Las Vegas Sands Corp. - University of Oregon Investment Group
advertisement
UNIVERSITY OF OREGON INVESTMENT GROUP! !"#$"%&#&' ()*+,-./'0))1+' ! Las Vegas Sands Corp. 23(45536789:46;''<4=7' !! ! ! ! ! ! ! ! ! Stock Data' Price (52 weeks) Symbol/Exchange Beta (Hamada) Beta (Terminal) Shares Outstanding Average daily volume (3 month average) Current market cap $6.32­$26.57 LVS / NYSE 1.61 1.29 656,836,950 35,386,100 13.92B Current Price Dividend Dividend Yield $23.61 N/A N/A Valuation (per share)' DCF Analysis Comparables Analysis Target Price Current Price $16.51 $25.05 $20.78 $23.61 Summary Financials ' Revenue Net Income Operating Cash Flow ! ! ! ! ! 2009A (In thousands)' $4,563,105 ­$540,050 $364,506 ! ! ! ! Covering Analyst: Sean Golin Email: sgolin@uoregon.edu The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be. Members of UOIG may have clerked, interned or held various employment positions with !"#$%&'()*&"+&,-./0%&12#3!2)"24&&.+& 5**"3"2+6&$($7(#%&2!&,-./&$58&533($13&32&2735"+&($1)28$(+3&12%"3"2+%&9"3'&!"#$%&'()*&"+&,-./0%&12#3!2)"24&& ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu ! BUSINESS OVERVIEW Las Vegas Sands Corp. (LVS) owns and operates casinos and hotels located in strategically placed areas in the US and Asia. The company was founded in 1988 and is headquartered in Las Vegas, NV. The company operates the following properties at the following locations: The Venetian The Venetian is the flagship property of LVS. It was opened in 1999 after the demolition of the Sands casino. The Venetian is located on the Las Vegas Strip. It consists of over 8,000 hotel rooms and is equipped with a 120,000 sq. ft. gaming floor. The Palazzo The Palazzo is also located on the Las Vegas Strip next to The Venetian. It was opened in late 2007 and is one of the largest LEED Gold Certified buildings in the nation. Sands Expo Convention Center The Sands Expo is the second largest convention center in Las Vegas. In addition to serving as convention center for the Venetian, it also is used for overflow traffic of the Las Vegas Convention Center. Sands Bethlehem Opened in Bethlehem, PA in 2009. The Sands Bethlehem originally consisted of slot machine and electronic table games, but LVS obtained a gaming license, which will allow them to expand their offerings to include poker, blackjack, and craps. Venetian Macao The Venetian Macao is located in the Macau, which is in the People’s Republic of China. It is one of the largest casinos in the world, in terms of gaming space at 550,000 sq. ft. Just like its counterparts, it offers hotel rooms, gaming, dining, shopping, and entertainment. Sands Macao The Sands Macao was opened in 2004 and signifies Las Vegas Sands’ entry into the Chinese market. It consists of 229,000 sq. ft. of gaming space. Four Seasons Hotel Located on the Cotai Strip in the People’s Republic of China. The Cotai Strip is positioned to be the China version of the Las Vegas Strip. The Four Seasons Hotel location, allows LVS access to this market and plans for additional locations are set as this area expands. Marina Bay Sands The newest of all LVS properties, Marina Bay Sands was opened in Singapore in 2010. It is one the costliest casinos in the world, at an anticipated total cost of $5.7 billion. However, it is projected to generated $1 billion in revenue annually. In total, the company consists of 27,000 full-time employees for the operations of the above 8 properties but has planned to expand further, which will be discussed later within this report. 2 ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu Major Revenue Segments The revenues for Las Vegas Sands Corp. can be broken down into four major areas. These areas include casino revenues, hotel revenues, food and beverage revenues, and convention/retail revenues. I will break these down individually to provide details. Casino Revenues Casino revenues represent about 71.5% of total revenues and is the major revenue driver for LVS’s business. Included in this segment is revenue generated from slot machines and table games. The most surprising aspect of casino revenue is the amount generated from VIP clients and high-rollers. In Q1 2010, Marina Bay Sands generated approximately 48% of its revenues from these clients. However, this number may be skewed as it has only been open for a short period of time. LVS enjoys a gross margin from casino revenues of 33.3%. Rooms Hotel room bookings represent 13.3% of Las Vegas Sands’ total revenues. LVS had made strong commitments to be a luxury leader in accommodations and has a priority to the higher net worth, business class. Their room rates are set to reflect this and will not drop below a certain level, as they do not want to lose any prestige that is synonymous with their brand. Gross margins for hotel revenues in 2009 were 81.6%. Food and Beverage While only 6.7% of LVS revenues are generated in this segment, it represents an important aspect of their business. As previously mentioned, the demographic Las Vegas Sands caters to is wealthier individuals. This is indicative of the food and beverages offered at their locations. LVS has hired numerous world-famous chefs to open restaurants located within their establishments. These chefs include Mario Batali, Emeril Lagasse, Wolfgang Puck, etc. The quality of food offerings goes hand-in-hand with quality of accommodations. Gross margin on their food and beverage products was 49.35% in 2009. Convention and Retail Although only 8.5% of their revenues are generated from this segment, it is very important to their business model. Conventions represent a large portion of the revenues generated in other segments. For example, when a convention is occurring at the Sands Expo in Las Vegas, patrons are able to obtain group room rates at The Venetian. While little revenue is actually being generated from the convention itself, they are increasing revenues from the hotel rooms, which will lead to increased revenues in the casino, which also leads to increases in food and beverage revenues. As you can see, the most important aspect is casino revenue. Without it, LVS would not be able to operate. However, the other revenue segments are crucial in order to get customers into the doors, which enables them to generate the revenues necessary. BUSINESS AND GROWTH STRATEGIES After the opening of the Sands Macao, CEO Sheldon Adelson stated that Las Vegas Sands Corp. would become a more Chinese enterprise. This was soon the case as LVS continued to open 3 additional properties in China and Singapore. It’s not to say that LVS won’t look to expand domestically, as they opened 2 domestic locations since this statement as well. At the end of 2009, 71.8% of revenue generated, came from their Macao locations in China, while 28.2% of revenues is still being generated domestically in the US. This trend has been shifting over time, as shown by 2007 revenues in which 33.4% of revenues came from US properties, compared to 66.6% in Macao. 3 ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu Domestically, LVS is planning to further expand the offerings at their current locations, in addition to building a residential condominium tower called the St. Regis, which will be located in between The Venetian and The Palazzo in Las Vegas. Internationally, Las Vegas Sands is currently underway in expanding their Macao locations on the Cotai Strip. Three new resorts are planned pending government approval of contracts. In addition, in a most recent Q1 2010 conference, the CEO mentioned that they will be looking in other Asia countries for opportunities. He most specifically mentioned South Korea and Japan. He has also mentioned the possibility of a Vegas-style strip in Europe. MANAGEMENT AND EMPLOYEE RELATIONS CEO- Sheldon Adelson Sheldon Adelson has been with Las Vegas Sands Corp. from the very beginning, when he and his partners bought the Sands hotel in Las Vegas in 1988. He has grown and transformed the business by rebuilding the Sands into the Venetian, and undertaking many various expansions. He is 76 years old. COO- Michael Leven Michael Leven has extensive experience in the hotel industry. He served as a director for LVS in May 2005, before leaving in July 2005. He has since rejoined LVS in March 2009. He is 72 years old. The good thing about Sheldon Adelson, the CEO, is that he has a significant personal interest in the success of the company. In addition, a very large percentage of his personal wealth is tied to LVS. However, as you can witness he is getting old. I have not found any mention that is planning to step down or an announcement of a successor. RECENT NEWS May 7, 2010 – Casino Stocks May Benefit from Jobs Data - As jobs domestically are increasing, Las Vegas casinos have seen an increase in consumers. This is fairly obvious as gaming revenues will increase as people have more disposable income. May 6, 2010 – Las Vegas Sands Corp. Reports First Quarter 2010 Results – With strong revenue growth, LVS beat analyst estimates by obtaining an adjusted EPS of $0.07 compared to estimates of $0.03. April 29, 2010 – Casino Stocks: Which Has the Winning Hand? – LVS and WYNN are expected to perform better than other casino stocks, given their position to take advantage of the Macau market. April 27, 2010 – Marina Bay Sands Opens Its Doors – The unofficial opening of Marina Bay Sands takes place. The grand opening event is set for June 23, 2010. Although there were marketing issues with Marina Bay Sands, word of mouth spread and the casino has the potential to hit its breakeven point within 5 years. INDUSTRY The hotel casino industry during the 2008 recession looked very bleak. As consumers no longer had the income to travel and gamble, revenues across the board took a huge dive. However, as the economic situation begins to improve, the market becomes even more attractive. Considering that 66% of the industry’s revenue is generated from gambling, it is essential that the economy is in a good situation as consumers need to have disposable income to spend. 4 ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu In the US, 70% of gambling revenue is from domestic gamblers. With the US economy in trouble, so is the hotel casino industry’s ability to generate revenue. 30% of revenue is from foreign high rollers. However, with the traffic decreasing, primarily in Las Vegas, the ability to pull foreign high rollers declined as well. With the emergence of the Macau area and other European casinos, there is danger that the high rollers may start to prefer other alternatives. As a result, it is important to be positioned in areas that attract these high net worth individuals. The competition across the hotel casino industry is very high across all geographical regions. As previously mentioned, these casinos are in constant rivalry to draw customers to not only stay at their hotels, but just to enter the doors, as each person can generate important revenue. This is why many hotels go above and beyond in terms of service and extravagance. The quality of offerings in terms of shopping, dining, accommodations, attractions, and gaming space are all important aspects of the hotel casino industry. Offering each of these in way that differentiates themselves can create a competitive advantage. Due to the cost and scale of construction, the barriers to entry are very high. Not only the cost, but location plays a huge factor. Unfortunately, the availability of prime location is nearly impossible to find as the majority of all the best spots have casinos already. Regulation is becoming a bigger issue than in previous times. As the industry begins to open up in Asia and on a global scale, there is threat from regulation in terms of taxation, construction, and the way these hotels operate. The market in Macau has been growing very rapidly. As we know, the Chinese government can be very strict in the way they operate. The existing hotels in Las Vegas and Macau are in prime position for growth. As the US economy begins to turn around, high growth is expected. In Las Vegas, revenues across the industry are expected to grow by 30-40% in 2010 alone. Signals are indicating that room and gambling revenues are up in dramatic fashion as first quarter reports come in. As I’m sure you have heard recently, China is one of the fastest growing economies in the world. This is evident in this industry as the expansion of Macau and Cotai Strip become larger. Companies with a strong presence in these regions can attract a vast range of consumers and most importantly, draw in the high rollers and VIP that generate critical revenue. As a result, being positioned globally can strengthen profitability, especially if the economy in one region begins to falter. S.W.O.T. ANALYSIS Strengths Five-diamond luxury hotels and casinos attract the higher net worth individuals. Strategically placed casinos in order to take advantage of growing markets. Generates large amounts of cash, which enables flexibility. Strong relationships developed with foreign governments. Macao presence allows LVS to compensate somewhat for struggling Vegas. Weaknesses Very susceptible to economic downturn. 5 ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu Luxury structure locks out price sensitive consumers. Extremely high costs to undertake new developments. Opportunities Economic boom would create a huge revenue jump. Expand into new international markets. Addition of gaming tables in casinos. Better positioned to attract high rollers. Threats Government regulation on advertising. Possibility of government rejecting contracts. Recession worries and negative economic data can severely impact revenues. CATALYSTS Upside As this industry is very tied to the success of the overall economy, the stock price moves up as more positive economic data is released. In addition, strong growing revenues in foreign markets can push the price up as it can counteract the negatives that LVS faces domestically. Downside For the most part, downside pressure on the stock price is applied if the exact opposite occurs that was mentioned in the upside catalyst. Negative economic data will crush the price of the stock, as fears of the company to generate revenue increase. In fact, during the 2008 downturn, LVS, mentioned the possibility of default of some outstanding bonds, which dropped the price as low as $1.42 as fears of bankruptcy ensued.! COMPARABLES ANALYSIS For my comparables analysis I wanted to compare companies that were tied to similar risks as Las Vegas Sands. These risks primarily include the strong tie that LVS has to economic data and its ability to generate revenue. In addition, I chose companies that offer similar geographic locations. The manner in which these companies generate revenues was also an extremely important factor in my selection. I tried to line up the major revenue segments discussed earlier and find companies that operated in the same manner. The following companies were chosen: 6 ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu Wynn Resorts Ltd. (WYNN) – 40% “Wynn Resorts, Limited, together with its subsidiaries, engages in the development, ownership, and operation of destination casino resorts. The company owns and operates Wynn Las Vegas casino resort in Las Vegas, which includes 22 food and beverage outlets comprising 6 dining restaurants, 2 nightclubs, 1 spa and salon, 1 Ferrari and Maserati automobile dealership, wedding chapels, an 18-hole golf course, meeting space, and foot retail promenade featuring boutiques. As of December 31, 2009, Wynn Las Vegas casino resort featured 135 table games, 1 baccarat salon, private VIP gaming rooms, 1 poker room, 1,920 slot machines, and 1 race and sports book. It also owns and operates an Encore at Wynn Las Vegas resort, a destination casino resort located adjacent to Wynn Las Vegas; and Wynn Macau casino resort located in the Macau Special Administrative Region of the People’s Republic of China. Wynn Macau casino resort featured 390 table games, 1,200 slot machines, 6 restaurants, 1 spa and salon, lounges, meeting facilities, and retail space featuring boutiques. Encore at Wynn Las Vegas operated 90 table games, 1 baccarat salon, private VIP gaming rooms, 790 slot machines, and 1 sports book. The company was founded in 2002 and is based in Las Vegas, Nevada.” –Taken from Yahoo! Finance Wynn was selected on the basis that it is a pure-play competitor to Las Vegas Sands. Not only does it target the same customer base, but that are geographically identical. The Wynn and Encore are located on the Las Vegas Strip directly next to The Venetian and The Palazzo. In addition, to the Las Vegas locations, Wynn also operates the Wynn Macau, allowing it to take advantage of the growing market as well. Since WYNN is extremely similar to LVS, it has been given a 40% weight. Melco Crown Entertainment (MPEL) – 30% ! “Melco Crown Entertainment Limited, through its subsidiaries, engages in the development, ownership, and operation of casino gaming and entertainment resort facilities primarily in the Macau special administrative region of the People’s Republic of China. It owns and operates Altira Macau, a casino and hotel resort, that features approximately 210 gaming tables; and deluxe hotel rooms comprising suites and villas, restaurants and dining facilities, non-gaming entertainment venues, recreation and leisure facilities, and meeting facilities; Mocha Clubs, which provide single player machines with various games consisting of progressive jackpots; and multi-player games where players on linked machines play against each other in electronic roulette, baccarat, and sicbo. As of December 31, 2009, the company operated 8 Mocha Clubs with a total of approximately 1,500 gaming machines. In addition, Melco Crown Entertainment operates City of Dreams, an integrated urban entertainment resort, with approximately 500 gaming tables, 1,300 gaming machines, 20 restaurants and bars, a performance theatre, food and beverage outlets, and guest 7 ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu rooms; and Taipa Square Casino that features approximately 31 gaming tables. The company was formerly known as Melco PBL Entertainment (Macau) Limited and changed its name to Melco Crown Entertainment Limited in May 2008. Melco Crown Entertainment Limited was incorporated in 2004 and is based in Central, Hong Kong.” –Taken from Yahoo! Finance As Las Vegas Sands expands more and more into the Macau and Cotai Strip region, it begins to face the risks associated with that area. Melco Crown Entertainment operates specifically in Macau. In fact, it is the leading competitor to LVS in that area. The biggest competition stemming from Melco’s City of Dreams resort. With LVS expanding in this market and growing revenues it will operate much like MPEL. For this reason, Melco Crown Entertainment has been given a 30% weighting. MGM Mirage (MGM) – 25% ! “MGM MIRAGE, through its subsidiaries, owns and operates casino resorts in the United States. The company’s resorts offer gaming, hotel, dining, entertainment, retail, and other resort amenities. It also owns and operates golf courses and a golf club. As of December 31, 2009, the company’s properties consisted of 15 wholly-owned casino resorts and 50% investments in 5 other casino resorts. In addition, MGM MIRAGE has an agreement with the Mashantucket Pequot Tribal Nation, which owns and operates a casino resort under the MGM Grand brand name in Mashantucket, Connecticut. The company was founded in 1986 and is based in Las Vegas, Nevada.” –Taken from Yahoo! Finance MGM MIRAGE was selected has a comparable for several reasons. First, the manner in which revenues are generated closely that of LVS. In addition, MGM operates almost solely within the Las Vegas area. This provides a good indication of the Vegas market and travel rates, as MGM targets a slightly more mass audience with lower room rates and lower gaming limits. In addition, MGM Mirage has opened a casino in Macau, strengthening this selection as a comparable company. With fairly similar risks and positioning, I felt that MGM would serve as an appropriate comparable. It has been assigned a 25% weighting. Boyd Gaming Corporation (BYD) – 5% ! “Boyd Gaming Corporation, together with its subsidiaries, operates as a multi-jurisdictional gaming company in the United States. As of December 31, 2009, the company owned and operated 15 casino entertainment facilities located in Nevada, Mississippi, Illinois, Louisiana, Indiana, and New Jersey. It owned approximately 812,500 square feet of casino space, containing approximately 21,400 slot machines, 425 table games, and 7,550 hotel rooms. The company 8 ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu also owns and operates a pari-mutuel jai-alai facility located in Dania Beach, Florida, as well as engages in travel agency business. In addition, Boyd Gaming Corporation holds a 50% interest in a limited liability company that operates Borgata Hotel Casino and Spa in Atlantic City, New Jersey. The company was founded in 1988 and is headquartered in Las Vegas, Nevada.” –Taken from Yahoo! Finance While it only was given a 5% weighting, Boyd was chosen for a couple reasons. It operates casinos and many other parts of the US, including Las Vegas and the Atlantic City area. This was important because LVS operates in Las Vegas as well as its Sands Bethlehem casino in Pennsylvania. Given that geographically they have similarities on the eastern part of the US as well as Nevada. Boyd could provide a general outlook on the gaming industry domestically since it’s positioned throughout the US. Metrics Used EV/Revenue (30%): This measure signifies the amount of revenue a firm can generate relative to its size. EV/EBITDA (40%): The EV/EBITDA metric shows the amount of income generated excluding depreciation, which is a key earnings measure in this industry, given the scale of properties and their life cycles. EV/OCF (30%): Indicates the amount of cash a company can generate through its day-to-day business operations. Comparables Results Following my comparables analysis, and applying the appropriate weights, I derived at a target price of $25.05. This represents a 5.76% undervaluation from the current LVS price of $23.61. DISCOUNTED CASH FLOW ANALYSIS My DCF analysis consists of projecting revenues based on the geographical markets in which LVS operates. These include the US, Macau, and Singapore. As there are currently no set plans to expand in other markets, I kept the revenue projections to include just those three regions. To determine an appropriate beta for Las Vegas Sands I at first ran a 5-year monthly regression. However, this gave me a beta of 4.56. This is incredibly high and very unreasonable. I then began running other regressions to see if I could come up with an appropriate estimate. Due to the recent volatility in the stock price of LVS, I was unable to find a reasonable beta using regression. As a result, I ran a Hamada to achieve a beta of 1.61. There is guidance from the company that they will be spending their cash to retire some of their long-term debt. By adjusting their debt-toequity ratio, I derived at a terminal beta of 1.29. The beta was drawn down linearly over the timeframe of my DCF. After all DCF projections were made and assumptions completed, I derived at a target price of $16.51. This led to an overvaluation of 30.07% on the current stock price of $23.62. RECOMMENDATION While I do feel that Las Vegas Sands is a very strong company, with great strategic positioning, the volatility and uncertainty of their revenues is not enough to recommend a buy at this time. Additionally, with a DCF price of $16.51 and a comparables price of $25.05, I came up with a weighted average price of $20.78, which represents an overvaluation of LVS’s stock. Regrettably, I am recommending a HOLD in all portfolios. 9 ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu APPENDIX 1 – COMPARABLES ANALYSIS (Amounts in Thousands) LVS "#$%&' /0$1# -,!"##89!:;<=%#> @&<0#9!AB'9'<=C$=% E#'< F<08#'!G<H I='#0H0$9#!J<KB# G<9&!<=C!@&L0'!M#0N!O=P#9'N#='9 QL=%?'#0N!R#S' ;#P#=B#!:,)3)I> IEOMRT!:,)3)I> AGU!:,)3)I> Metrics IJV;#P#=B# IJVIEOMRT IJVAGU Comparables Analysis WYNN MGM ()*))+ 2,.*,3 24,*45 25*.,?2,5*-7 2,6*)-?26.*66 5-5D4.7 3,,D64, 3*53 ,*46 23-D,(-D345 23)D36)D,46 2,3D75,D4(. 233D73,D.,6 2.D7-3D4(23D7-7D)323)D37(D-7( 2.D,76D)-25D,(5D463 2.D7,(D74, 23D-,4D.7( 2465D.75 23D,5(D7,( 2534D.6. .*(4( 3(*,.6 37*,)4 .*3(( 3.*)55 34*6() BYD MPEL ,-*))+ 23.*67 2-*.(?235*55 ((3D,() (*3. 25D35(D3,. 234D(34D,)7 2(()D-47 23,D56(D573 2-D44.D..5 23D343D,4) 2(67D((4 -*))+ 23,*() 25*6.?23.*6, 45D5)3 ,*57 23D)7.D4-, 2.D-.7D)6. 23)4D,), 2,D-73D((. 23D6.(D7.6 2.6.D37) 2,,4D(54 .)*))+ 2(*.( 2.*,5?24*(3D(5-D67( 3*5, 25D.5,D.,7 25D36(D,.. 2,3,D-64 2((D-)( 2,D(.)D)-6 2..5D675 2,.,D.44 .*3.3 3-*-6, .7*),- 3*4,4 4*665 3-*(4, ,*-(6 34*.4, ,5*5-- "#$%&'#C!TP#0<%# ONHK$#C!J<KB# "#$%&' ,*465237*77 .)+ 3-*)444 2,-*.. ()+ ,3*54)) 2.3*67 .)+ Implied Price $25.05 Current Price $23.61 Under (Over) Valued 5.76% 10 ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu 8DD367:E'%'–'7:A(4F6937'(8A<'G=4HA'868=IA:A' ' (In Thousands) ,))7T ,))4T ,))6T Net Revenues ,D6-)D-57 (D.46D6(5 (D-5.D3)Growth Rate XVT (4*74+ .*6(+ Cost of Revenue 3D7(-D4(. ,D754D7-, ,D475D47. % Of Revenue -6*37+ 5.*)7+ 5.*)-+ Gross Profit 3D,)(D7,( 3D5,3D36( 3D545D,., Gross Margin ()*4.+ .5*6.+ .5*6-+ Selling General & Administrative .36D.-7 --)D-,6 -,5D366 % Of Revenue 3)*4,+ 3,*-(+ 33*-.+ Depreciation and Amortization ,),D--7 -)5D645 -45D)(3 % Of Revenue 5*47+ 33*--+ 3,*4(+ Operating Expenses .-,D4)) ())D)35 5),D7., % Of Revenue 33*65+ 6*33+ 3.*,3+ Operating Income (Loss) ..)D)3) 35.D55. :,4D7()> Operating Margin 33*34+ .*7.+ ?)*5.+ Interest Income 7,D(5( 36D745 33D3,, % Of Revenue ,*(5+ )*(-+ )*,(+ Other Income (Expense) :,D),.> 3)D.-3 :..D3.6> % Of Revenue ?)*)7+ )*,(+ ?)*7.+ Interest Expense ,((D4)4 (,3D4,.,3D47) % Of Revenue 4*.)+ 6*53+ 7*)-+ Income (Loss) Before Income Taxes 3--D5(. :,,4D),-> :.7,D5,7> % Of Revenue -*,4+ ?-*36+ ?4*37+ Income Tax Benefit (Expense) :,3D-63> -6D7)) .D44( Tax Rate 3.*47+ ,5*34+ 3*)(+ Net Income (Loss) 3.(D)-, :344D75(> :-()D)-)> Net Margin (*-(+ ?(*.)+ ?33*4(+ Add Back: Depreciation and Amortization ,),D--7 -)5D645 -45D)(3 Add Back: Interest Expense*(1‐TR) ,3)D4(4 .33D.45 .34D-3Operating Cash Flow -(7D(-7 5,6D5)4 .5(D-)5 % Of Revenue 34*--+ 3(*.(+ 7*66+ Cash and Equivalents 4-7D3-) .D).4D35. (D6--D(35 % Of Revenue ,6*)-+ 56*,3+ 3)4*5)+ Current Assets -,3D6.5 7).D33. 554D,-4 % Of Revenue 37*56+ 35*),+ 3(*5(+ Current Liabilities 3D(6.D,7. 3D-.)D(35 3D4.6D.)% Of Revenue -)*53+ .(*45+ ()*.3+ Net Working Capital :33(D347> ,D,3)D45) .D74(D.56 % Of Revenue ?.*47+ -)*.5+ 4,*6.+ Change in Net Working Capital XVT ,D.,-D)(7 3D-7.D-)6 Less: Capital Expenditures .D76.D7). .D746D))4 ,D)6,D465 % Of Revenue 3,4*-4+ 45*.3+ (-*47+ Free Cash Flow :.D,(5D,(5> :-D(4(D((7> :.D.)3D466> PV of FCF 3W?,)3) ,)3)I:,W?(W> ,)3)I ,)33I ,)3,I 3D..(D444 (D6..D344 5D,54D)75 7D773D7)6 6D57-D.67 XVT XVT .7*.5+ ,.*66+ ,(*-)+ 4,5D665 .D)-5D33) .D44.D3)5 (D43(D-7( -D66.D6)4 53*6-+ 53*6-+ 53*6-+ 53*6-+ 53*6-+ -)7D46, 3D477D)74 ,D.4(D67) ,D6-7D3.- .D543D(44 .4*)-+ .4*)-+ .4*)-+ .4*)-+ .4*)-+ 3,5D,-6 (55D54) -6,D6.6 7.-D,)( 63-D,6. 6*(5+ 6*(5+ 6*(5+ 6*(5+ 6*(5+ 3-.D)46 -5,D.4. 73-D(7, 3D333D.-( 3D.5(D,.3 33*(7+ 33*(+ 33*(+ 3(*.+ 3(*3+ 45D7,( .,)D5-7 ()7D.43 -)-D353 5,4D6)3 5*-)+ 5*-)+ 5*-)+ 5*-)+ 5*-)+ 3(3D4,) -,7D.-4 556D374 5)-D(35 77.D)5( 3)*5,+ 3)*56+ 3)*54+ 7*76+ 7*66+ 3D5.. )*3,+ :(D,7,> ?)*.,+ 74D35-*45+ 53D)35 -,7D.-4 -44D.7( 5)-D(35 77.D)5( (*-7+ 3)*56+ 6*.6+ 7*76+ 7*66+ :3.D,),> :47D37,> :3))D.7(> :6)D43,> :33-D65)> ,3*5(+ 35*-.+ 37*)5+ 3-*))+ 3-*))+ :,4D6)-> (()D345 (44D))) -3(D5)( 5-7D3)?,*37+ 4*6,+ 7*76+ 5*5,+ 5*76+ 3-.D)46 -5,D.4. 73-D(7, 3D333D.-( 3D.5(D,.3 53D,-, 53D,-, 34-D(.5 3D)),D-56 3D,5(D7,( 3D5,-D6-4 ,D),3D..5 3.*46+ ,)*.,+ ,)*34+ ,)*6,+ ,)*46+ .D7-3D4(.D7-3D4(.D7-3D4((D,7(D(() (D4.7D564 -6*45+ --*))+ -)*))+ 3D))(D73. 3D))(D73. 3D))(D73. 3D,(-D4)- 3D--)D655 35*).+ 35*).+ 35*).+ 3D665D375 3D665D375 3D665D375 ,D(7-D,46 .D)43D53( .3*4-+ .3*4-+ .3*4-+ ,D75)D.4, ,D75)D.4, ,D75)D.4, .D)((D6-5 .D.)7D)-3 ((*)(+ .6*34+ .(*34+ :3D),.D647> ,4(D-7( ,5,D)6-.4D,)3 3D34.D653D7,,D355 3D.64D6)4 3D(-3D.3) ()*.,+ ,(*))+ ,7*(4+ 34*))+ 3-*))+ -55D-(:-7D-,.> .)7D6.3 -,.D4-3 :(4D)3-> ,.,D-64 ,)3.I 3)D-6,D435 6*(4+ 5D-5,D,(6 53*6-+ (D).)D-55 .4*)-+ 3D)),D)4) 6*(5+ 3D.64D,-, 3.*,+ 544D-.. 5*-)+ 6(3D7)3 4*46+ ,)3(I 33D((-D(34*)-+ 7D)6)D(.53*6-+ (D.-(D64) .4*)-+ 3D)4,D7.5 6*(5+ 3D.,7D554 33*5+ 7(.D6-, 5*-)+ 3D,))D5,( 3)*(6+ ,)3-I 3,D.)7D-37 7*-.+ 7D5,(D-)7 53*6-+ (D54.D)3) .4*)-+ 3D35(D,63 6*(5+ 3D().D)-7 33*(+ 766D646 5*-)+ 3D.3-D57( 3)*56+ ,)35I 3.D35)D55) 5*6.+ 4D3-.D),6 53*6-+ -D))7D5.3 .4*)-+ 3D,((D664 6*(5+ 3D(5)D4.. 33*3+ 4--D((. 5*-)+ 3D((5D.-7 3)*66+ ,)37I 3.D645D,-. 5*,7+ 4D55(D(4( 53*6-+ -D.,3D756 .4*)-+ 3D.,.D3)) 6*(5+ 3D(()D-4( 3)*.+ 6)6D3)5 5*-)+ 3D5(4D676 33*76+ ,)34I 3(D43,D34( -*63+ 6D375D3(4 53*6-+ -D5.5D).5 .4*)-+ 3D()3D,.. 6*(5+ 3D.5,D7,3 6*,+ 65,D76, 5*-)+ 3D6)6D,63 3,*46+ ,)36I 3-D5,4D)65 -*-3+ 6D543D5)5 53*6-+ -D6(5D(63 .4*)-+ 3D(74D(34 6*(5+ 3D.3,D75) 4*(+ 3D)3-D4,5 5*-)+ ,D3.6D(45 3.*56+ ,),)I 35D(46D476 -*-3+ 3)D,35D.)53*6-+ 5D,7.D-7.4*)-+ 3D--6D6(. 6*(5+ 3D,,)D,-3 7*(+ 3D)73D4(, 5*-)+ ,D(,3D-.6 3(*56+ 6(3D7)3 3D,))D5,( 3D.3-D57( 3D((5D.-7 3D5(4D676 3D6)6D,63 ,D3.6D(45 ,D(,3D-.6 4*46+ 3)*(6+ 3)*56+ 3)*66+ 33*76+ 3,*46+ 3.*56+ 3(*56+ :3(3D,--> :34)D)6(> :367D.-3> :,35D6-.> :,(7D.(7> :,45D.6(> :.,)D6,.> :.5.D,.3> 3-*))+ 3-*))+ 3-*))+ 3-*))+ 3-*))+ 3-*))+ 3-*))+ 3-*))+ 4))D((5 3D),)D-.) 3D334D.,, 3D,,6D(). 3D()3D5., 3D5,,D467 3D434D-5. ,D)-4D.)4 7*-5+ 4*6,+ 6*)6+ 6*.(+ 3)*),+ 3)*65+ 33*5(+ 3,*(4+ 3D.64D,-, 3D.,7D554 3D().D)-7 3D(5)D4.. 3D(()D-4( 3D.5,D7,3 3D.3,D75) 3D,,)D,-3 ,D364D564 ,)*75+ (D755D757 (-*))+ 3D564D),4 35*).+ .D.7.D43, .3*4-+ .D)6)D64( ,6*34+ :,35D)57> 3D,73D3.4 3,*))+ 3D3(.D5,7 74.D5.5 ,D.(4D366 ,)*-,+ (D-74D355 ()*))+ 3D4.(D7)) 35*).+ .D5(-D.5.3*4-+ ,D757D-)3 ,(*34+ :.,.D(4,> 3D3((D-(3 3)*))+ 3D-,7D3.6 6-3D-46 ,D-,3D.76 ,)*(6+ (D.)7D5.3 .-*))+ 3D67,D4635*).+ .D636D6(( .3*4-+ ,D.5)D-4, 36*34+ :()5D6,)> 3D,.)D7-, 3)*))+ 3D567D-(7 65(D.34 ,D56)D,.5 ,)*((+ .D6(4D364 .)*))+ ,D3)6D5-( 35*).+ (D363D57) .3*4-+ 3D455D34, 3(*34+ :(6(D())> 3D34(D(-6 6*))+ ,D)))D377 3D).4D.(7 ,D4(,D,35 ,)*.,+ .D(65D-5. ,-*))+ ,D,(3D665 35*).+ (D(-(D5,, .3*4-+ 3D,4.D6.4 6*34+ :-4,D,((> 3D334D6)) 4*))+ ,D.)-D-5) 3D)65D(5- ,D64-D534 ,)*35+ .D7).D)(5 ,-*))+ ,D.7(D.6. 35*).+ (D737D543 .3*4-+ 3D.-6D7-4 6*34+ 7-D4,) 3D34(D674*))+ 3D7,(D4,. 7-.D.35 .D3.3D.,( ,)*)(+ .D-35D.,, ,,*-)+ ,D-)-D34( 35*).+ (D677D-(6 .3*4-+ 3D)(.D6-7 5*54+ :.3-D4),> 3D,(6D(55 4*))+ ,D367D5-6 44.D7,4 .D,74D--6 36*44+ .D.(-D767 ,)*.+ ,D5((D3.5 35*).+ -D,-,D),7 .3*4-+ 7.7D6)5 (*(7+ :.)5D)-3> 3D.,)D)34*))+ ,D,5(D-64()D.7. 11 ! =>+'?.@>+'A>*1+'()/BC' ' ' university of oregon investment group http://uoig.uoregon.edu APPENDIX 3 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS 3)!Y#<0!M0#<9B0Z .*(,6+ E#'<!:]<N<C<> 3*53 F<08#'!;$98!/0#N$BN 7*))+ +!I^B$'Z 5)*.4+ +!R#S' .6*5,+ ;#'B0=!L=!R#S' 5*.(+ ;#'B0=!L=!I^B$'Z 3(*566+ "TGG 33*)3,+ M#0N$=<K!Y#<0!E#'< 3*,6 M#0N$=<K!Y#<0!"TGG 6*55+ Assumptions M#0N$=<K
