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HFT 6477 Summer A 2012 Florida International University Jasinet Coble Craig Wright Lillian Vitale Dillon Burke Nuria

HFT 6477 Summer A 2012 Florida International University Jasinet Coble Craig Wright Lillian Vitale Dillon Burke Nuria Gutierre Daniel Mayer. Introduction. IHG is a holding company

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HFT 6477 Summer A 2012 Florida International University Jasinet Coble Craig Wright Lillian Vitale Dillon Burke Nuria

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  1. HFT 6477 Summer A 2012 Florida International University Jasinet Coble Craig Wright Lillian Vitale Dillon Burke NuriaGutierre Daniel Mayer

  2. Introduction • IHG is a holding company • The principal activities: hotels and resorts, with franchising, management, ownership and leasehold interests in over 4,400 establishments, with more than 658,000 guest rooms in over 100 countries and territories worldwide.

  3. 7 Unique Brands The pipeline totaled 1,144 hotels (180,484 rooms)

  4. Regions • Americas • Europe • Asia • Middle East and Africa • Greater China

  5. Cost of Equity (CAPM) • kE = Rf +(Km – Rf) • Rf = return on the risk free asset •  = Beta (Computed 1.42 – Please see Excel attachment) • Km = return on the market portfolio • kE= .04 + 1.42(.12 - .04) • kE = .1536 or 15.36%

  6. Cost of Debt • kD = Interest Expense/Interest Bearing Debt (Total long term plus total short term debt) • kD = 56,000,000/691,000,000 • kD = .0810 or 8.10%

  7. Weighted Average Cost of Capital (WACC) • WACC = kA = (1 – L)kE + L(kD) (1 – T) • L = Total Liabilities/Total Assets • L = 2,413,000,000/2,968,000,000 • L = .8130 or 81.30% • kE = Cost of Equity • kE = .1536 or 15.36% • kD = Cost of Debt = Interest Expense/Interest Bearing Debt • kD = .0810 or 8.10%

  8. WACC (Cont.) • T = Tax Expense/Earnings before taxes • T = 81,000,000/544,000,000 • T = .1489 or 14.89% • WACC = kA = (1 – L)kE + L(kD) (1 – T) • kA = (1 - .8130)(.1536) + (.8130)(.0810)(1 - .1489) • kA = .0848 or 8.48%

  9. Adjusted Operating Cash Flows • Net Income + Depreciation + Interest • Net Income = 473,000,000 • Depreciation = 99,000,000 • Interest = 8,000,000 • AOCF= 473,000,000 + 99,000,000 + -8,000,000 • AOCF= $580,000,000

  10. Estimated Growth Rates • Year 1 (2012) 4% - increased revenues and dividends paid in past 2 years • Years 2 (2013) - 4 (2015) - Growth rate change increases of 2% each year: • 120 hotel expansion starting at the end of 2013 • 26% portfolio increase • 100 healthy hotels in US • 20 luxury in China

  11. Estimated Growth Rates cont… • Year 2 8% - hotels will start expanding at the end of year • Cash flows will be minimal in this short time • Year 3 10% - expansion continues & new hotels are being established • US expansion targets middle class – Europe & US recession • Chinese expansion targets domestic Chinese travelers – booming economy • Year 4 12% - expansion continues, larger cash flows…

  12. Current value of share: $29.48 • Current price of share: $23.35 (6/10/12) • We recommend potential investors to purchase IHG shares!

  13. Valuation • IHG is financed heavily with equity

  14. Any Questions?

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