PNG Airlines is positioning itself for global expansion. The Chief Executive Officer of the company has asked its Chief Financial Officer to prepare a valuation report based on free cash flow (FCF) projections. The CFO needs your expertise in this matter.
Using discounted PV method, you are required to:
(1) Prepare free cash flow (FCF) projections for the next 10 years.
(2) Determine PNG's terminal value at the end of 10th year.
(3) Based on discounted free cash flows, determine enterprise value, equity value and value per share.
| PNG Airlines, Income Statement |
|
|
|
|
|
Dollars In Millions
|
2009 |
2010 |
2011 |
2012 |
2013 |
| Sales (Net) |
13,489 |
14,290 |
16,191 |
17,171 |
19,154 |
| Cost of Goods Sold |
12,490 |
13,814 |
14,811 |
14,430 |
15,315 |
| Gross Profit |
999 |
476 |
1,380 |
2,741 |
3,839 |
| Selling, General, & Admin Expenses |
911 |
939 |
2,108 |
1,394 |
1,579 |
| Operating Income Before Depreciation |
88 |
-463 |
-728 |
1,347 |
2,260 |
| Depreciation, Depletion, & Amortiz |
1,230 |
1,244 |
1,273 |
1,276 |
1,164 |
| Operating Income After Depreciation |
-1,142 |
-1,707 |
-2,001 |
71 |
1,096 |
| Interest Expense |
757 |
824 |
1,032 |
870 |
652 |
| Non-Operating Income/Expense |
1,542 |
-1,461 |
-826 |
-6,169 |
1,375 |
| Special Items |
0 |
0 |
0 |
0 |
0 |
| Pretax Income |
-357 |
-3,992 |
-3,859 |
-6,968 |
1,819 |
| Income Taxes - Total |
416 |
1,206 |
41 |
765 |
207 |
| Minority Interest |
0 |
0 |
0 |
0 |
0 |
| Income Before Extraordinary Items & Discontinued Operations (EI&DO) |
-773 |
-5,198 |
-3,818 |
-6,203 |
1,612 |
| Extraordinary Items |
0 |
0 |
- |
0 |
0 |
| Discontinued Operations |
0 |
0 |
0 |
0 |
0 |
| Net Income (Loss) |
-773 |
-5,198 |
-3,818 |
-6,203 |
1,612 |
| PNG Airlines, Balance Sheet |
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|
|
|
|
| Dollars In Millions |
2009 |
2010 |
2011 |
2012 |
2013 |
| Cash |
2,710 |
1,463 |
2,008 |
2,034 |
2,648 |
| Short-term investment |
- |
336 |
- |
614 |
138 |
| Receivables - Trade |
662 |
696 |
819 |
915 |
1,066 |
| Inventories |
202 |
203 |
172 |
181 |
262 |
| Prepaid Expense |
476 |
525 |
512 |
489 |
464 |
| Other Curr.Asst, Excl.Ppd.Exp. |
- |
383 |
969 |
1,152 |
662 |
| Current Assets - Total |
4,050 |
3,606 |
4,480 |
5,385 |
5,240 |
|
|
|
|
|
|
| Property, Plant & E.- Total (Gross) |
26,010 |
26,149 |
23,917 |
22,690 |
12,309 |
| Deprec.Depl.& Amort. |
-1230.00 |
-1,244.00 |
-1,273.00 |
-1,276.00 |
-1,164.00 |
| Prop.Plant & Equip.- Total (Net) |
24,780 |
24,905 |
22,644 |
21,414 |
11,145 |
|
|
|
|
|
|
| Goodwill Net |
2,092 |
227 |
227 |
227 |
12,104 |
| Invest. & Advances - Other |
- |
- |
- |
- |
- |
| Intangibles |
- |
79 |
74 |
89 |
2,806 |
| Deferred Charges |
- |
- |
- |
- |
- |
| Other Asst., Excl.Def.Chg |
4,637 |
1,295 |
1,022 |
1,005 |
811 |
| Total assets |
35,559 |
30,112 |
28,447 |
28,120 |
32,106 |
|
|
|
|
|
|
| Accounts Payable |
1,759 |
- |
934 |
936 |
1,045 |
| Income Taxes Payable |
- |
- |
- |
- |
- |
| Accrued Expense |
1,621 |
1,422 |
726 |
670 |
849 |
| Debt - Due in One Year |
1,002 |
893 |
1,186 |
1,503 |
1,014 |
| Other Curr.Liab., Excl.Accr.Exp |
2,242 |
2,066 |
2,419 |
2,660 |
3,402 |
| Current Liabilities - Total |
6,624 |
4,381 |
5,265 |
5,769 |
6,310 |
|
|
|
|
|
|
| Long-Term Debt - Total |
19,582 |
13,005 |
6,557 |
6,509 |
7,986 |
| Liabilities - Other |
- |
8,374 |
17,733 |
20,531 |
6,864 |
| Def. Taxes and Invest.Tax Cred. |
534 |
- |
132 |
406 |
855 |
| Total Liabilities |
26,740 |
25,760 |
29,687 |
33,215 |
22,015 |
|
|
|
|
|
|
| Pref. Stock - Redeemable |
275 |
390 |
336 |
- |
- |
| Common Stock |
271 |
286 |
2 |
2 |
- |
| Paid-in-Capital |
3,272 |
3,052 |
1,635 |
1,561 |
9,512 |
| Retained Earnings |
(2,338) |
(4,373) |
(8,209) |
(14,414) |
314 |
| Other Equity |
- |
(2,471) |
(2,811) |
(518) |
435 |
| Treas.Stock - Total $ Amt |
(2,708) |
(2,403) |
(601) |
(224) |
(148) |
| Shareholders Equity - Total |
(1,228) |
(5,519) |
(9,648) |
(13,593) |
10,113 |
| Liabilities and Shrhld. Equity - Total |
25,512 |
20,241 |
20,039 |
19,622 |
32,128 |
|
|
|
|
|
|
| Total Common Shares Outstanding |
- |
139.83 |
189.34 |
197.34 |
292.23 |
| ASSUMPTIONS & Other Information |
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PNG |
Average |
Industry |
| Revenue increase |
6.50% |
7.03% |
5.00% |
| COGS as % of revenue |
85% |
89.19% |
79.53% |
| Annual decrease of COGS |
1.50% |
|
|
| SG & A as % of revenue |
9.10% |
9.10% |
11.04% |
| Depreciation |
5% |
|
|
| Working capital |
2.71% |
2.71% |
Negative |
| Change in net working capital |
3.25% |
|
|
| Growth rate (g) |
4% |
|
|
| CAPEX growth |
7% |
5.01% |
|
|
|
|
|
| Plant Property & Equipment |
First year: Gross PPE from B/S + change in CAPEX |
|
Second year onwards: Previous year's PPE + Current year CAPEX |
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|
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| WACC Caluculation assumptions |
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| Beta |
1.95 |
|
|
| Risk free rate |
10 years treasury bond (^TNX) |
| Risk premium |
6% |
Best practice |
| Target -Equity of 33% and debt 67% |
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| Cost of debt |
8.71% |
|
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| WACC |
To be calculated |
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