Professional Documents
Culture Documents
Monmouth
Monmouth
Monmouth
per-share data)
1998
1999
2000
2001
2002
$ 48.5
$ 49.1
$ 53.7
$ 54.8
$ 55.3
32.6
33.1
35.9
37.2
37.9
10.7
11.1
11.5
11.9
12.3
2.0
2.3
2.4
2.3
2.1
.4
.7
.8
.8
.8
2.8
1.9
3.1
2.6
2.2
Taxes
1.1
.8
1.2
1.0
.9
$1.7
$1.1
$1.9
$1.6
$1.3
Cost of Goods
67%
67%
67%
68%
69%
22%
23%
21%
22%
22%
Operating Income
6.6%
5.3%
7.3%
6.2%
5.4%
$ 2.91
$ 1.88
$ 3.25
$ 2.74
$ 2.23
1.60
1.60
1.60
1.60
1.60
Operations
Sales
Cost of Goods
Selling, General and
Administrative Costs
Depreciation Expense
Interest Expense
Net Income
Percentage of Sales
Stockholder Information
Earnings Per Share
Dividends Per Share
Book Value Per Share
49.40
49.68
51.33
52.47
53.10
Market Price
33-46
35-48
29-41
25-33
23-32
Price/Earnings Ratio
11-16
10-26
9-13
9-12
10-14
Shares Outstanding
584,000
584,000
584,000
584,000
584,000
(millions of
Cash
$ 1
Accounts Receivable
Inventories
Other
Current Assets
Total Assets
Other
18
1
Accounts Payable
$ 2
2
Current Liabilities
Long-term Debt
12
Net Worth
31
28
19
$ 47
53
173
Sales/Total Assets
1.18
Total
$ 47
Debt as % Capital
28%
1.52
WCR
24
0.387097
1999
2000
2001
2002
Sales
$ 45
$ 97
$ 99
$ 98
$ 100
Net Income
1.97
3.20
3.20
1.13
2.98
$ 25
$ 46
$ 49
$ 41
$ 46
11
15
10
13
19
35
34
31
33
Long-term Debt
10
18
16
15
17
Shareholders Equity
21
36
40
41
41
$ .78
$ .61
$ .59
$ .21
$ .54
0.20
Operations
Financial Position
Current Assets
Current Liabilities
Stockholders Information
Earnings Per Share
Dividends Per Share
Book Value Per Share
8.31
6.86
7.37
7.38
7.45
Market Price
6-17
10-18
7-18
4-10
5-8
Price/Earnings Ratio
8-22
16-30
12-31
19-48
9-15
Shares Outstanding
2,525,600
5,245,900
5,430,100
5,510,000
5,501,000
Forecasts
2002
Sales
2003
2004
2005
2006
$ 55.3
$ 58.6
$ 62.1
$ 65.9
$ 69.8
Cost of Goods
37.9
39.8
41.6
43.5
45.4
Gross Profit
17.4
18.8
20.5
22.4
24.4
12.3
12.3
12.4
12.5
13.3
Depreciation
2.1
2.3
2.5
2.7
2.9
EBIT
3.0
4.2
5.6
7.2
8.2
Tax @ 40%
1.2
1.7
2.2
2.9
3.3
EBIAT
$ 1.8
$ 2.5
$ 3.4
$ 4.3
$ 4.9
CoGS % Sales
69%
68%
67%
66%
65%
22%
21%
20%
19%
19%
$ 19.0
$ 20.7
$ 21.7
$ 22.6
(4.0)
(3.5)
(3.6)
(3.8)
2.3
2.5
2.7
2.9
$ 20.7
$ 21.7
$ 22.6
$ 23.5
2002
2003
Sales
55.3
58.6
45.4
Cost of Goods
37.9
39.8
24.4
Gross Profit
17.4
18.8
13.3
12.3
12.3
2.9
Depreciation
2.1
2.3
8.2
EBIT
3.0
4.2
3.3
Tax @ 40%
1.2
1.7
$ 4.9
EBIAT
1.8
2.5
65%
CoGS % Sales
69%
68%
19%
22%
21%
Beginning of Year
Capital Expenditures
Depreciation Expense
$ 19.0
(4.0)
2.3
End of Year
$ 20.7
ollars)
% of sales
Forecasts
2004
2005
2006
2007 to Infinity
62.1
65.9
69.8
69.8
41.6
43.5
45.4
45.4
20.5
22.4
24.4
24.4
12.4
12.5
13.3
13.3
2.5
2.7
2.9
2.9
5.6
7.2
8.2
8.2
2.2
2.9
3.3
3.3
3.4
4.3
4.9
4.9
67%
66%
65%
65%
20%
19%
19%
19%
$ 20.7
$ 21.7
$ 22.6
$ 23.5
(3.5)
(3.6)
(3.8)
(2.9)
2.5
2.7
2.9
2.9
$ 21.7
$ 22.6
$ 23.5
$ 23.5
2002
1.00
###
###
###
###
###
###
###
0
0
###
###
0
0
0
0
0
0
0
0
0
2003
1.00
0.68
0.32
0.21
0.04
0.07
0.03
0.04
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.32
-0.07
0.04
0.00
0.35
0.00
2004
1.00
0.67
0.33
0.20
0.04
0.09
0.04
0.05
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.33
-0.06
0.04
0.00
0.35
0.00
2005
1.00
0.66
0.34
0.19
0.04
0.11
0.04
0.07
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.33
-0.05
0.04
0.00
0.34
0.00
2006
1.00
0.65
0.35
0.19
0.04
0.12
0.05
0.07
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.32
-0.05
0.04
0.00
0.34
0.00
2007 to Infinity
1.00
0.65
0.35
0.19
0.04
0.12
0.05
0.07
0.00
0.00
0.01
0.00
0.00
0.00
0.00
0.34
-0.04
0.04
0.00
0.34
0.00
Net Income
Shares Outstanding (mil)
Earnings Per Share
2003
2004
2005
2006
2007
$ 11.0
$ 11.9
$ 12.8
$ 13.8
$ 15.0
4.21
4.21
4.21
4.21
4.21
$ 2.61
$ 2.83
$ 3.04
$ 3.27
$ 3.56
Idex Corp.
Lincoln Electric
Snap On Inc.
Stanley Works
55
77
47
61
96
77
53
Inventory % Sales
12%
18%
13%
17%
18%
16%
33%
17%
13%
20%
15%
10%
15%
5%
Return on Capital
21%
9%
10%
12%
11%
14%
4%
3.8
3.2
7.1
11.5
7.8
9.3
3.5
98%
52%
30%
27%
29%
40%
28%
market values
29%
37%
20%
17%
19%
24%
37%
BB-
BB+
BBB
A+
$ 712
$ 1,443
$ 1,191
$ 1,145
$ 1,861
$ 3,014
$ 29
55
119
98
90
129
234
1.80
EBIAT Multiple
12.8
12.1
12.2
12.7
14.4
12.9
16.1
Share Price
$ 42
$ 42
$ 29
$ 22
$ 26
$ 27
$ 30
2.80
3.20
2.00
1.78
1.80
2.32
2.32
Price/Earnings
15.0
13.1
14.5
12.4
14.4
11.6
13.5
Equity Beta
1.00
1.00
1.00
.75
1.05
.95
.71
.63
.80
.63
.85
.73
Bond Rating
Value of Firm ($ mil)
EBIAT ($ mil)
Asset Beta
=
=
B levered =
.73
1.05
Treasury Bonds
4.10%
AA
BBB
BB
4.52%
5.07%
6.07%
7.96%
II. Estimated Market Risk Premium = 5.5% over 30-Year U.S. Treasury Bonds
III. Median Values of Key Ratios by Standard & Poors Rating Category
AAA
AA
BBB
BB
27.3
31.0
25.2
18.0
21.4
25.4
10.4
12.8
19.7
5.9
7.6
15.1
3.4
4.6
12.5
1.5
2.3
8.8
12.6
6
36.1
15
38.4
118
43.7
213
51.9
297
74.9
345
IV. Debt and Times Interest Earned Ratios for Selected Industries
AAA
AA
BBB
BB
Food Processing
Debt % Capital
Times Interest Earned
Electrical Equipment
44%
7.9
51%
6.7
54%
4.3
53%
2.9
Debt % Capital
Times Interest Earned
36%
7.3
48%
3.2
72%
1.6
46%
54%
57%
73%
4.0
3.4
2.7
2.0
Electric Utilities
Debt % Capital
Times Interest Earned
Guide Questions:
1
If you were Mr Vincent, EVP of Monmouth Inc, would you try to gain control of Robertson Tool in May 2003?
2
Why is Simmons eager to sell its Robertson position to Monmouth for $50 per share? What are the concerns of and alternatives
for each of the other groups of Robertson shareholders?
3
What is WACC of Robertson Tool using CAPM? Carefully consider which equity value you will use:
Current
Prospective with synergy values
Required value to get transaction done (see question 7)
4
What is maximum price Monmouth can afford to pay using DCF? Use company forecast on Exhhibit 4. Run the valuation
as of the start of 2003. Is this a reasonable forecast? Why or why not? If not, what changes would you make?
5
For comparison, run a DCF of Robertson using sales growth on Exhibit 4 but without synergies/margin improvements.
Compare this value to #3 above.
6
What is maximum price Monmouth should pay based on market multiples of EBIAT? Use 2002 numbers for
Robertson. Would your answers change if you modify the 2002 Robertson EBIAT based on margin improvements
anticipated by Monmouth?
7
What offer would you make to gain the support of the Robertson family and the great majority of the stockholders?
Will you offer to give away all the expected synergy values/margin improvements, why or why not?
Question 1
Yes,
due to extensive distribution and the ability to be the market leader by generating 6 - 7% sales growth per year.
Current WACC
B un =
D/E =
BL=
Ke
Kd=
question 2
Question 3
WACC =
II
Question 4, 5,6
0.73
0.56
0.8964
9.0302
7.96
7.839024
next sheet.
for Robertson
Actual
Forecasts
2002
Sales
COGS
Gross Profit
SG and A
Depreciation
EBIT
Tax @ 40%
EAT
Dep
WCR
change in WCR
2003
55.3
2004
58.6
2005
62.1
2006
65.9
69.8
37.90
39.80
41.60
43.50
45.40
17.4
18.8
20.5
22.4
24.4
12.3
12.3
12.4
12.5
13.3
2.10
2.30
2.50
2.70
2.90
3
1.2
1.8
4.2
1.68
2.52
5.6
2.24
3.36
###
2.88
4.32
8.2
3.28
4.92
2.10
2.30
2.50
2.70
2.90
24
25.44
1.44
26.97
1.53
28.58
1.62
30.30
1.72
Capital Expenditures
(4.0)
(3.5)
(3.6)
(3.8)
Cash Flow
Terminal Value
Free Cash Flow
DCF
-0.620
0.834
1.802
2.305
-0.620
0.834
1.802
2.305
-0.574979 0.716933 1.437275 1.704907
SUM DCF
Less : Debt
DCF Equity
Number of shares
Share Price
65.61494
12
53.61494
0.584
91.80641
without synergies
Forecast
s
Without synergy
2002
Sales
COGS
Gross Profit
SG&A
Depreciation
EBIT
Tax @ 40%
EBIAT
Add depreciation
WCR
Less change in WCR
Less Net Capex
2003
2004
2005
2006
55.30
58.60
62.10
65.90
69.80
38.16
17.14
0.00
2.10
15.04
6.02
9.03
2.10
24.00
40.43
18.17
12.89
2.30
2.97
1.19
1.78
2.30
25.43
1.43
4.00
42.85
19.25
13.66
2.50
3.09
1.24
1.85
2.50
26.95
1.52
3.50
45.47
20.43
14.50
2.70
3.23
1.29
1.94
2.70
28.60
1.65
3.60
48.16
21.64
15.36
2.90
3.38
1.35
2.03
2.90
30.29
1.69
3.80
-1.35
-0.67
-0.61
-0.56
-1.35
-0.67
-0.61
-0.56
-1.249108 -0.571692 -0.486052 -0.415643
SUM DCF
Less debt
Equity
Share Price
16.22763
12
4.227626
7.239085
2007 to Infinity
WACC =
69.8
45.40
24.4
13.3
2.90
8.2
3.28
4.92
2.90
30.30
0.00
(2.9)
4.920
85.94587
90.866
62.33081
2007 to Infinity
69.80
48.16
21.64
15.36
2.90
3.38
1.35
2.03
2.90
30.29
0.00
2.90
0.69
0.22
0.43
7.839024
2.03
25.68608
27.72
18.95012