Valuation case study

Mr. Burger

Valuation Assignment

You have been approached by the shareholders of a local food business, who own and operate a
homegrown burger brand called Mr. Burger. The existing shareholders are interested in selling off a
40% minority equity stake in their business (Mr. Burger). For this purpose, shareholders have
appointed Next Capital to assist them for the following:

 Given that their finance team is not very sophisticated, the shareholders have requested Next
Capital to prepare a set of projected financial statements capable of running various scenarios
and analysis. Shareholders believe that while the current financial model includes
management’s base case forecast, it is very basic and is not very flexible.
 Shareholders have also indicated that given the lack of experience of the finance/management
team, the assumptions used for preparing the projections may not be robust and may need to
be challenged and revised based on Next Capital’s own assessment. Areas of concern include
revenue, gross profit, working capital and capex.
 Shareholders would like you to carry out an independent valuation of the business (using
2 different valuation methodologies).
 Prepare a brief summary presentation (2-5 slides) for the Shareholders including the following:
o Value of the business based on the ‘Management Case’ forecast, providing a
summary of the assumptions used, their basis and conclusions
o Value of the business based on Next Capital’s forecast assessment including an
overview of the basis for Next Capital’s assumptions
o Next Capital’s recommended value (PKR per share) for the sale of the 40% stake

Deliverables and timelines

 Due to significant interest from potential buyers, the Shareholders have requested for the
presentation to be prepared and presented to them by the afternoon of 15TH OCTOBER 2020. They
have also requested for the model to be submitted to them by the same date.
 You, being the Analyst on the assignment have been requested by your supervisor to prepare the
draft presentation and the financial model to be submitted to the Shareholders ahead of the
meeting with the client to allow for time of internal reviews.

Profile of Mr. Burger (as provided by the Shareholders)

Mr. Burger is considered to be one of the best organic burger chains in Pakistan. Mr. Burger currently
owns and operates 1 store in the Dolmen Mall and is planning to eminently open a new location. The
company is also considering additional expansion in future years but has not yet identified the locations.

Market inputs as of the Valuation Date:

Description Metric
10-year PIB yield 9.92%
Equity market risk premium 7.0%
Pakistan country risk premium 10.0%
Inflation 9.02%
Unlevered comparable company beta 0.65
Target debt to equity ratio 20.0%
Tax rate 0.0%
Long-term growth rate 3.0%
Expected stable restaurant industry growth over next 3 to 5 years 7.0%

Comparable Companies Data:

Refer to sheet ‘Comparable’ in the attached excel workbook.