Tabcorp Holdings Ltd: The Main Purpose Of This Project Is To Let You Apply The Valuation Principle Learned In This Subject To Conduct The Fundamental Analysis On The Share Value.

2378 words - 10 pages

Tabcorp Holding Ltd (TAH)Opinion Data (as 30/June/2004)Recommendation Strong BuyCurrent share price $14.24Valuation $18.43Market capitalisation $5,920 mIntrinsic Share ValueThe Tabcorp Holding (TAH) share price was calculated using a financial calculator - Valuepro.xls. It uses a two-stage discounted cash flow model to determine the intrinsic share price.In the first stage of the model, the company is assumed to grow at a fixed rate. The growth rate is assumed by using historical information about the company obtained from its annual reports (1995 - 2004). In addition to growth rate, assumptions were made on the profit margin, tax rate, investment rate and depreciation rate for the company. These values then contributed to the first stage calculation of the cash flow during periods 1 -8. In addition, the cash flow for a year is calculated as profit after tax - net investment - change in working capital.In the second stage of the model, the company is assumed to have reached maturity (thus has 0% growth going forward). Therefore, profit after tax remains constant for perpetuity and there is no net investment or change in working capital. The future cash flows are calculated by using the perpetuity formula on the profit after tax figure. All cash flows calculated during the two stages are then discounted to present value to give the NPV of the company. Dividing the NPV figure by the number of shareholders provides the intrinsic share price.The model uses a Weighted Average Cost of Capital calculated based on the formula:WACC = Wd.rf + We.b.(rm - rf)where Wd is the weighting of debt,We is the weighting of equity,rf is the risk free rate,b is the company beta , andrm is the return of the market portfolio.AssumptionsThe following assumptions have been made to calculate the intrinsic share value of TAH: All assumptions are shown in Appendix 4.Valuation date: 30 June 2004The share is valued as at 30 June 2004. This is because the valuation was determined using the 2004 Financial Statements. Valuating at a later date would involve incorporating the following issues:· TAH's bid to acquire Tab Limited, as this bid closed 13 August 2004· Continued integration of Jupiters Limited· The Victorian Government announced in July 2004 the timeline for the review of Gaming and Wagering licences (the review of these licences is to commence in late 2005 and continue through 2006 with an announcement to be made in 2007)· TAH'S bid to develop Singapore's $2 billion casino· Issue of more shares in July, August, September and October of 2004.The intrinsic share price as at 30 June 2004 was based on all publicly available information and data up to and including this date. Data was not available on all transactions after that date.Risk free Cash rate: 5.25%As Australia does not currently offer Treasury Bills, the RBA Cash Rate (as at 30/6/2004) was used for the risk free rate. This is the amount investors could expect to receive if they...

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