Determining the value of a company is a complex procedure which cannot be automated by any algorithm. This report investigated the intrinsic value and the relative value of Kathmandu Holdings Ltd., a New Zealand based company operating in the retail speciality industry. The valuation was based on the discounted cash flow model (DCF model) and a market multiple analysis. In this light, this report used assumptions such as future growth rate, EBIT growth, working capital, PPE and intangible asset turnover, all of which were largely affected by micro- and macroeconomic factors. Based on our calculation of a value per share of $2.72 using the DCF model, Kathmandu has been slightly over-priced in 2018 (+13 per cent).
This result was supported by the current share price of Kathmandu of $2.50 as of 1 March 2019. The selection of the company used for the market multiple analysis was based on the industry, comparable size, leverage, profitability and growth potential. Due to the size of the New Zealand economy and the nature of the Kathmandu business, the options to choose from were limited. We compared Kathmandu to The Super Retail Group, a retailer of automotive, outdoor equipment and clothing, operating in Australia, New Zealand and China. The NOA multiple of $2.74 suggested that Kathmandu was slightly over-priced, which was in line with our findings from the DCF model.
Kathmandu Holdings Ltd. is a New Zealand based company operating in the retail specialty industry. It offers a range of apparel as well as travel and camping equipment and is a leading retailer in Australasia. As at 31 July 2018, Kathmandu operates 167 retail stores across New Zealand, Australia, and the UK. In addition, the premium outdoor brand is operating through online channels, currently predominantly targeting the US. The main competitors of Kathmandu within the specialty retail industry include outdoor stores for fishing and camping, and big retailers, such as Macpac, Icebreaker or Torpedo 7, which are all vying for similar segments in the market. Due to the low start-up costs, the industry is also facing fierce competitions from online-only stores, where customers can shop around the clock from the comfort of their homes.
Table of Contents
1. Introduction
2. Background
2.1 Company profile
2.2 Attempted Takeover by Briscoe
3. Historical Financial Performance
4. Company valuation
4.1 Forecast Future Performance and Valuation
4.2 Industry Benchmarking
5. Conclusion
Objectives & Core Topics
The primary objective of this report is to determine the intrinsic and relative value of Kathmandu Holdings Ltd. by interpreting its financial statements. The analysis employs a Discounted Cash Flow (DCF) model and a market multiple analysis to assess whether the company's shares are under-priced or over-priced relative to its market performance.
- Financial statement analysis and interpretation of value drivers
- Application of the Discounted Cash Flow (DCF) model for intrinsic valuation
- Market multiple analysis using comparable industry benchmarks
- Assessment of operational performance indicators like EBIT growth and asset turnover
- Evaluation of share price valuation against market data
Excerpt from the Book
2.2 Attempted Takeover by Briscoe
The year 2015 was a challenging time for Kathmandu, as the company delivered unsatisfactory results, including sales growth of 4.2 per cent, a decrease in EBIT of 48.4 per cent from NZ$64.3m in FY14 to NZ$33.2m in FY15, accompanied by a decrease in earnings per share of 10.1 per cent (Kathmandu, 2015A). In June 2015, Kathmandu shareholders received an offer to sell their shares to the Briscoe Group that intended to take over the company. At that time, Briscoe had already acquired a 19.9 per cent stake in Kathmandu. The conditions outlined by the offer included the implied value of 1.80 per share and a minimum acceptance of 90 per cent among shareholders (Kathmandu, 2015). In early August that year, Kathmandu issued a statement to the NZSC and ASX, encouraging shareholders to reject the offer by ignoring all documents sent by Briscoe. The reasons for the recommendation included that the offer was below a third party adviser’s valuation of the company, as illustrated in Figure 1. Furthermore, the offer did not reflect the underlying value of the company and failed to recognize the strengths of the business and its future growth opportunities. Moreover, Briscoe was assumedly able to afford a far higher price per share (Kathmandu, 2015).
Summary of Chapters
1. Introduction: This chapter outlines the purpose of the report, focusing on the valuation of Kathmandu Holdings Ltd. using DCF modeling and market multiple analysis.
2. Background: This section provides the company profile and details the historical context of the 2015 attempted takeover by Briscoe Group.
3. Historical Financial Performance: This chapter examines the financial success of Kathmandu leading up to 2018, including revenue growth and the acquisition of Oboz Footwear.
4. Company valuation: This section details the technical processes used to calculate the company's intrinsic and relative value through forecasting and industry benchmarking.
5. Conclusion: The final chapter summarizes the findings, concluding that Kathmandu was slightly over-priced in 2018 based on the valuation models used.
Keywords
Kathmandu Holdings Ltd, Valuation, DCF Model, Market Multiple Analysis, Financial Statements, Intrinsic Value, Share Price, Retail Industry, EBIT Growth, Asset Turnover, Investment Decision, Performance Metrics, Oboz Footwear, Briscoe Takeover, Equity Valuation
Frequently Asked Questions
What is the primary focus of this report?
The report focuses on evaluating the intrinsic and relative value of Kathmandu Holdings Ltd. by analyzing its financial statements and applying specific valuation models.
What are the main thematic fields covered?
The study covers financial performance analysis, corporate valuation methodologies, market comparisons within the retail specialty industry, and the impact of macroeconomic factors on business forecasting.
What is the core objective of the valuation?
The objective is to determine the company's net worth and assess whether Kathmandu's shares were over-priced or under-priced in 2018.
Which scientific methods are utilized for the valuation?
The report utilizes the Discounted Cash Flow (DCF) model for intrinsic valuation and a market multiple analysis for relative valuation against comparable companies.
What topics are discussed in the main body?
The main body covers the company's background, historical financial performance, detailed assumptions for future performance forecasting, and an industry benchmarking analysis.
Which keywords best characterize this work?
Key terms include Valuation, DCF Model, Market Multiple Analysis, Financial Statements, and Equity Valuation.
Why was the Super Retail Group selected for benchmarking?
Despite being larger, the Super Retail Group was chosen as a comparable company because it operates in the same industry and region, providing a suitable benchmark for the market multiple analysis.
How does the author interpret the 2015 takeover attempt by Briscoe?
The author views the rejection of the Briscoe offer as a sign of shareholder confidence in Kathmandu's future growth potential and a rejection of an offer that undervalued the company's underlying worth.
What impact did the acquisition of Oboz Footwear have on the company's outlook?
The acquisition of Oboz Footwear is identified as a primary driver in revenue growth, providing Kathmandu with a stronger presence in the North American market.
What is the final conclusion regarding Kathmandu's share price?
The report concludes that Kathmandu was slightly over-priced by approximately 13 percent in 2018, a finding supported by both the DCF model and the NOA multiple analysis.
- Citar trabajo
- Ariane Holz (Autor), 2018, What is the value of Kathmandu Holdings Ltd.?, Múnich, GRIN Verlag, https://www.grin.com/document/483032
