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scale?•Mean v.s. Median¾If there are huge outlier •Negative ratio¾Delete. What’s the problem with it?¾Alternatives? Using Industry ratio, consider it.
8What type of average – Mean, median, industry ratios?•Exclude “abnormal” firms •Taking average of the other “comparable” one, considering negative.
9Multiples valuation – Current trading multiples(41.4)138.3139.876.8(57.4)82.684.3NI28.077.882.952.153.751.432.3EBIT3.04.011.66.184.108.40.206SalesRMHTLSPTeleTechPRCICTAPACSitel
10Multiples valuation – Current trading multiples63.5-26.148.937.547.427.4Price139.8-57.4107.682.6104.360.4NI (Pos)(all)64.621.841.840.642.1Price82.928.053.752.154.0EBIT220.127.116.110.528.3Price18.104.22.168.05.5SalesMaxMinIndustryMedianMean
11Which ratio to use?•P/S ratio depends on profit margin¾West Teleservices has profit margin (15.2% and 8.5% Ex 8) much higher than industry (11.5% and 5.8% Ex 1)•Growth rate¾S&P argues that WT should have a lower expected growth. 30% v.s. 100%, 89%.
12Multiples valuation – Use Sitel as an example •Sitel has almost no debt, price ratio will be same as value ratio42.052,423,45628,74884.3NI26.061,593,39149,33132.3EBIT14.77942,500325,0002.9SalesStock PriceVAmount_WTMultiple_Sitel
13Consider different growth rate37%-64%RMH, ICT, SITEL-4.9(-2.2)38.0(29.6)2.6x(13.1)g<median116-155%APAC,PRC,TTH99.7(45.3)48.0(37.4)9.0x(46.1)g>medianGrowthFirmsNIEBITSales
14Valuation•Using V/EBIT ratio32 (or use 38)*49331=1578592• Price/share(1578592-23151)/63330=$24.6This calculation assumes that part of the IPO proceeds are excess cash, which will be used to pay back debt; other proceeds are needed for the firm’s operation, or investment needs.
15Multiple v.s. DCF•Purpose of valuation: ¾Estimate what is the “true” value (financial analyst reports)¾Find out “how much the market is willing to pay”Valuation using multiples are especially helpful in this case