) - 8,42% 8,50% 11,71% 8,48% 8,53% 8,61% 8,65% 8,73% 8,77% 8,83% 8,88% 8,92%

E



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Valuation for the Scenario ADetermining the FCFF Free Cash Flow for the Firm (II)


Total financial items with new stadium Scenario A

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

EBITDA 5,00 5,85 6,75 18,22 20,33 22,63 25,09 27,76 30,60 33,66 36,95 40,46 44,2

Depreciation (base scenario) 2,2 2,29 2,38 2,47 2,57 2,68 2,78 2,9 3,01 3,13 3,26 3,39 3,52Depreciation (aditional) 0 0 25 25 25 25 25 25 25 25 25 25 0 Total depreciation with new stadium 2,2 2,29 27,38 27,47 27,57 27,68 27,78 27,9 28,01 28,13 28,26 28,39 3,52

YoY(%) - 4,09% 1096% 0,33% 0,36% 0,40% 0,36% 0,43% 0,39% 0,43% 0,46% 0,46% -88%

EBIT 2,80 3,56 -20,63 -9,25 -7,24 -5,05 -2,69 -0,14 2,59 5,53 8,68 12,07 40,7

Interest 2,26 2,46 2,69 2,93 3,19 3,48 3,79 4,13 4,5 4,91 5,35 5,83 6,36

EBT 0,54 1,10 -23,32 -12,18 -10,43 -8,53 -6,48 -4,27 -1,91 0,62 3,33 6,24 34,3

Taxes 0,19 0,38 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,22 1,17 2,18 12,0

Net Income 0,35 0,71 -23,32 -12,18 -10,43 -8,53 -6,48 -4,27 -1,91 0,40 2,17 4,06 22,3

Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

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Valuation for the Scenario ADetermining the FCFF Free Cash Flow for the Firm (IV)


CAPEX and increase in Equity with new stadium Scenario A

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Capital Expenditure (Maintenance) 3,30 3,43 3,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28Capital Expenditure (New Stadium) 0,00 125,00 125,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00Total CAPEX with new stadium 3,30 128,43 128,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28

YoY(%) - 3792% 0,11% -97% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

Aditional increase in Equity 0,00 125,00 125,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00

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Valuation for the Scenario ADetermining the FCFF Free Cash Flow for the Firm (V)


Capital Structure with new stadium Scenario A

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Capital Structure

Debt 45,01 48,99 53,57 58,35 63,53 69,31 75,48 82,25 89,62 97,79 106,55 116,11 126,6

Equity 137,3 262,63 388,35 365,03 352,84 342,42 333,89 327,40 323,13 321,22 321,62 323,79 327,8

Debt + Equity 182,29 311,62 441,92 423,38 416,38 411,72 409,37 409,66 412,75 419,00 428,17 439,90 454,5

Debt + Equity YoY Variation - 129,33 130,30 -18,54 -7,00 -4,65 -2,36 0,29 3,10 6,25 9,17 11,73 14,6

Accumulated - 129,33 259,63 241,09 234,09 229,43 227,08 227,37 230,46 236,71 245,88 257,61 272,2

Capital Expenditure 3,30 128,43 128,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28

Accumulated - 128,43 257,00 260,71 264,57 268,59 272,76 277,11 281,62 286,32 291,20 296,29 301,5

E



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Valuation for the Scenario ADetermining the FCFF Free Cash Flow for the Firm (VI)


Betas and Discount Rates with new stadium Scenario A (I)

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 201

Rates

Debt to Equity Ratio 32,8% 18,7% 13,8% 16,0% 18,0% 20,2% 22,6% 25,1% 27,7% 30,4% 33,1% 35,9% 38,6

Leverage Ratio (L) 24,7% 15,7% 12,1% 13,8% 15,3% 16,8% 18,4% 20,1% 21,7% 23,3% 24,9% 26,4% 27,9

(1-t) 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65%

Beta Debt 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,0

Beta Levered (Dynamic) 1,290 1,198 1,166 1,181 1,194 1,208 1,224 1,240 1,257 1,275 1,292 1,310 1,32

Beta Unlevered 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,0

E



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Valuation for the Scenario ADetermining the FCFF Free Cash Flow for the Firm (VII)


Betas and Discount Rates with new stadium Scenario A (II)

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Rf 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57

Rm 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5

Market Premium 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92

Rd 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02

Ru 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9

Re (CAPM) 12,2% 11,7% 11,5% 11,6% 11,6% 11,7% 11,8% 11,9% 12,0% 12,1% 12,2% 12,3% 12,4

Re (MM) 12,2% 11,7% 11,5% 11,6% 11,6% 11,7% 11,8% 11,9% 12,0% 12,1% 12,2% 12,3% 12,4

WACC 10,0% 10,3% 10,5% 10,4% 10,4% 10,3% 10,2% 10,2% 10,1% 10,1% 10,0% 9,9% 9,9%

E



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Valuation for the Scenario ADetermining the FCFF Free Cash Flow for the Firm (VIII)


FCFF with new stadium Scenario A

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

EBIT 2,80 3,56 -20,63 -9,25 -7,24 -5,05 -2,69 -0,14 2,59 5,53 8,68 12,07 40,7

Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

EBIT (1-t) 1,82 2,31 -13,41 -6,01 -4,70 -3,28 -1,75 -0,09 1,68 3,60 5,65 7,85 26,4

Depreciation 2,2 2,29 27,38 27,47 27,57 27,68 27,78 27,9 28,01 28,13 28,26 28,39 3,52

Operational Cash Flow 4,02 4,60 13,97 21,46 22,87 24,40 26,03 27,81 29,69 31,73 33,91 36,24 29,9

Capital Expenditure 3,30 128,43 128,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,28YoY(%) - 3792% 0,11% ##### 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00%

Increases in Non-Cash Net WC 0,00 0,00 -8,16 -4,26 -3,65 -2,99 -2,27 -1,50 -0,67 0,00 0,00 0,00 0,00

Free Cash Flow for the Firm 0,7 -123,8 -106,4 22,0 22,7 23,4 24,1 25,0 25,8 27,0 29,0 31,2 24,7YoY(%) - ##### -14% -121% 2,94% 3,15% 3,23% 3,47% 3,54% 4,59% 7,37% 7,36% -21%

E



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Valuation for the Scenario ADetermining the FCFF Free Cash Flow for the Firm (IX)


Target price for share with new stadium Scenario A

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Free Cash Flow for the Firm 0,7 -123,8 -106,4 22,0 22,7 23,4 24,1 25,0 25,8 27,0 29,0 31,2 24,

YoY(%) - ##### -14% -121% 2,94% 3,15% 3,23% 3,47% 3,54% 4,59% 7,37% 7,36% -21%

Actualization Factor @ WACC 1 1,10 1,22 1,35 1,49 1,64 1,81 1,99 2,19 2,41 2,65 2,92 3,20

Terminal Value @ WACC with g = 4% 435,

FCFF @ 2007 Prices @ WACC 0,7 -112,2 -87,3 16,3 15,3 14,3 13,4 12,5 11,8 11,2 10,9 10,7 443

EV - Enterprise Value 360,86

Excess Cash 26,29

FV - Firm Value 387,15

Financial Debt (Market Value) 45,01

Equity Value 342,14

# of Shares (M) 9,29

Target price for Share 36,83

E



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Valuation for the Scenario ASome assumptions and formulas


Target price for share with new stadium is 36,83

General Assumptions and formulas:

It was assumed that the debt level will remain the same as the one on the Base Scenario (this assumptions is valid for tscenarios that will be analyzed);

The new stadium investment is considered to be entirely financed by equity. This means that it would probably demanincrease in the number of the existing shares or that the actual shareholders would invest mote money. Consequentlycapital structure will be affected, as we saw in the previous tables;

As it is known that the club already paid sufficiently high taxes in previous years, it can capture tax refunds if EBT is nega

reducing the clubs obligations with the government, and so reducing the net working capital, as it can be considereaccountreceivable;

As for the analysis on the Base Scenario, we can assume a terminal growth rate of 4% as all of the items used to computFCFF are expected to grow at a similar rate on the terminal year (g=4%);

All of the presented figures were calculated taking into consideration the methodology that was previously explained (foDCF approach, particularly for the Method A).

Agenda


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Agenda

Case Study Introduction Methodology: our approach




Is Tottenham Hotspur PLC fairly valued? The Rationale. DCF Valuation for the new likely scenarios




Final wrap-up


Valuation for the Scenario B


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Valuation for the Scenario BMain impacts for this scenario

Particularities of Scenario B


Based on the past 10 years of Premiership revenue and point total data, Tottenham might expect to boost its revenue1,52% of each 1% increasing in the teamstotal point. If we do not consider the first restriction that will be explained bethe acquisition of a new player may increase the net number of goals by 12. These additional revenues might become factors such as attendance and merchandise, which are the ones more correlated and sensible to the teamsperformance.might we correlate the increase in the net number of goals with the potential increase in the revenues? Is the question thawill explain in the next slide.

Potential change in costs:

The team will have as first cost the initial fee that has to be paid directly to the playerscurrent club, which is forecasted roughly 20 million. This fee is considered to be an expense;

The team has to negotiate a contract with the player which is expected to be 10 years extended, and involves a 50 thoupayment per week as playerssalary, which is scheduled to increase 10% each year. This contract is expected to start in 2and we assume that the player will be contributingfor the same period as the contract (not that realistic).

Particular restrictions:

There is a high average injury rate in the Premiership league -20%, - which might affect the playersperformance; The actual stadium capacity allows to earn only 25% of all potential revenues that might become from the playerspurchas



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Valuation for the Scenario BHow much worth an increasing of 12 in the net number of goals?


Knowing that the increase in the Net Goals will allow to increase Revenues by an increasing of the Total Points of the Team, we m

identify two links that have to be known to compute the potential increase in revenues by an increase of 12 in the net number of

Net Goals ? TotalPoints1,52

%Revenues

Linking Net Goals with Total Number of Points The linear regression

Based on the information provided about the average total points andrevenues of 8 Premiership Leaguesteams between 1998 and 2007, we were

able to compute a linear regression between both factors, defining the AverageNet Goals as the independent and the average total points as the dependentvariable. The correlation between both is very significant (99,56%).

We have achieved that an unit increased in the average net goals will have apositive impact of 0,6752 on the average total points.

As the expected value of a player to be healthy is 80%, the expected increaseon net goals should be 12 x 0,8 = 9,6, and so adding to the actual number of netgoals (-1,4), we should substitute the x for 7,7 in the equation, which give us anapproximate Y value of 58,1, which reflects the expected total number of pointsfor Tottenham if they acquire the new player. To sum up, it will allow aincreasing in Total Points of 11,42%, taking into account that the actualaverage total points is 51.

y = 0,6752x + 51,6R = 0,9956

0

10

20

30

40

50

60

7080

90

-020 000 020 040

Totalpointsaverage

Average net goals



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Knowing that the increase in the Net Goals will allow to increase Revenues by an increasing of the Total Points of the Team, we m

identify two links that have to be known to compute the potential increase in revenues by an increase of 12 in the net number of

Net Goals ? TotalPoints1,52

%Revenues

Linking Total Number of Points with Revenues

As we are dealing with percentages in both cases, that isincreasing by x% in total points will lead to an increasing byin revenues, we cannot assume that the same linear regresmodel that we used before applies.So, to achieve this value (1,52%) it had to be used a logregression model, similar to the following one:

Log(y) = 1,52 log(x) + Constant

Note: Once we do not have all of the data that is needed, it was

possible to represent the tendency line of the equation, and so w

only know the given slope (1,52).

Knowing that:the purchase of a new player will allow an increase by 11,42%in the Total Points1% variation in a teamspoint total leads to an improvement inrevenues by 1,52%

The club might expect to increase its revenues by 17,35% of

the forecasted revenues

Due to the stadium capacitysrestriction, if the stadium remainswith the same size, the club will only can capture 25% of the

potential revenues, what means that they will only can increasethem by 4,34%, approximately.

1% variation in Total points leads to 1,52% in Revenue

How much worth an increasing of 12 in the net number of goals?



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Determining the FCFF Free Cash Flow for the Firm (I)


Total revenues with the new striker Scenario B

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenue

Attendance 17,4 18,97 20,67 22,53 24,56 26,77 29,18 31,81 34,67 37,79 41,19 44,9 48,9Sponsorship 15,7 17,11 18,65 20,33 22,16 24,16 26,33 28,7 31,28 34,1 37,17 40,51 44,1Broadcast 28,7 31,28 34,1 37,17 40,51 44,16 48,13 52,46 57,19 62,33 67,94 74,06 80,7Merchandise 5,2 5,67 6,18 6,73 7,34 8 8,72 9,51 10,36 11,29 12,31 13,42 14,6Other 7,1 7,74 8,44 9,19 10,02 10,92 11,91 12,98 14,15 15,42 16,81 18,32 19,9

Total revenue on base scenario 74,1 80,77 88,04 95,95 104,6 114 124,3 135,5 147,7 160,9 175,4 191,2 208Aditional revenue 0,00 3,50 3,82 4,16 4,54 4,95 5,39 5,88 6,40 6,98 7,61 0,00 0,0Total revenue with new player 74,10 84,27 91,86 100,11 109,13 118,96 129,66 141,34 154,05 167,91 183,03 191,21 208,

YoY(%) - 13,73% 9,00% 8,98% 9,00% 9,01% 9,00% 9,00% 9,00% 8,99% 9,00% 4,47% 9,00%

E



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Determining the FCFF Free Cash Flow for the Firm (II)


Total operating costs with the new striker Scenario B

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Operating Costs

Payroll (base scenario) 50,92 56,01 61,62 67,78 74,56 82,01 90,21 99,23 109,2 120,1 132,1 145,3 159Payroll (aditional) 0,00 2,60 2,86 3,15 3,46 3,81 4,19 4,61 5,07 5,57 6,13 0,00 0,00Total payroll with new player 50,92 58,61 64,48 70,93 78,02 85,82 94,40 103,84 114,23 125,64 138,21 145,29 159,

YoY(%) - 15,10% 10,02% 10,00% 10,00% 9,99% 10,00% 10,00% 10,01% 9,99% 10,00% 5,12% 10,00

Stadium Operating Expenses 16,38 17,04 17,72 18,43 19,16 19,93 20,73 21,55 22,42 23,31 24,25 25,22 26,2

Other (base scenario) 1,8 1,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,88Other (transfer fee of new player) 0,00 20,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,0Total Other costs with new player 1,80 21,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,8

Total Operating Costs with new player 69,10 97,52 84,15 91,38 99,29 107,94 117,41 127,76 139,11 151,51 165,12 173,28 188,YoY(%) - 41,13% -14% 8,59% 8,66% 8,71% 8,77% 8,81% 8,88% 8,92% 8,98% 4,94% 9,03

E



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Determining the FCFF Free Cash Flow for the Firm (III)


Total financial items with new striker Scenario B

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

EBITDA 5,00 -13,25 7,71 8,74 9,84 11,02 12,25 13,58 14,95 16,40 17,91 17,93 19,5

Depreciation 2,2 2,29 2,38 2,47 2,57 2,68 2,78 2,9 3,01 3,13 3,26 3,39 3,5YoY(%) - 4,09% 3,93% 3,78% 4,05% 4,28% 3,73% 4,32% 3,79% 3,99% 4,15% 3,99% 3,83

EBIT 2,80 -15,54 5,33 6,27 7,27 8,34 9,47 10,68 11,94 13,27 14,65 14,54 15,9

Interest 2,26 2,46 2,69 2,93 3,19 3,48 3,79 4,13 4,5 4,91 5,35 5,83 6,3

EBT 0,54 -18,00 2,64 3,34 4,08 4,86 5,68 6,55 7,44 8,36 9,30 8,71 9,6

Taxes 0,19 0,00 0,92 1,17 1,43 1,70 1,99 2,29 2,60 2,93 3,25 3,05 3,3

Net Income 0,35 -18,00 1,72 2,17 2,65 3,16 3,69 4,26 4,83 5,43 6,04 5,66 6,2

Capital Expenditure (Maintenance) 3,30 3,43 3,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,2

YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00

E



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Determining the FCFF Free Cash Flow for the Firm (IV)


Capital Structure, CAPEX and increase in Equity with new striker Scenario B

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Capital Structure

Debt 45,01 48,99 53,57 58,35 63,53 69,31 75,48 82,25 89,62 97,79 106,6 116,1 126

Equity 137,3 137,63 119,63 121,35 123,52 126,17 129,33 133,02 137,28 142,11 147,54 153,59 159,

Debt + Equity 182,3 186,6 173,2 179,7 187,1 195,5 204,8 215,3 226,9 239,9 254,1 269,7 285

Debt + Equity YoY Variation - 4,33 -13,42 6,50 7,35 8,43 9,33 10,47 11,63 13,00 14,20 15,60 16,2

Accumulated - 4,33 -9,08 -2,59 4,76 13,19 22,52 32,98 44,61 57,61 71,81 87,41 103,6


Accumulated - 3,43 7,00 10,71 14,57 18,59 22,76 27,11 31,62 36,32 41,20 46,29 51,5

Difference - 0,90 -16,98 2,78 3,49 4,41 5,16 6,12 7,11 8,30 9,31 10,52 10,9

Aditional Cash 26,29 27,19 10,21 12,99 16,48 20,89 26,04 32,17 39,28 47,58 56,89 67,41 78,3

E



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Determining the FCFF Free Cash Flow for the Firm (V)


Betas and Discount Rates with new striker Scenario B (I)

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Rates

Debt to Equity Ratio 32,8% 35,6% 44,8% 48,1% 51,4% 54,9% 58,4% 61,8% 65,3% 68,8% 72,2% 75,6% 79,5

Leverage Ratio (L) 24,7% 26,3% 30,9% 32,5% 34,0% 35,5% 36,9% 38,2% 39,5% 40,8% 41,9% 43,1% 44,3

(1-t) 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65% 65%

Beta Debt 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,08 0,0

Beta Levered (Dynamic) 1,290 1,308 1,368 1,390 1,411 1,434 1,456 1,479 1,501 1,524 1,546 1,568 1,59

Beta Unlevered 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,08 1,0

E



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Determining the FCFF Free Cash Flow for the Firm (VI)


Betas and Discount Rates with new striker Scenario B (II)

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Rf 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57% 4,57

Rm 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5% 10,5

Market Premium 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92% 5,92

Rd 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02% 5,02

Ru 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9% 10,9

Re (CAPM) 12,2% 12,3% 12,7% 12,8% 12,9% 13,1% 13,2% 13,3% 13,5% 13,6% 13,7% 13,9% 14,0

Re (MM) 12,2% 12,3% 12,7% 12,8% 12,9% 13,1% 13,2% 13,3% 13,5% 13,6% 13,7% 13,9% 14,0

WACC 10,0% 9,9% 9,8% 9,7% 9,6% 9,6% 9,5% 9,5% 9,4% 9,4% 9,3% 9,3% 9,2%

E



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0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

EBIT 2,80 -15,54 5,33 6,27 7,27 8,34 9,47 10,68 11,94 13,27 14,65 14,54 15,9

Company Tax Rate 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35% 35%

EBIT (1-t) 1,82 -10,10 3,46 4,07 4,72 5,42 6,16 6,94 7,76 8,62 9,52 9,45 10,3

Depreciation 2,2 2,29 2,38 2,47 2,57 2,68 2,78 2,9 3,01 3,13 3,26 3,39 3,5

Operational Cash Flow 4,02 -7,81 5,84 6,54 7,29 8,10 8,94 9,84 10,77 11,75 12,78 12,84 13,9


YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00

Increases in Non-Cash Net WC 0,00 -6,30 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,0

Free Cash Flow for the Firm 0,72 -4,94 2,27 2,83 3,43 4,09 4,76 5,50 6,25 7,06 7,90 7,76 8,6

YoY(%) - -786% -146% 24,46% 21,25% 19,02% 16,57% 15,48% 13,71% 12,85% 11,90% -1,72% 11,12

Determining the FCFF Free Cash Flow for the Firm (VII)


FCFF with new striker Scenario B

E

Valuation for the Scenario Bh C C h l f h ( )


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Determining the FCFF Free Cash Flow for the Firm (VIII)


Target price for share with new striker Scenario B

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Free Cash Flow for the Firm 0,72 -4,94 2,27 2,83 3,43 4,09 4,76 5,50 6,25 7,06 7,90 7,76 8,6

YoY(%) - -786% -146% 24,46% 21,25% 19,02% 16,57% 15,48% 13,71% 12,85% 11,90% -1,72% 11,12

Actualization Factor @ WACC 1 1,10 1,21 1,32 1,45 1,59 1,74 1,91 2,09 2,28 2,50 2,73 2,98

Terminal Value @ WACC with g = 4% 170,

FCFF @ 2007 Prices @ WACC 0,72 -4,50 1,88 2,14 2,36 2,57 2,73 2,88 3,00 3,09 3,16 2,84 173,

EV - Enterprise Value 196,68

Excess Cash 26,29

FV - Firm Value 222,97

Financial Debt (Market Value) 45,01

Equity Value 177,96

# of Shares (M) 9,29

Target price for Share 19,16

E

Valuation for the Scenario BS i d f l


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Some assumptions and formulas


Target price for share with new stadium is 19,16

General Assumptions and Formulas:

The revenues in scenario B includes the restrictions that were mentioned before, the possibility of the playersinjury andthe size of the stadium that only allows to capture 25% of the total potential revenues that might become from the acquisof the new player;

Regarding costs, it was assumed 52 weeks in each year to compute the total payroll costs. The salary paid to the new playeincrease 10% in the 10 years of the contract;

Furthermore, we assumed that the contract will not be renewed at the end of the 10 years, and so the additional revenues

costs are only to be considered until 2018; All of the presented figures were calculated taking into consideration the methodology that was previously explained (fo

DCF approach, particularly for the Method A).

Agenda


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Final wrap-up


Valuation for the Scenario CM i i t f thi i


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Main impacts for this scenario

Particularities of Scenario C


Relatively to revenues, besides the ones that we already mentioned in both cases we can consider a leverage factor, as a grstadium will allow to obtain the total potential revenues that become from the acquisition of the new player;

Therefore, the additional revenues if the club decides to invest in both hypothesis, respect to an increasing in attendan40% and in sponsorship of 20%, once the stadium will be greater. The increasing in revenues that become from the acquiof the new player are approximately 4,34% until the conclusion of the stadiumsconstruction. This value would be boost17,35%, as soon as the stadium is operational.

Potential change in costs and CAPEX:

The potential costs and CAPEX in scenario C is only the sum of the costs that we have mentioned in both of the prevscenarios, namely a Capital Expenditure of 250 million with the construction of the new stadium, and the respective incof a greater stadium operating expenses of 14%. Besides that, the club will have a fee of 20 million in the acquisition onew player, and an additional payroll cost of 50,000 per week, which means 2,6 million per year, in order to pay for theplayerssalary.

Valuation for the Scenario CDetermining the FCFF Free Cash Flow for the Firm (I)


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Determining the FCFF Free Cash Flow for the Firm (I)


Total revenues with the new stadium and the new striker Scenario C

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenues

Attendance (base scenario) 17,4 18,97 20,67 22,53 24,56 26,77 29,18 31,81 34,67 37,79 41,19 44,9 48,9Attendance (aditional) 0,00 0,00 0,00 9,012 9,824 10,71 11,67 12,72 13,87 15,12 16,48 17,96 19,5Total Attendance with new stadium 17,4 18,97 20,67 31,54 34,38 37,48 40,85 44,53 48,54 52,91 57,67 62,86 68,5

Sponsorship 15,7 17,11 18,65 20,33 22,16 24,16 26,33 28,7 31,28 34,1 37,17 40,51 44,1

Sponsorship (aditional) 0,00 0,00 0,00 4,066 4,432 4,832 5,266 5,74 6,256 6,82 7,434 8,102 8,83Total Sponsorship with new stadium 15,7 17,11 18,65 24,4 26,59 28,99 31,6 34,44 37,54 40,92 44,6 48,61 52,9

Broadcast 28,7 31,28 34,1 37,17 40,51 44,16 48,13 52,46 57,19 62,33 67,94 74,06 80,7Merchandise 5,2 5,67 6,18 6,73 7,34 8 8,72 9,51 10,36 11,29 12,31 13,42 14,6Other 7,1 7,74 8,44 9,19 10,02 10,92 11,91 12,98 14,15 15,42 16,81 18,32 19,9

Total Revenues with new stadium 74,1 80,77 88,04 109 118,8 129,6 141,2 153,9 167,8 182,9 199,3 217,3 236Aditional Revenue with new player 0,00 14,01 15,28 18,92 20,62 22,48 24,50 26,71 29,11 31,73 34,59 0,00 0,0Total Revenues with both 74,10 94,78 103,32 127,95 139,47 152,03 165,71 180,63 196,88 214,60 233,92 217,27 236,

YoY(%) - 27,91% 9,00% 23,84% 9,01% 9,01% 9,00% 9,01% 9,00% 9,00% 9,00% -7,12% 9,00%

E

Valuation for the Scenario CDetermining the FCFF Free Cash Flow for the Firm (II)


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Determining the FCFF Free Cash Flow for the Firm (II)


Total operating costs with the new stadium and the new striker Scenario C

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Operating Costs

Payroll (base scenario) 50,92 56,01 61,62 67,78 74,56 82,01 90,21 99,23 109,2 120,1 132,1 145,3 159Payroll (aditional) 0,00 2,60 2,86 3,15 3,46 3,81 4,19 4,61 5,07 5,57 6,13 0,00 0,0Total payroll with new player 50,92 58,61 64,48 70,93 78,02 85,82 94,40 103,84 114,23 125,64 138,21 145,29 159,

YoY(%) - 15,10% 10,02% 10,00% 10,00% 9,99% 10,00% 10,00% 10,01% 9,99% 10,00% 5,12% 10,00

Stadium Op. Expenses (base scenario) 16,38 17,04 17,72 18,43 19,16 19,93 20,73 21,55 22,42 23,31 24,25 25,22 26,2Stadium Op. Expenses (aditional) 0,00 0,00 0,00 2,58 2,682 2,79 2,902 3,017 3,139 3,263 3,395 3,531 3,67Total Stad. Op. Exp. with new stadium 16,38 17,04 17,72 21,01 21,84 22,72 23,63 24,57 25,56 26,57 27,65 28,75 29,8

Other (base scenario) 1,8 1,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,8Other (transfer fee of new player) 0,00 20,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,0Total Other costs with new player 1,8 21,87 1,95 2,02 2,11 2,19 2,28 2,37 2,46 2,56 2,66 2,77 2,8

Total Operating Costs with both 69,10 97,52 84,15 93,96 101,97 110,73 120,31 130,77 142,25 154,78 168,52 176,81 192,

YoY(%) - 41,13% -14% 11,65% 8,53% 8,58% 8,65% 8,70% 8,77% 8,81% 8,88% 4,92% 8,92%

E

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Total financial items with new stadium and the new striker Scenario C

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

EBITDA 5,00 -13,25 7,71 33,99 37,49 41,30 45,40 49,86 54,64 59,82 65,40 40,46 44,2

Depreciation (base scenario) 2,2 2,29 2,38 2,47 2,57 2,68 2,78 2,9 3,01 3,13 3,26 3,39 3,52Depreciation (aditional) 0 0 25 25 25 25 25 25 25 25 25 25 0 Total depreciation with new stadium 2,2 2,29 27,38 27,47 27,57 27,68 27,78 27,9 28,01 28,13 28,26 28,39 3,5

YoY(%) - 4,09% 1096% 0,33% 0,36% 0,40% 0,36% 0,43% 0,39% 0,43% 0,46% 0,46% -88%

EBIT 2,80 -15,54 -19,67 6,52 9,92 13,62 17,62 21,96 26,63 31,69 37,14 12,07 40,7

Interest 2,26 3,26 4,26 5,26 6,26 7,26 8,26 9,26 10,26 11,26 12,26 13,26 14,2

EBT 0,54 -18,80 -23,93 1,26 3,66 6,36 9,36 12,70 16,37 20,43 24,88 -1,19 26,4

Taxes 0,19 -6,58 -8,38 0,44 1,28 2,23 3,28 4,44 5,73 7,15 8,71 -0,42 9,26

Net Income 0,35 -12,22 -15,56 0,82 2,38 4,13 6,08 8,25 10,64 13,28 16,17 -0,77 17,2

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CAPEX and increase in Equity with new stadium and the new striker Scenario C

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Capital Expenditure (Maintenance) 3,30 3,43 3,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,2Capital Expenditure (New Stadium) 0,00 125,00 125,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,0Total CAPEX with new stadium 3,30 128,43 128,57 3,71 3,86 4,01 4,18 4,34 4,52 4,70 4,88 5,08 5,2

YoY(%) - 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00% 4,00

Aditional increase in Equity 0,00 125,00 125,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,00 0,0

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Capital Structure with new stadium and the new striker Scenario C

0 1 2 3 4 5 6 7 8 9 10 11 12

Year 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Capital Structure

Debt 45,01 64,93 84,84 104,76 124,67 144,59 164,51 184,42 204,34 224,25 244,17 264,09 284,

Equity 137,3 262,63 375,41 359,86 360,68 363,06 367,19 373,28 381,53 392,17 405,45 421,62 420,

Debt + Equity 182,29 327,56 460,26 464,62 485,35 507,65 531,70 557,70 585,87 616,42 649,62 685,71 704,

YoY Variation - 145,27 132,70 4,36 20,73 22,30 24,05 26,00 28,17 30,56 33,19 36,09 19,1

Accumulated - 145,27 277,97 282,33 303,06 325,36 349,41 375,41 403,58 434,13 467,33 503,42 522,5


Accumulated - 128,43 257,00 260,71 264,57 268,59 272,76 277,11 281,62 286,32 291,20 296,29 301,5

Difference - 16,83 4,13 0,65 16,87 18,28 19,88 21,66 23,65 25,86 28,31 31,01 13,8

Aditional Cash 26,29 43,12 47,25 47,90 64,78 83,06 102,93 124,59 148,25 174,10 202,41 233,42 247,

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Valuation for the Scenario CDetermining the FCFF Free Cash Flow for the Firm (VI) E

5/24/2018 MscBA 2012

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MscBA 2012 - Advanced Corporate Finance Coursework-2

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