Equity Valuation. Intercontinental Hotel Group IHG. Julia Lassarat March 23, 2014. Agenda. Industry and Firm Overview V Eq Estimation Sensitivity Matrix Estimating V eq through analyst reports Residual Income Model. Industry Overview.
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Equity Valuation Intercontinental Hotel Group IHG Julia Lassarat March 23, 2014
Agenda • Industry and Firm Overview • VEq Estimation • Sensitivity Matrix • Estimating Veq through analyst reports • Residual Income Model
Industry Overview • Resilient industry in the face of slowing economic pace • Revenue per available room (RevPAR) is standard performance metric • RevPAR was up 4.5% in 2012 in comparison to 5.9% in 2011 • Highly competitive market • The global hotel market is estimated to be 21.5 million rooms • 7.5 million of these are branded hotel rooms Source: IHG 2012 Annual Report
IHG • Full-time employees= 8,179 • Recurring fee business model • IHG franchises and manages its hotels • Owns almost none of its hotels
Life Cycle Stage: Mature Operating Investing Financing
Finding Value of Equity • VEq= VEnt-VD • VEq= $10,150.26 • VD= $970.09 • Other financial assets = (248) • Derivative financial instruments = 10 • Loans and borrowings = 1,285 • Excess cash = (76.91) • VEq= 10,150- 970.09= $9,180.17
Sensitivity Analysis • How sensitive to fluctuations in growth and WACC is the valuation of IHG?
Sensitivity Analysis • Fluctuations between $10.5 and $9.7 billion Yahoo! Finance estimates Enterprise Value at $9.46 Billion
Using Analyst Forecasts • IHG was not listed on Value Line • Relied on a number of other analyst research tools • Morningstar • Yahoo! Finance • FT.com • Reuters
Uncertainties • Is growth assuredly stable in the future? • Book Value per share was -$0.32 in 2013 • Abnormally high dividends in 2013 • Dividends per share rose 8% higher than usual in 2013
Analyst Estimates (Aggregated) • 7.9% EPS growth • 6.6% DPS growth
Equity Valuation Using Residual Income Model • Three Components • Current book value • Capitalized residual earnings for near horizon • Continuing value of residual earnings • Growth in residual income= 5% • Cost of equity= 9.38%
Equity Estimate • Actual share price at December 31, 2013= $33.39