1. CFA Institute Research Challenge
Hosted by
Local Challenge CFA Society of South Florida
Florida
International
University
2. Florida International University – Student Research
Consumer Discretionary Sector, Wholesale Distributor Industry
NASDAQ
Tech Data Corp
Date: 1/10/2016
Ticker – NYSE: TECD
Current Price: $60.77 (1/08/16)
Headquarter: Clearwater, FL
Recommendation: SELL
Target Price: $54.86
This report is published for educational purposes
only by students competing in the CFA Institute
Research Challenge.
Highlights
52-Week High/Low
79.06 -
52.93
Average Volume (3M) 465,659
Diluted Shares Out.
36,651,39
5
Market Cap 2.13B
Beta 0.629
EV/Revenue .88x
EV/EBITDA 6.08x
Operating Income Per
Share 7.01
EPS 4.59
Projected EPS 4.55
Trailing P/E 9.59
Forward P/E 13.07
• Short Interest in Tech Data Corp (TECD) Decreases By 21.2% -
01/04/2016: Short Interest of TECD shares dropped 21.2% from November
30th to a total of 2,942,975 shares
• Tech Data (TECD) Stock Plunges on Earnings Miss – 11/24/2015: Shares
dropped by over 10.41% after the Company’s fiscal 2016 third quarter
earnings results missed expectations.
• Tech Data Downgraded to Underperform at Raymond James –
10/12/2015: Tech Data has had a decrease in sales growth for the year of
4.8% and a operating margin in the trailing 12-month period was 1.3%
relative to the 2.8% median among its competitors.
Recent News
4.72
5.14
6.87
6.96
6.78
5.98
7.01
2009 2010 2011 2012 2013 2014 2015
TECDPERSHARE
Operating Income per Share
Financial Condition 2014 2015F 2016F 2017F 2018F 2019F 2020F
Total Revenue $ 25,647 $ 25,358 $ 26,822 $ 27,671 $ 27,062 $ 27,671 $ 27,967
Gross Profit Margin
5.08%
5.04% 5.09% 5.07% 5.06% 5.07% 5.07%
EBITDA Margin
0.92%
1.01% 1.03% 1.01% 1.00% 1.01% 1.01%
Operating Margin
0.72%
0.95% 1.07% 0.93% 0.93% 0.94% 0.93%
EBT/Pre-tax
Margin 0.76% 0.86% 1.21% 0.90% 0.92% 0.93% 0.93%
Net Income Margin
0.67%
0.63% 0.87% 0.70% 0.71% 0.71% 0.67%
We issue a SELL recommendation on Tech Data Corp. (TECD) based upon a one-
year target price of $ 54.86, implying a 10.8% downside from its current closing
price on January 8th, 2016. Our recommendation is driven by the following:
• Weakening Wholesale Distribution Industry – The nature of Tech Data
Business operates within the Consumer Discretionary, Wholesale Distribution
sub-sector, which we believe is a contracting industry. As technology continues
to improve, Tech Data vendors will seek out other efficient options that
eliminates a middlemen, or a wholesaler.
• Highly Competitive Market – Tech Data conducts business in a highly
competitive market with no barriers to entry, as a result many new companies are
constantly entering the sector and potentially drag business away from Tech
Data. This can jeopardize Tech Data bottom line as they are expose to newly
competitors with different, or more cost-efficient pricing.
• Decreasing Revenue Growth - Due to the consumer discretionary sector’s
cyclical nature, Tech Data has been involved in significant growth volatility.
Moreover, the increase in technological improvements and new shipping
methodologies have led the way for diminishing returns in the Wholesale
Distribution subsector. With very unstable growth and constant risk exposure,
Tech Data’s margins will continue to shrink over time.
Source: Bloomberg
0
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100
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1000
1500
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2500
SPX TECD
3. 0
Business Description
Tech Data Corporation (TECD) was founded in 1974 and is currently
headquartered in Clearwater, Florida. TECD operated as a private company for
12 years until its IPO in 1986. Together with its direct and indirect subsidiaries,
TECD is a wholesale distributor of technology products. TECD serves value-
added resellers, direct marketers, retailers and corporate resellers in more than
100 countries and provides over 150,000 products. The Company also provides
its customers with advanced logistics capabilities and value-added services. As
of Q2 2015, TECD holds ownership in 55 offices throughout North America
and Europe – consisting of 23 logistics centers and 32 sales offices. Tech Data
conducts business with companies like HP, Apple, Cisco, Microsoft and many
others, to bring hardware devices and software application used in daily
procedures.
Tech Data focuses to grow sales at above the overall IT market by gaining
market share in select product areas, growing earnings in local currency,
generating positive cash flow, and earning a return on capital invested. In order
to executive this, they focus on maintaining a large and well diverse client book.
It customers include over 115,000 value-added resellers, direct marketers,
retailers, and corporate resellers who consumers and supports the diverse
technological needs of their demands. Tech Data offers a variety of products
including: Broadline, Mobility, Software & Cloud Aggregation, Consumer
Electronics, integrated Supply Chain Solutions and Data Center Solutions. In
addition, to the range of product offerings, the Company provides resellers
training and technical support, a suite of electronic commerce tools to impact
and improve vendors business, customized shipping documents, and product
configuration or integration services.
To achieve their goal, TECD continuously provides innovative solutions and
services to value-added reseller including: small and medium-size businesses,
large enterprises, educational institutions, government agencies, and consumers.
TECD offers a vast array of technology products, latest software, cloud
mobility, and consumer technology in conjunction with a range of technical
support solutions to passively grow their market share.
Strategic Focus
The company’s main strategy is to continue to grow sales at or above the IT
market growth rate. Tech Data’s operations are designed to generate and
increase value through:
• Execution- The company execution strategy is supported by their highly
efficient infrastructure, combined with their variety of service offerings, to
generate demand, develop markets and provide supply chain services for
local businesses and vendors. More than 95% of the company’s net sales are
on one common IT platform and over $100 million of orders are processed
each day, which management believes will give Tech Data significant
competitive advantages in providing greater supply chain opportunities by
expanding their value-added services to their customers, on-boarding news
vendors and products faster and improving their ability to rapidly respond to
changes in the market.
• Diversification- The company’s broad selection of products and services
assist in the balance of their overall performance and improve long-term
profitability throughout their steady and efficient operations. The company’s
boardline business is comprised primarily of personal computers,
notebooks, tablets, desktops, printers & supplies, components and other
similar products remains a core part of their business and represents a
significant percentage of total revenue. As technology continues to evolve,
TECD continues to improve their business model, product mix, and value-
added offerings in order to provide their vendors with the most efficient
distribution channel for their products, and their customers with a broad
array of innovative solutions to provide.
• Innovation- The Company’s interest in innovating IT systems provides
them with flexibility to meet the demands of the ever-evolving technology
market across both Americas and European regions. Their global IT systems
provide TECD a competitive advantage by driving efficiencies throughout
their business models while delivering innovative solutions for its business
partners and vendors.
39%
65% 60%
42%
60%
61%
35% 40%
58%
40%
0%
20%
40%
60%
80%
100%
Q3 FY!% Q4 FY15 Q1 FY16 Q2 FY16 Q3 FY16
America Europe
$2.6B $2.6B
$2.3B
$2.7B
$2.6B
$2.1
$2.2
$2.3
$2.4
$2.5
$2.6
$2.7
$2.8
Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY16 Q3 FY16
Net Sales
America
$20,000
$22,000
$24,000
$26,000
$28,000
2011 2012 2013 2014 2015
Revenues
$4.1B $4.1B
$4.8B
$3.5B
$3.8B
Q2 FY15 Q3 FY15 Q4 FY15 Q1 FY16 Q2 FY
Europe
Net Sales
47%
22%
18%
10%
3%
Key Drivers
Broadline
Data Center
Software & Cloud
Mobility
Consumer
Electronics
$12B+
$6B
$5B
$3B
$1B
Source: Company Data
Source: Company Filings
Source: Company Filings
Source: Company Filings
Source: Company Filings
4. Summary business Strategy
The company’s strategy of execution, diversification, and innovation has
separated TECD in the market they serve and has generated solid margins in both
Americas and Europe for several years.
Management & Governance
Senior level management has been a significant driver for Tech Data. Due to
their previous experiences, and current active roles within the company Tech
Data has excelled in its performance. Each member on the board is highly
qualified for their role due to the fact that every member has over 20 years of
experience in their respective profession. This team, with the exception of one
newly joined member, is also responsible for successfully guiding Tech Data
through a variety of economic conditions; most significantly through the 2008
economic downturn. The culture and values within Tech Data have also been a
main contributor to its success. Their desire to expand abroad, diversify their
services, as well as implement a triple bottom line emphasizing equality, is only
another factor demonstrating their competitive advantage.
The executive team consists of a diverse population, in the sense that some of the
executives were dynamically brought in due to the acquisitions Tech Data has
partaken in. This demonstrates the efficiency this company is willing to have
to successfully serve as a fiduciary to its customers . Tech Data also maintains
a minimum of a two thirds majority of the members of the Board to be
independent (“Independence” defined by regulations of the SEC & NASDAQ
rules) to abstain from antagonistic conflicts of interest. Although the Board does
not consider a maximum limit of terms served by its members, it evaluates each
member’s performance in the respective role to determine the continuation or
termination of the board membership. Compensation matters within Tech Data
are constantly being reviewed by The Compensation Committee based on similar
practices by comparable companies, the work required by each individual roles,
legal considerations, and other key factors.
To maintain shareholder involvement, Tech Data has implemented several
techniques to facilitate the communication between the Board, governing
committees and shareholders. The Tech Data Ethics line is an outside line
directed to a third party provider who creates and directs matters of attention
from a Board member to the General Counsel as well as to the Chief Ethics and
Compliance Officer. The Governance and Nominating Committee considers
Board Nominees from the current Board and company shareholders, and the
Board highly values shareholder input regarding compensation practices within
the company. Lastly, succession planning is constantly discussed although no
clear plans are stated.
With a diverse executive team and an innovative diversification strategy
applicable to their customer, product, and service portfolios Tech Data’s
management and corporate structure has been able to maintain their revenue
stream. But with decreasing sales, and narrow margins given by the nature of the
industry, it is in management’s best interest to continue to enforce their
governance strategy and strengthen their core values to avoid market volatility
and uncertainty in the foreseeable future.
To achieve this, Tech Data focuses on the following values to improve their
corporate governance:
• Committees: Well established and represented Audit, Compensation, and
Governance and Nominating Committees in order to properly oversee and
guide the company, all complying with independence requirements
established by NASDAQ rules.
85%
2% -15%
Ownership Type
Institutional
Insider
Retail & Other
86%
6%
2%
6%
Institutional Owners
Investment Advisor Hedge Fund Manager
Individuals Others
44%
35%
9%
7%
5%
Insider Owners
S. Raymund R. Roberts J. Howells
N. Cano D. Vetter
Source: Bloomberg
Source: Bloomberg
Source: Bloomberg
5. • Values: Strong ethical values serve as a strong foundation for the company’s
accomplishments. The board also performs self-evaluations, as well as a
separate evaluation of the Chairman and the board on a regular basis .
• Code of Conduct: A strict but personable set of legal and ethical model
which lays out expectations for employees
• Shareholder Priority: With a strong commitment to its shareholders, Tech
Data executives must have an equity ownership requirement of four times the
annual base retainer paid for board membership, to demonstrate their
confidence in the company and create value for its shareholders.
Economic Performance
Strong growth in United States Economy
The United States Economy has rebounded tremendously since the financial
crisis that began in 2007. Strong job growth, wage growth, stable inflation, have
launched the United States back into its dominant economic position in the global
forefront. Real Gross Domestic Product has grown 2.1 percent in the third quarter
of 2015. This steady growth over the past 4 years has been a direct reflection of
QE thereby stimulating consumer demand and economic expansion.
Stable growth in Europe
The current landscape of the European economy has been mostly positive but
with still major shadows of uncertainty continuing to loom over a lot of the
countries in the Euro zone. GDP growth has picked up 0.5% in the first quarter of
2015 but has slowed 10 basis points each quarter since. Europe has had a boost in
their economy in the forms of falling energy and oil prices, which has translated
into an increase in consumer spending and overall disposable income to the
average consumer. Much like the United States, The Eurozone has been impacted
by falling oil prices and QE which has spiked consumer demand in recent years.
Optimism in the European economic landscape lies in the voluntary weakening of
the euro which has contributed to the region’s current account surplus of 3.7% of
GDP. Headwinds from the weakened emerging markets have worked against this
progress. The Eurozone is projected to continue to expand it’s GDP figures by
about 1.7% propelled by increases in domestic demand and consumption.
Consumer Discretionary Driven by Positive Economic Gains
The Consumer discretionary industry is one that is continuously defined by the
overall economic outlook of a given companies location. For Tech data economic
growth in the Americas and European countries are of particular interest given the
makeup of the company’s revenue streams. Consumer Discretionary poses one of
the most elastic industries in the financial markets given its “discretionary”
nature. Monetary policies, unemployment rates, wage growth, consumer
confidence, consumer spending rates, inflation, and exchange rates are all
variables to consider. The Consumer Discretionary Sector is largely correlated
with overall economic performance of a given country as illustrated here. The
consumer Discretionary sector carries a 0.77 (very high) correlation to the S&P
500.
Consumer Discretionary Cycle
Consumer discretionary and tech demand are both cyclical in nature. The current
state of the consumer discretionary industry in the context of the globalized
economic landscape we live in is one that implies future expansion of consumer
spending. Wholesale distribution companies and more specifically a tech
distribution companies rely on manufacture cycles as well as economic cycles to
project growth prospects. At the moment Global economic expansion is projected
to grow at a modest 2.8% YOY with wholesale distribution following suit.
Exchange Rates
Management for Tech Data have emphasized growth in the company all in
constant currencies to adjust for headwinds endured by the company in the past
fiscal year. Tech Data revenue streams come 40% domestically and 60% in the
European markets exhibiting the impact that exchange rates have on companies
like TECD. Currently, TECD is impacted on their top line performance with a
0.92 USD/EUR exchange rate.
-5.00
0.00
5.00
200620072008200920102011201220132014
Real GDP % Change YOY
Euro area United States
1790
1840
1890
1940
1990
2040
2090
2140
2190
500
520
540
560
580
600
620
640
660
S&P 500 Consumer Discretionary
Source: Eurostat and The Bureau of
Economic Analysis
Source: Bloomberg
Source: Team Analysis
10,000.0
12,000.0
14,000.0
16,000.0
18,000.0
20,000.0
03/31/06 03/31/09 03/30/12 03/31/15
Consumer Confidence Impact on GDP
GDP in Current Dollars
GDP in 2009 Dollars
Source: Bloomberg
6. Technology penetration
Technology demand and high skilled labor in developed countries have grown
continuously as R&D and innovation spillovers have contributed to global
economic expansion. Internet penetration in the Eurozone has reached 79.3% with
12% of the population being internet users. The United States boasts a less
fragmented market of 87.7% with 48.1% of the population being internet users.
Labor statistics and Consumer Confidence
Consumer discretionary is driven by a consumer’s disposable income and
willingness to spend. When wage growth increases we generally see an increase in
consumer spending and consumer confidence as a whole. Uncertainty and
instability in the market can cause increased saving by consumer which can be very
harmful for a company like Tech Data. Consumer spending and overall consumer
discretionary industry growth is driven by income and unemployment rates where
the two factors (consumer spending and disposable income) carry a high correlation
of about 0.67. Disposable income and wage growth carry a correlation of about
0.57. Employment rates places high pressure on wage levels and consumer
spending as a result.
A transforming workplace
Skilled labor in both U.S. and European has grown at rapidly in the past couple of
decades reflecting a changing workplace toward a more Technological demanding
one. In Western Europe and the Americas where Tech data mainly operate, the
demographics of highly skilled labor and jobs requiring technology expertise
continue to grow. In both Europe and North America’s economies we have seen
steady recovery since the global crisis in the late 2000’s. To illustrate, The United
States Unemployment is currently at 5.5% with the wholesale distribution expected
to see increasing employment of about 5% by 2024 (U.S. Bureau Labor Statistics).
Both Supply and Demand for highly skilled labor have increased along with the
total high tech trade as a percent of total trade in Europe. The current account for
European trade boasts a trade surplus mainly due to a weakened Euro.
Wholesale Distribution Trends
The wholesale distribution industry continues to shift in different directions with
the advances in technology and although these changes could move the industry
forward there are also some challenges that they will face. First, mobile operational
efficiency has continued to effect the landscape of wholesale distribution. This
mobile connectivity has begun to simplify the communications between the
retailers to the distributors and distributors to the customer. Customer service has
improved tremendously by automating orders, checking and securing inventory,
finalizing trade promotion activities and integrating mobile data into analytics to
name a few examples. Second, value added services have been a source of
differentiated relationships but can become very competitive in the long run. In
Tech data’s perspective these services include IT solution, instillations, cloud
computing, among others. Although in the short run these may improve customer
loyalty it may become the norm in the long run with expectations driving down
service pricing, premiums, and ultimately profitability (this is mainly due to the low
barriers of entry for wholesale distribution companies).
Competitive Position
TECD has placed itself in a strong position in the tech distribution realm through
its long standing history in the business. Tech data has been in the industry since
1971 which has provided the company with the reputation and goodwill to stabilize
the company’s earnings throughout the year. As the largest IT distributor in Europe
it has been able to hedge its risk against domestic turbulence, one key component
that has established Tech Data’s reliability. Another one of Tech Data’s
competitive advantage is increasing demand for data center system, cloud and
mobility solutions is a key growth factor for TECD. The company’s efforts to
diversify into new domains are significantly positive. The higher level of spending
is expected to drive revenue growth for Tech Data as the company consolidates its
position in the fast-growing domain of data center, mobile technology, software
and integrated supply chain. TECD also has a diversified customer base in both
North America and Europe. This leads to a steady revenue steam since a volatility
of any region is balanced out by the strength of others. TECD has a strong presence
in Europe, which accounted for 58% or $6.6B of sales in Q2, despite of the weaken
euro. Tech Data has been able to consistently outperform the industry averages
because of these reasons
0
1
2
3
4
5
New Entrants
into the
Industry
Competiton in
the Industry
Power of
Suppliers
Power of
Customers
Threat of
Substitute
Products
Porter's Five Forces
130
150
170
190
210
230
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
3/1/2011 3/1/2013 3/1/2015
EUR/USD vs. Net Income (TECD)
Net Income2 EUR/USD
54% 57% 59% 62%
66%
72% 70%
79%
84% 87%
30
40
50
60
70
80
90
2010 2011 2012 2013 2014
Daily Internet Users
Europe U.S. Linear (U.S.)
Now
•Operational Mobility
•Traceability
Near Term
•Middle Men No Long
•Analytics
Future
•Retail Revolution
•Increased Competition
Source: Company Fillings and Bloomberg
Source: Eurostat and OECD
Source: Team Analysis
Source: Team Analysis
7. Barriers to entry
Tech Data has developed a good position within its industry as a trusted entity that
has been around for 40 years but the lack of barriers to entry could pose potential
problems to TECD. Technology distribution, naturally, is not an industry with high
barriers to entry. Technology expertise and IT solutions are becoming more
common place as the increase in skilled labor (especially at very low costs) have
caused the IT maintenance and solutions market to become more flooded (despite
the continuous increases in demand for IT expertise as a whole). In addition,
innovation capabilities are minimal in a distribution company limiting its ability to
be a unique entity that is irreplaceable to manufacturers, and resellers. Tech
distribution companies have begun to diversify their value added services to
provide for the increased demand in expertise for the ever expanding markets in
tech innovation. As mentioned, these needs are niche markets that are soon to be
flooded much like much of the tech innovations we have seen through the years.
Wholesale distributors ultimately gain competitive advantages through reputation
and building relationships.
Investment Summary
20,000.0
22,500.0
25,000.0
27,500.0
30,000.0
-2.00%
0.00%
2.00%
4.00%
6.00%
Revenue Growth
Source: Team Calculations
We issued a Sell Recommendation on Tech Data Corp (TECD) with a target price of
$54.86 using a Discounted Cash Flow Analysis, Relative and Comparable Multiple
Valuation. This Valuation is supported by numerous merits, as outlined below, as
well as assumptions we have taken into consideration.
Weakening Wholesale Distribution Industry
We are assuming that the entire Wholesale Distribution industry will weaken, especially
the IT distribution part of it. Big consumer electronic stores like Best Buy have started and
will grow their own take of value added services to customers. As giant IT companies
expand their presence around the world, it will be less and less likely for an individual to
purchase through a third party vendor as supposed to purchasing their IT products directly
from the corporation.
Assumptions
Highly Exposed to Europe's Economy
• Tech Data is a multinational corporation that operates 60% of its core business
in Europe’s economy which has stagnated in recent years.
• Unemployment rates in the Eurozone remain high with a current 9.6%
unemployment rate.
• Tech Data’s bottom line has been strongly impacted by the weakening Euro in
recent years. Over the past year the Euro has fallen from 1.39 in 2014 down to
1.09 where it currently stands.
Decreasing Revenue Growth
Over the years we’ve seen a volatile growth in Tech Data’s revenue. We believe that this
is a result from the cyclical consumer discretion sector in which they operate in. In
addition, we believe that the Wholesale Distribution sub-sector is also diminishing due to
technological improvements and new shipping methods from manufacturers to vendors.
With unstable sales growth, Tech Data is constantly being exposed to potential risks,
which in turn forces margins to contract.
Highly Dependable to their suppliers
Tech Data relies heavily on its vendors, which we considered a foreseeable problem. One
simple termination of a contract, change of contract, agreement, or pricing can create
tremendous downward pressure on Tech Data’s bottom line. In a market with no barriers
to entry, new competition arises rapidly and vendors are given other options. Tech Data
must continue to match pricing, contract, and other terms in other to keep its vendors.
Low Return on Investment Compared to the Market (Ben)
Tech Data for the most part has been lagging the overall S&P 500. As of Jan 8 2016, the
S&P 500 has gained 48.62% vs Tech Data's 30.18% over the past 5 years. Tech Data has
also lagged the S&P 500 in the past 3/5 years. As revenue growth is expected to slow and
decrease, it is highly likely that Tech Data will continue to underperform the broader
market.
0%
20%
40%
60%
80%
100%
2012 2013 2014 2015
Historical Cap Structure Book
Value
Total Debt Total Common Equity
Total Minority Interest
Source: Team Calculations
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
2009 2010 2011 2012 2013 2014 2015
EV/EBITDA EV/EBIT
Historical Earnings Margins
Source: Bloomberg
Concerns:
8. Financial Analysis
Financial Condition 2013 2014 2015F 2016F 2017F 2018F 2019F 2020F
Prifitability
Gross Profit Margin 5.14% 5.08% 5.04% 5.09% 5.07% 5.06% 5.07% 5.07%
EBITDA Margin 1.16% 0.92% 1.01% 1.03% 1.01% 1.00% 1.01% 1.01%
Operating Margin 1.04% 0.72% 0.95% 1.07% 0.93% 0.93% 0.94% 0.93%
EBT/Pre-tax Margin 0.90% 0.76% 0.86% 1.21% 0.90% 0.92% 0.93% 0.93%
Net Income Margin 0.70% 0.67% 0.63% 0.87% 0.70% 0.71% 0.71% 0.67%
Management
Effectiveness
Return on Asset 2.58% 2.51% 2.85% 3.30% 2.68% 2.76% 2.75% 2.55%
Return on Equity 9.2% 8.6% 8.94% 11.59% 8.15% 7.85% 7.25% 6.40%
Short-term Liquidity
Current Ratio 1.38x 1.40x 1.49x 1.32x 1.35x 1.41x 1.49x 1.55x
Quick Ratio 0.88x 0.87x 0.97x 0.87x 0.89x 0.93x 1.00x 1.06x
Cash Ratio 0.08x 0.12x 0.15x 0.14x 0.17x 0.19x 0.20x 0.22x
Asset Turnover
Inventory Turnover 11.2x 10.9x 14.12x 12.64x 12.68x 12.85x 13.03x 13.08x
Accounts Receivable
Turnover
8.3x 9.2x
Total Asset Turnover 3.7x 3.7x 4.51x 3.77x 3.84x 3.88x 3.86x 3.80x
Financial Leverage
Long-term Debt to
Asset 0.05x 0.05x 0.06x 0.05x 0.00x 0.00x 0.00x 0.00x
Long-term Debt to
Equity
0.18x 0.17x
0.18x 0.17x 0.00x 0.00x 0.00x 0.00x
Debt to Equitiy 2.56x 2.42x 2.13x 0.17x 0.00x 0.00x 0.00x 0.00x
Interest Coverage 0.07x 0.07x 0.08x 1.00x 1.00x 1.00x 1.00x
Shareholder Ratios
Earnings per Share 0.18x 0.18x 0.18x 0.13x 0.16x 0.16x 0.16x
*Capital
IQ
*Students
Estimates
1.30x
1.35x
1.40x
1.45x
1.50x
1.55x
1.60x
20132014201520162017201820192020
Current Ratio
4.00%
6.00%
8.00%
10.00%
12.00%
2015 2016E 2017E 2018E 2019E 2020E
Return on Equity
Source: Team Calculations
Source: Team Calculations
2.00%
2.40%
2.80%
3.20%
3.60%
2015 2016E 2017E 2018E 2019E 2020E
Return on Assets
Source: Team Calculations
Highly Competitive Market with no Barriers to Entry
The wholesale industry is a very competitive market with many companies constantly entering
the sector. As more and more companies join the wholesale IT distribution, prices will
eventually need to come down to adjust with the oversupply of companies. Smaller and newer
companies will come and price their items lower than giant corporations like Tech Data just to
gain some market share from them. It is then highly unlikely for Tech Data to gain new
customers with the giant presence and competitive prices that other companies will be offering
new clients in the market looking for IT products. Each company is constantly trying to be
better than the next by provided better VAR services as well as lowering prices which will
significantly hurt Tech Data’s top and bottom line.
Overview
The financial condition chart above displays Tech Data projections based on our assumptions
(see appendix). Based on our analysis of historical financials, 2015 is not an idea starting point
for our projections because of Tech Data accrued accounting methods.
Profit Margins
Most of Tech Data’s profitability margins will stay the same because of their constant COGS
as a % of revenue. Historically ,Tech Data’s COGS has always been around 94-95% of tech
Data’s revenue.
Management Effectiveness
Tech Data has had phenomenal management effectiveness in the past. As revenues begin to
decline as well as net income, these ratios begin to slowly shrink.
9. 50
55
60
65
70
75
80
11/2014 12/2014 2/2015 4/2015 5/2015 7/2015 9/2015 10/2015 12/2015 1/2016
TECD Share Prices and News Flow
5/8
EVA Dimensions initiates
Buy Rating
5/28
Raymond James
reiterates
Market Perform
Rating
8/20
EPS Actual 1.43 vs 1
estimate
9/29
Morningstar initiates
Hold Rating
10/12
Raymond James
initiates Underperform
Rating
11/24
EPS Actual 1.28 vs
1.3tech3 estimate
EPS: 0.8 vs
0.69 estimate
EPS: 1.96 vs
2.03
estimate
-4.00%
-2.00%
0.00%
2.00%
4.00%
2015 2016 2017 2018 2019 2020
YoY Revenue Growth
Source: Team Calculations
Short-term liquidity
Tech Data’s short term liquidity ratios seem to be relatively the same except
for cash ratio which increases as Tech Data begins to accumulate cash. We
do not believe that in the next 5 years any significant project will come along
that will require a significant amount of debt.
Financial Leverage
Tech Data has very little debt compared to the amount of assets and equity
Tech Data has. Some Ratios will turn into 0 because of the lack of debt Tech
Data will take in. Tech Data has accumulated very little debt and is about to
pay off their biggest and basically only impactful debt of around 300 Million.
We don’t believe that Tech Data will accumulate much more debt in the
future given the amount of cash they have. Tech Data is also not known to
issue a lot of debt.
Source: Team Calculations
10. Source: Team Calculations
Source: Team Calculations
Valuation
Discounted Cash Flow:
Revenue Growth: Tech Data has maintained steady levels of revenue
growth throughout the years, primarily due to the cyclical nature of the
consumer discretion industry in which they operate in, among other
factors. In order to forecast future earnings we applied the average of prior
years revenue growth rates. When calculating this average we arrived at a
growth rate by assuming a variety of key factors that may impact Tech
Data’s top line.
Cost of Capital: In order to calculate Tech Data’s cost of capital, we
utilized the weighted average cost of capital method (WACC). After
calculating both the cost of equity, as well as the cost of debt, and applying
a determined weight for each component, we were able to arrive at a
9.09% WACC.
Cost of Equity: Tech Data’s cost of equity was calculated using the
Capital Asset Pricing Model (CAPM). By calculating an expected market
return of 10.0% and subtracting it from our assumed risk free rate (10 Year
US Treasury) of 2.23%, we arrived at risk premium of 7.8%. When
applying the Capital Asset Pricing Model we used the following figures for
the risk free rate, the market premium, and the Beta: 2.23%, 7.8%, 1.01.
Cost of Debt: When calculating the after-tax cost of debt for Tech Data
we multiplied its before-tax cost of debt, 2.3%, and multiplied this by one
minus their marginal tax-rate, 26.8%.
Free Cash Flow: Tech Data’s revenue growth has been steady
throughout the years and management has made it a point to transform
their base business model from a distributive “box moving” company to a
service and value adding company. YOY % growth in revenue is expected
to slow in the coming years but the diversification of Tech Data’s business
operations will help support their cash flows. As show by our DCF model
we project near term shrinking with strong long term potential upside,
most significantly in the cash flows from operations. Capital expenditure is
projected to slow as the need for plant property and equipment will
diminish as demand for wholesale distribution (the need for middle men)
slows but technology penetration continues to grow in Europe’s
fragmented market. Free Cash flow will likely shrink short term but has
strong potential upside for our 5 year DCF window.
Valuation
($ in millions of U.S. dollars except per share amounts) Projected Fiscal Years Ending January 31
Free Cash Flows 2015 2016 2017 2018 2019 2020
EBIT * (1-tax rate) 193 209 199 199 201 192
Depreciation And Amortization (19) (10) (12) (13) (13) (10)
Capex (19) (21) (20) (17) (18) (14)
Net change in working capital (147) 66 106 (137) (57) 225
Free cash flows to the firm (FCFF) 9 244 273 32 113 394
Years to Discount 1.00 2.00 3.00 4.00 5.00 6.00
Cost of Capital 9.3% 9.3% 9.3% 9.3% 9.3% 9.3%
Discount Factor 0.91 0.84 0.77 0.70 0.64 0.59
PV Free cash flows to the firm (FCFF) 8 205 209 23 73 231
FCFF Fair Value Multiple Method
EBITDA Multiple 5.6x
Last forecast EBITDA 286
Terminal Value 1,603
Present Value of Terminal Value 941
Terminal Value as % of Total Value 55.7%
Present Value of Forecast FCF 748
Forecast Period as % of Total Value 44.3%
Enterprise Value 1,689
- Debt (hardcode as of valuation date) (365.1)
+ Cash (hardcode as of valuation date) 586.0
Net Debt (220.9)
Equity Value (Market Cap) 1,910
Shares outstanding 35.1
Fair value share price 54.40
Model Summary
Projected Fiscal Years Ending January 31
Forecast Summary 2015 2016 2017 2018 2019 2020
Revenues 27,671 27,062 27,671 27,967 28,070 28,416
Revenue Growth Rate 3.2% -2.2% 2.3% 1.1% 0.4% 1.2%
EBITDA 280 277 279 281 284 286
EBITDA Growth Rate 13.9% -0.9% 0.5% 0.7% 1.2% 0.8%
EBITDA Margin 1.01% 1.03% 1.01% 1.00% 1.01% 1.01%
Weighted Average Cost of Capital
10 Year US Treasury 2.23%
Expected market return 10.2%
Market risk premium
8.0%
Beta 1.01
CAPM cost of equity 10.3%
Cost of debt 2.2%
Tax Rate 26.8%
After tax cost of debt
2.3%
Target gearing 12.5%
WACC
9.29%
Perpetual growth of firm cash flows (post year
5) 1.90%
11. Investment Risks
Operational Risks:
The company operates in a mature sector. The IT distribution sector is mature
with constant competition entering the market. Tech Data has to go up against
large corporations as well as smaller distributors around the areas they operate.
Any of their competitors can take significant share of the market by simply
reducing the prices on the products they sell. Customers are not required to buy
a specific amount of items. These customers can move to one of their
competitors within the next day.
Currency Risk:
Nearly 58% of Tech Data’s revenue derives from international markets with
their largest presence being Europe. Local competitors might have different
purchasing models than Tech Data, which reduces foreign currency exposure,
allowing them to lower prices. Because of Tech Data’s large exposure to the
strong dollar, it will not be able to compete with competitor prices without
significantly lowering their profits on sales.
Supply Risk:
Tech Data relies heavily on PC’s, which has seen a constant decline within the
past couple of year. One of their biggest products, Hewlett Packard, has seen a
constant decline in sales recently. The bulk of what Hewlett Packard has to
offer is personal computers. A constant decline in computer sales will
negatively impact Tech Data.
Rely heavily on large vendors:
Termination or a change of contract from Tech Data’s largest vendors will
create tremendous problems. Tech Data relies heavily on large vendors and a
simple change of contract, agreement on price protection, or return right will
reduce their profits. The company's standard distribution agreement allows
termination without cause with a simple 30-day notice.
Fully rely on one shipping company:
Tech Data ships their products through independent shipping companies. The
inability of these independent shipping companies to operate will have a
tremendous effect on Tech Data.
Employment Risk:
The company’s labor force in America is non-union but its European
subsidiaries are subject to collective bargaining and similar things. According to
Tech Data, “The country does business in foreign countries where labor
disruption is more common than in the United States”. Some of the freight
companies are unionized. Any strike imposed by the company’s employees
could have a negative impact on its business.
Credit Risks:
Tech Data’s business requires a substantial amount of capital. They rely on
capital to finance their product inventory. As the Federal Reserve is anticipated
to gradually increasing interest rates, the costs of acquiring finance and the
methods they use to finance certain things might change. Many of the
companies financing instruments involve variable debt. An increase in interest
rates will increase the interest on the company’s debt which will decrease
profitability.
Economic Risks:
Most of Europe and South America’s economy is contrasting. It is challenging
for Tech Data to earn a profit in a down economy. 60% of Tech Data’s revenue
derives from Europe. With high unemployment rate, tough austerity measures,
and low inflation within many countries in Europe, it may be difficult for the
economy to grow. This forces pressure on Tech Data’s earnings and revenue .
Other Risk:
Political instability, government controls, trade restrictions, changes in the
interpretation of the law, difficulty in acquiring account receivables, and tariff
changes are all risks which may have a negative impact on the company. The
inability to receive product into the logistics centers because of government
restrictions or labor disputes will have a negative effect on the business.
Operational
Risk
currency Risk
Supply Risk
Employment
Risk
Other Risk
20
40
60
80
100
0 20 40 60 80 100
CONSEQUENCE
PROBABILITY
RISK ASSESMENT
Risk Mitigation/Solution
Lost of customers
Management ability to maintain
customers using various tactics like value
added services
Competition due to
disadvantage in
currency market
Hedge against stronger dollar and ability
to keep customers from choosing a
different company
Constant decline in
computer Sales
Create new products and services to be
able to diversify away from PC's
Rely Heavily on
Large vendors
Keep large vendors happy and wanting to
keep doing business with Tech Data
Fully rely on one
shipping company
Look at more than one shipping company
for a specific area
Employment Risk
Keep employers happy and keep their
needs satisfied
Credit Risks
Try to switch some debt into fixed rates
as supposed to variable rates
Economic Risks
Find ways to still be able to profit from a
down economy
Other Risks
Keep an eye out for political tension in
certain area to be able to be prepared
incase some political tension does occur
0
1
2
3
4
5
Total Strengths
Total
Weaknesses
Total
Opportunities
Total Threats
Tech Data SWOT Analysis
12. Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest that might bias the content or
publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as a officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the subject company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and believed by the author(s) to be reliable,
but the author(s) does not make any representation or warranty, express or implied, as to its accuracy or completeness. The information is not intended
to be used as the basis of any investment decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a
solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any individual affiliated with CFA
Society of South Florida, CFA Institute or the CFA Institute Research Challenge with regard to this company’s stock.
13. Appendix A: Value Added Reseller Structure and Glossary of Terms
Board Independence: According to Tech Data’s Corporate Governance Principles, a minimum of a two thirds majority of
the members of the Board should be independent, as “independence” is defined by applicable regulations including the SEC
and NASDAQ rules. (Source: Investopedia & Techdata.com)
Quantitative Easing: it is an unorthodox monetary policy used by central banks to stimulate the economy when standard
monetary policy has become ineffective. Central banks purchase government securities, as well as other securities from the
market in order to lower interest rates and increase the money supply. (Source: Investopedia)
Value Added Reseller: As value added resellers, Tech Data’s customers pride themselves in enhancing the value of the
products it resells by including extra services & products. (Source: Investopedia & Techdata.com)
Value Added Services: As one of the largest distributors of technology products, services, and solutions, Tech Data
provides its resellers around the globe the technology support they need to please end users of all sizes.
Source: Investopedia & Techdata.com
14. Appendix B: TECD Organizational Chart
Robert Dutkowsky
CEO
Charles Dannewitz
CFO and Executive Vice
President
Senior Vice President and
Chief Financial Officer,
Europe
Joseph B. Trepani
Senior Vice President and
Chief Financial Officer, The
Americas
John Tonnison
Executive Vice President,
Cloud Computing and Chief
Information Officer
Beth E. Simonetti
Senior Vice President and
Chief Human Resources
Officer
Jeffrey L. Taylor
Senior Vice President and
Corporate Controller
Tech Data Organizational Chart
15. Appendix C: Quantitative Easing, Currency Fluctuation, and FED Interest Policy
I. Quantitative Easing
I. The Consumer Discretionary and Technology industries are ones that are both driven both consumer’s willingness to spend and
to further analyze the prospects of growth in these industries we need to determine at what point in the economic cycle a
country may be in. Tech Data which operates 60% in the Euro Zone and 40% in North America has recently been faced with
economic stagnation followed by steady recovery (in the United States). Quantitative Easing, or the method of the federal
government creating money to buy financial assets such as government bonds, was first used by Japan in the early 2000’s and
later adopted by the United States as a solvent for the recent liquidity trap that resulted from the recent financial crisis. Since
the first wave of asset purchases by the fed in 2009 (QE1) the Unemployment rate has fallen to just 5%, Consumer spending is
up, and so is unemployment. In Europe the ECB has recently announced It plans to spend €60 billion ($70 billion) a month for at
least 19 months, adding hefty purchases of government bonds to an existing scheme to buy covered bonds and asset-backed
securities (currently around €10 billion-worth a month)Tech Data could be a seemingly long term beneficiary of these QE plans if
inflation could reach the planned 2% growth rate in Europe and if the Euro is able to recover.
I. Currency Fluctuation
I. The History of the Euro against the Dollar has been well documented and is one of the main bottom line differentiators for a
company like Tech Data. Multinational Corporations are particularly concerned with the currency valuation of all its operating
countries and most of the time its growth is dependent on what these costs of doing business are. Recently, The Euro Has fallen
against the Dollar ultimately causing Tech Data to forfeit some of its profitability; as a result Tech Data constantly stresses their
consistent growth in constant currencies. For a company headquartered in Clearwater, Florida the cost of its operations in the
United States would weigh more heavily on its bottom line production when it revenues from the Euro zone weaken. As a result
the return that Tech Data has been getting on its assets have shrank and management has mentioned that it has began to
diversify its products and shift toward adding more importance on the cloud, and value added services. The Euro has fallen
against the Dollar due to the recent volatility in the EU markets. Some factors include the Quantitative easing measures
announced by the ECB, the Dollar yielding higher interest rates, and the ECB’s record low interest rates. The prospects for
increased Euro valuations are largely dependent on domestic demand and inflation in the EU which doesn’t seem like anything
more than a steady recovery at the moment. Current USD:EUR : 0.915
II. Fed Interest Rate Policies
I. Both the United States’ Federal Reserve and the Europe Union Union’s European Central Bank have the responsibility of
controlling the countries’ monetary policies by adjusting its interest rate landscape. In recent years the ECB and the federal
reserve have set their lending rates at drastically low levels to boost economic consumption and ultimately spur their economies
into recovery. With the improvement in the United States economy the Fed has cited improved employment numbers and
increased wages as the main reasons for the first rate hike since June 2006. In the European Union we have seen desperately
low interest rates and even negative interest rates (depositors are charged to keep money in their account). The EU has been
grappling with its highest unemployment rates since 1999 and low inflation and domestic demand. Mario Draghi has been cited
has being willing to do “whatever it takes” to save the EU’s common currency which has been very volatile since the Eurozone’s
poor Fiscal Policy decisions have taken hold.
Belgium 8.5
Bulgaria 11.4
Czech Republic 6.1
Denmark 6.6
Germany (until 1990 former territory of the FRG)5.0
Estonia 7.4
Ireland 11.3
Greece 26.5
Spain 24.5
France 10.3
Croatia 17.3
Italy 12.7
Cyprus 16.1
Latvia 10.8
Lithuania 10.7
Luxembourg 6.0
Hungary 7.7
Malta 5.8
Netherlands 7.4
Austria 5.6
Poland 9.0
Portugal 14.1
Romania 6.8
Slovenia 9.7
Slovakia 13.2
Finland 8.7
Sweden 7.9
United Kingdom 6.1
Iceland 5.0
Norway 3.5
Turkey 9.9
United States 6.2
8.5
11.4
6.1
6.6
5.0
7.4
11.3
26.5
24.5
10.3
17.3
12.7
16.1
10.8
10.7
6.0
7.7
5.8
7.4
5.6
9.0
14.1
6.8
9.7
13.2
8.7
7.9
6.1
5.0
3.5
9.9
6.2
0.0 5.0 10.0 15.0 20.0 25.0 30.0
Unemployment Across Europe
19. Cash Flow
Cash Flow
For the Fiscal Period Ending
Restated
12 months
Jan-31-2011
Restated
12 months
Jan-31-2012
Restated
12 months
Jan-31-2013
12 months
Jan-31-2014
12 months
Jan-31-2015 Jan 2016 Jan 2017 Jan 2018 Jan 2019 Jan 2020
Currency USD USD USD USD USD USD USD USD USD USD
Net Income 208.4 190.8 176.3 179.9 175.2
236.7 193.3 198.7 200.0 191.2
Depreciation & Amortization 21.0 21.9 20.6 21.2 19.2
10.1 12.3 13.4 12.5 9.6
Amort. of Goodwill and Intangibles 26.3 35.4 37.8 51.8 49.5 49.5
50.3 53 48 46
Depreciation & Amort., Total 47.3 57.3 58.4 73.0 68.7
59.6 62.6 66.4 60.5 55.6
Other Amortization 10.3 9.0 0.1 0.3 0.3 0.3 0.3 0.3 0.3 0.3
Minority Int. in Earnings 4.6 10.5 6.8 - -
0 0 0 0 0
(Gain) Loss From Sale Of Assets - 28.3 - - (1.0)
2 0 0 0 0
Stock-Based Compensation 10.4 12.0 13.6 8.9 13.7
15.4 13.9 12.7 15.6 16
Tax Benefit from Stock Options (1.2) (2.0) (5.3) (0.9) (0.7)
(3.0) (1.7) (1.6) (0.8) (0.9)
Provision & Write-off of Bad debts 11.8 10.8 9.7 11.7 10.4
6.8 7.5 8.5 9.6 8.1
Other Operating Activities 7.2 (34.0) (22.8) (53.5) (0.3)
(0.3) (25.0) (16.0) (14.3) (18.4)
Change in Acc. Receivable (13.7) (10.7) (103.5) (36.0) 22.2 (154.3)
171.4 28.9 133.0 161.5
Change In Inventories (481.6) 457.2 (151.7) (209.4) 245.5 22.1
41.3 (6.1) (21.8) 19.1
Change in Acc. Payable 396.3 (124.6) 218.6 321.3 (469.8) 228.8
47.1 (140.9) (151.2) 41.4
Change in Other Net Operating Assets (23.7) (79.3) (76.4) 84.0 55.3 (30.6)
(153.8) (18.9) (16.6) 3.3
Cash from Ops. 176.1 525.2 123.7 379.1 119.4 383.5 356.8 132.1 214.3 477.2
Capital Expenditure (18.7) (13.7) (14.9) (15.6) (18.6)
(20.7) (19.8) (16.7) (18.1) (13.9)
Sale of Property, Plant, and Equipment - - - - 7.1
0.0 0.0 0.0 0.0 0.0
Cash Acquisitions (141.1) (24.9) (310.3) 6.4 -
(27.8) 0.0 (60.0) (35.0) 0.0
Divestitures - - - - -
20.0 0.0 0.0 0.0 0.0
Sale (Purchase) of Intangible assets (12.1) (30.9) (23.5) (14.8) (9.5)
(11.6) (20.6) (17.4) (19.6) (13.8)
Invest. in Marketable & Equity Securt. - - - - -
0.0 0.0 0.0 0.0 0.0
Net (Inc.) Dec. in Loans Originated/Sold - - - - -
0.0 0.0 0.0 0.0 0.0
Other Investing Activities 4.8 - - - -
0.0 0.0 0.0 0.0 0.0
Cash from Investing (167.1) (69.5) (348.6) (24.0) (21.1) (40.1) (40.4) (94.1) (72.7) (27.7)
Short Term Debt Issued - - 87.2 - 7.3
0 0 0 0
Long-Term Debt Issued 34.6 0.5 345.8 - -
0 0 0 0 0
Total Debt Issued 34.6 0.5 433.1 - 7.3
0 0 0 0 0
Short Term Debt Repaid (51.5) (41.2) - (122.7) -
Long-Term Debt Repaid (0.5) (352.3) (50.0) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5)
Total Debt Repaid (51.9) (393.5) (50.0) (123.2) (0.5) (0.5) (0.5) (0.5) (0.5) (0.5)
Issuance of Common Stock 5.0 35.1 3.4 1.1 1.5
1.5 5 3.5 1 3.5
Repurchase of Common Stock (200.0) (314.9) (185.1) - (53.0)
(200.0) (260.0) 0.0 (56.0) (180.0)
(195.0) (279.8) (181.7) 1.1 (51.5) (198.5) (255.0) 3.5 (55.0) (176.5)
Total Dividends Paid - - - - -
0 0 0 0 0
Special Dividend Paid - - - - -
0 0 0 0 0
Other Financing Activities 1.2 2.0 (121.0) (5.3) (4.3)
(2.5) (3.5) (10.0) (1.0) (5.4)
Cash from Financing (211.2) (670.8) 80.3 (127.3) (49.1) (201.5) (259.0) (7.0) (56.5) (182.4)
Foreign Exchange Rate Adj. (2.6) (21.3) (1.1) 1.7 (72.1)
(5.4) (5.4) (5.4) (5.4) (5.4)
Misc. Cash Flow Adj. - - - - (4.2)
0 0 0 0 0
Net Change in Cash (204.8) (236.3) (145.7) 229.5 (27.1) 136.5 52.0 25.6 79.7 261.7
Appendix E: Insiders Holdings
Holder Name Position Market Value Ownership
Steven A. Raymund 293,641 20,061,553 0.84%
Robert M. Dutkowsky 231,459 15,813,279 0.66%
Jeffery P. Howells 60,242 4,115,733 0.17%
Nestor Cano 47,656 3,256,473 0.14%
David R. Vetter 36,748 2,510,623 0.11%
20. Appendix F:
Logistic Centers
and
Headquarters,
Marketing plan,
Operations, and
Re
Headquarter:
Clearwater, FL
Signature Tech Group:
Maricopa, AZ
Tempe, AZ
Rancho Cordova, CA
Canadian Office:
Mississauga, Ontario
Richmond, BC
Dorval, Quebec
Logistic Centers:
Fontana, CA
Ft. Worth, TX
South Bend, IN
Suwanee, GA
Swedesboro, NJ
Richmond, BC
Mississauga, Ontario
Offices:
Costa Rica
Mexico
Offices:
Austria
Baltics
Belgium
Czech Republic
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
Netherlands
Norway
Poland
Portugal
Romania
Spain
Sweden
Switzerland
United Kingdom
North America Latin America Europe
Appendix F: Logistic Centers and Headquarters, Marketing plan, Operations, and Re
21. Appendix G: Product Pipeline
Notebooks, tables,
Desktops, Printers &
Supplies Components
Mobile Phones, Accessories,
Activations, Mobile Device
Management
Virtualization, Security,
Desktop Application,
Operating System, Utilities
Software
TVs, Digital Display, Network-
Attached, Consumer Devices
Provides all in one supply
challenge and logistic
services to its vendors
Industry Standard Servers,
Proprietary Servers,
Networking, Storage, Private
Clouds
TECD’s Vendors:
Absolute Software
Acer
Acronis
Adaptec
Adobe Systems
Allied Telesis
Amer Networks
Antec
APC
Apricorn
Aten Technology
Autodesk
Avaya
Avocent
Axiom
AXIS
Belkin
BenQ
Blockmaster
Bretford
Brocade
Brother
Buffalo TechnologyCA
Cables To Go
Canon
Castel
Check Point Software
Cisco
Comqi
Corel
Cyber Acoustics
Da-Lite
Dell
Digi International
Diskeeper Corporation
D-Link Networks
DoubleTake Software/Vision
Solutions
Draper
Eaton/Powerware
Eizo Nanao Technologies
Elfiq Networks
EMC
Emulex
Enterasys Networks
Ergotron
Exabyte
Extreme Networks
Fellowes
Filemaker
Fortinet
Fortinet
Foundry
Fujifilm
Fujitsu
Fusion-io
Hauppauge
Hitachi
HP
IBM
Imation
InFocus
InfoPrint Solutions
Intel
Iomega
Ipcelerate
IPSwitch
Kaspersky Lab
Kensington
Kingston
Kodak
Kofax
Lantronix
Lenovo
Lexmark
LG Electronics
Liebert
Liebert
LifeSize
Linksys
Logitech
Maxell
McAfee
Microsoft
Mitsubishi
Moxa Technologies
Multi-Tech Systems
NEC Display Solutions
Netgear
Novell
Oki Data
Optoma
Oracle
Overland
Panasonic
Parallels
Pharos
Peerless AV
Philips
Phybridge
Planar
PNY Electronics
Premier Mounts
22. Operational Risk
currency Risk
Supply Risk
Employment Risk
Credit Risk
Other Risk
0
10
20
30
40
50
60
70
80
90
100
0 10 20 30 40 50 60 70 80 90 100
CONSEQUENCE
PROBABILITY
Operational Risk
Probability: Moderate
Consequence: Moderate
The lack of growth within the IT sector
causes a lack of growth within the IT
distribution sector. The lack of growth
shows a mature sector where any
company can just come and grab
market share from competitors. It is
moderately possible that another
company can easily come and take
away market share from Tech Data. If a
few customers do decide to leave for
one of Tech Data’s competitors, the
consequence would be moderate.
Currency Risk
Probability: moderate
Consequence: moderate
With an increasing strong dollar, local
competitors now have the option to
price their products at a lower level
knowing that outside competition will
not be able to keep up with their price
decrease. The probability of this
happening is moderate. Local
companies do have this option to
explore but might not pursue this option
because of the risk of their own
company loosing profits due to the
lowering of prices. The consequence
would also be moderate. The loss of
customers due to the business models of
local companies will impact tech Data’s
profits, but the impact would be
minimal. Tech Data has many
customers and a lose of a few would not
greatly impact their profits.
Supply Risk
Probability: Low
Consequence: High
Tech Data deals with several different
suppliers to obtain the products they
need to be able to sell to their
customers. A termination of contact
from one of Tech Data’s large vendors
seems unlikely given the fact that it has
rarely occurred. If large vendors do
decide to terminate a contract with
Tech Data, then the consequence will
be tremendous. Customers would not be
able to obtain these large vendors and
specific products which will bring an
outwards flow of many of Tech Data’s
loyal customers. An outward flow of
customers would significantly decrease
Tech Data’s profits.
Employment Risk:
Probability: Low
Consequence: Moderate
Many of Tech Data’s subsidiaries in
Europe are subject to collective
bargaining agreements. Employers in
Europe can go on a union strike and
cause delays in the day to day
operations of Tech Data. The
probability of a union strike seems
unlikely. The consequence would be
moderate. A slowdown of the day to
day operations would affect the
company, but the slowdown would only
last for a few days compared to the
amount of days Tech Data operates
within its lifetime.
Credit Risk:
Probability: High
Consequence: Low
With the Federal reserve recently announcing
a gradual rate hike, some of Tech Data’s
interest on its debt is bound to go up. The
speed at which the Federal Reserve will raise
rates is slow and gradual. The amount of
basis points in which interest rates will rise is
also minimal compared to the long term
average of interest rates within the United
States.
Other Risk:
Probability: Low
Consequence: High
Political tension and chaos can occur at any
moment. The chances of this happening is
very low and unlikely. If political tension and
chaos does occur in certain countries where
Tech Data does business, certain aspects of
the business will be greatly impacted. Tech
Data might have a hard time getting their
accounts receivable or moving merchandise
to certain logistic centers which would bring
high consequences to the business.
Apendix H: Risk Assesment
24. Appendix J: TECD Key Executives (Ivan, Ben) Create a table showing the executive name, title,
career history, and description. You can find all of this information on BBG if under
management
Name Title TECD Highlights Description
Robert M.
Dutkowsky
Chief Executive
Officer
Chief Executive office
10/2006-Present
Awards:
Ellis island Medal of Honor
2000
Mr. Dutkowsky has been the CEO of Tech Data Corp and a member of the
Company’s Board of Directors. He oversees all aspects of the companies
worldwide It products distribution. He has more than 30 years of
experience within the IT industry. He has held senior executive positions in
sales marketing and channel distributing with software publishers like IBM,
EMC, and J.D Edwards. He is currently a board member at ADT Corp, Tech
Data Corp, and Sepaton Inc. He is also a recipient of the 2000 Ellis Island
Medal of Honor which recognizes distinguished American citizens.
Charles V.
Dannewitz
Executive Vice
President and
Chief Financial
Officer
Senior VP: Taxes
03/2000-07/2003
Senior VP: Treasury
07/2003-02/2014
Senior VP & CFO: Americas
02/2014-06/2015
Chief Financial Officer
06/2015-Present
Charles Dannewitz joined Tech Data’s team in February of 1995 as Vice
President of Taxes. In February of 2014 he was appointed Chief Financial
Officer of the Americas. In June of 2015 he was promoted to Executive Vice
President and Chief Financial Officer.Before Tech Data, Mr. Dannewitz
worked at Price Waterhouse from 1981-1995 most recently as a tax partner.
He is also a certified Public Accountant and holds a Bachelor of Science
Degree in Accounting from Illinois Wesleyan University.
John
Tonnison
Executive Vice
President,
Cloud
Computing and
Chief
Information
Officer
VP: Worldwide E-Business
2011-12/2006
Senior VP: Information
Technology 12/2006-2009
Executive VP/CIO
2009-07/2015
Executive VP/CIO/Global
Cloud Operations
07/2015-Present
John Tonnison joined Tech Data in 2001 as vice President, Worldwide E-
Business, leading the development of Tech Data’s E-Business strategy. He
was promoted to senior vice president, IT Americas in 2006 and in 2009 he
was named Executive vice president, CIO. Mr. Tonnison is now responsible
for all business systems technology, application software, and operations.
In July 2015 he was appointed to lead the strategic direction, operations,
and market executive of the company’s worldwide cloud business.
Beth E.
Simonetti
Senior Vice
President and
Chief Human
Resources
Officer
Tech Data Corp
Senior VP/ Chief Human
Resources
09/2015-Present
Beth Simonetti joined the company in September 2015. Prior to Tech Data
she serves as Senior Vice President of Human Resources at Baker & Taylor,
Inc. Previously she was an executive search consultant with Cardinal Health
for 12 years and held various leadership positions. She holds a B.S from
Miami University in Ohio and a Masters of Hospital and Health Services
Administration from the Ohio State University
Jeffrey L.
Taylor
Senior Vice
President and
Corporate
Controller
Vice President of
Corporate Accounting
Former
Vice President and
Assistant Corporate
Controller
October 2012- June 2015
Senior Vice President and
Corporate Controller
June 2015-Present
Jeffrey Taylor has served as Senior Vice President and Corporate Controller
at Tech Data since June 2015. Taylor serves as the company’s chief
accounting officer responsible for all global accounting policy, controls and
financial reporting. Previously, he served as the company’s vice President
and Assistant Corporate Controller focusing on the optimization of
processes, controls, and financial reporting of the company’s worldwide
finance teams. Prior to rejoining Tech Data in October 2015, Taylor served
in executive financial management with a value added reseller. He was also
previously employed by Deloitte & Touché from 1992 to 2003. He holds a
B.S in Accounting from San Diego State University
David R.
Vetter
Senior Vice
President,
General
Counsel and
Secretary
VP/General Counsel
06/1993-03/2003
Senior VP/ General Counsel
03/2003-06/2003
Senior
VP/Secretary/General
Counsel
06/2003-Present
David R. Vetter Joined the company in June 1993 as Vice President and
General Counsel and was later promoted to Corporate Vice President and
General Counsel in April 2000. In March 2003 he was promoted to Senior
Vice President and in July 2003 he was appointed Corporate Secretary. Prior
to joining the Company he was part of a law firm of Robbins, Gaynor &
Bronstein, and P.A from 1984 to 1993 most recently as a partner. Mr. Vetter
is a member of the Florida Bar Association and graduated from
Bucknell University with a Bachelor of Art Degrees in English and
Economics. He also holds a Juris Doctorate Degree from the University of
Florida.
25. Appendix K: TECD Board Members (Ivan, Ben) pull information from BBH create same type of
table as previous slide, include member, career background, and tenure
Name Tenure Career Highlights Age
Chairman
Steve A
Raymund
24.8 Tech Data Corp
Operations Manager
1981-01/1984
Chief Operating Officer
1984-01/1986
Chief Executive Officer
01/1986-04/1991
Chairman/CEO
04/1991-09/2006
University of Oregon Foundation
Treasurer/Secretary
Present
59
Lead Director
Thomas I
Morgan
Unknown US Office Products Co
Chief Executive Officer
11/1997-01/1999
Value America Inc.
Chief Executive Officer
02/1999-11/1999
Enfotrust Networks
Chief Executive Officer
02/2000-03/2001
Hughes Supply Inc.
President/COO
04/2001-05/2003
Chief Executive Officer
04/2003-03/2006
Baker & Taylor Inc.
Chairman/CEO
07/2008-01/2013
Bpv Wealth Management LLC
Partner
61
Board Member
Charles E Adair
21.1
Durr-Fillauer Medical Inc.
President/COO
1981-1992
Kowaliga Capitals Inc
Partner/Mgr: Venture Capital Fund
1993-Present
Cordova Ventures
Partner/Mgr: Venture Capital Fund
12/1993-Present
68
Board Member
David M Upton
18.0 Careers:
Harvard Business School
Professor
University of Oxford
Professor
5
5
Board Member
Kathleen
Misunas
16.1 AMR Corp
Various Positions
1973-1993
AMR Corp
President & CEO: Sabre
1993-1995
Reed Elsevier PLC:
CEO; Reed Travel
1996-1998
Brandwise LLC
President/CEO
1999-06/2000
Airtreks
Chief Executive Officer
07/2001-09/2001
Essential Ideas
Principal/Founder
2001-Present
64
26. Appendix L: TECD Committee
TECD Committees
Audit Committee Title
Charles E. Adair Chairman
Harry J. Harczak Jr Member
Patric G Sayer Member
Tugn Wai-Hok Member
Compensation Committee Title
Kathleen Misunas Chairman
Thomas I. Morgan Member
David M. Upton Member
Governance & Nominating Title
Thomas I Morgan Chairman
Charles E. Adair Member
Harry J. Harczak Member
Kathleen Misunas Member
Patrick G. Sayer Member
Tung Wai-Hok Member
David M. Upton Member
Source: Bloomberg
27. Appendix M: Porter’s Five Forces Analysis (Ivan, Michael, Ben) work together to create this
analysis and graph, and them explain the different opportunities
TECD Porter’s Five Force Analysis
1. SIGNIFICANT THREAT Potential of new entrants into the industry: Due to the accessibility of technology
products and the facilitated distribution methods available to a large percentage of the globe, the barriers to
entry are a weak point of TECD and the industry as a whole. That being said, Tech Data has been diversifying
their products and services in order to maintain a competitive advantage over its rivals. Unfortunately though,
these barriers will continue to decrease as the increase in demand for IT products will pose for more companies
to follow the diversification trend, creating more entrants to the industry, building a greater threat for Tech
Data.
2. HIGH THREAT Competition in the Industry: Considering Tech Data is a key player in the wholesale distribution
industry of technology products, services and solutions, but is only in possession of an estimate of 15% of the
industry’s market share draws for the conclusion of a high threat to Tech Data.
In its comparable company’s universe, it holds the smallest market capitalization, and a decrease in growth
year over year. Moving forward, competitive rivalry will continue to increase, as will the threat it poses on
Tech Data, unless it continuous to expand through acquisitions as it has in the past, but at a significantly faster
rate.
1. LOW THREAT Power of Suppliers: In previous years, the technology industry has grown tremendously, and it will
continue to experience this growth due to the fact that it is in the nature of the industry to advance daily as new
technology is constantly being developed. This increase in demand causes for suppliers to reach out to whole
sale distributors to be able to ration their products more efficiently around the globe. With a constant demand,
cannot afford to constantly fluctuate pricing on their products, creating a low threat for the bargaining power of
suppliers.
2. LOW THREAT Power of Customers: Currently, with the variety of buyers in the market, but the stagnant similar
prices globally, the bargaining power of customers poses a low threat. However, with an increase in internet
innovations, that creates awareness for lower prices, this threat will cause the wholesale IT distribution industry
to be more unattractive in the future.
3. INSIGNIFICANT THREAT Threat of substitute products: Although substitutes for the Technology industry are
constantly being created, or current devices being updated, as a result of Tech Data being a whole sale
distributor, it is able to uphold the most updated products posing an insignificant threat to Tech Data.
LEGEND
0 No Threat to Tech Data
1 Insignificant Threat to Tech Data
2 Low Threat to Tech Data
3
Moderate threat to Tech
Data
4
Significant Threat to Tech
Data
5 High Threat to Tech Data 0
1
2
3
4
5
New Entrants into the
Industry
Competiton in the
Industry
Power of SuppliersPower of Customers
Threat of Substitute
Products
Porter's Five Forces
28. Appendix N: SWOT Analysis (Ben and Michael) create a SWOT analysis refer to previous
presentation for template
Primary factors
SWOT ANALYSIS
Strengths
• Diversified customer base
• Strong acquisitions in North America
& Europe
• Strategic retail distribution
agreements with leading electronics
manufacturers
• Streamlining its business
Opportunities
• Increasing demand for cloud and
mobility
• Potential for expansion through
acquisitions
Threats
• Potential New Entrants to the Industry
• Competition
• Mature Sector
• Low General Economic Growth
• Decrease in PC sales
Weaknesses
• Declining Revenue
• Heavily relies on certain vendors
S W
TO
32. Current Trading Price (01/03-12016) $66.60
Discount to Valuation 12%
Current Trading Price (01/03-12016) $66.60
Discount to Valuation 48%
TechData Metrics 416.50
Narrow Comps EV/EBITDA
Total Enterprise Value 2,390.04
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 2,610.90
Shares Oustanding (millions) 35.1
Fair Value Share Price $74.38
TechData Metrics 250.30
Narrow Comps P/E
Total Enterprise Value 3,261.42
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 3,482.28
Shares Oustanding (millions) 35.1
Fair Value Share Price $99.21
TechData Metrics 26235.70
Narrow Comps EV/Rev
Total Enterprise Value 2,821.77
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 3,042.63
Shares Oustanding (millions) 35.1
Fair Value Share Price $86.68
Current Trading Price (01/03-2016) $66.60
Discount to Valuation 19%
TechData Metrics 384.80
Narrow Comps P/FCF
Total Enterprise Value 2,658.02
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 2,878.88
Shares Oustanding (millions) 35.1
Fair Value Share Price $82.02
Current Trading Price (01/03-12016) $66.60
Discount to Valuation 23%
TechData Metrics 1969.46
Narrow Comps P/BV
Total Enterprise Value 2,728.98
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 2,949.84
Shares Oustanding (millions) 35.1
Fair Value Share Price $84.04
Current Trading Price (01/03-2016) $66.60
Discount to Valuation 26%
TechData Metrics 26235.70
Narrow Comps P/S
Total Enterprise Value 3,655.32
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 3,876.18
Shares Oustanding (millions) 35.1
Fair Value Share Price $110.43
Current Trading Price (01/03-2016) $66.60
Discount to Valuation 65%
Appendix P: Comparable Companies and Multiples Analysis (NATALIE)
In analyzing the fundamental profitability of TECD and direct competitors, our Hold/Sell
recommendation is supported for a number of reasons. First of all, Tech Data generates a profit margin
that is nearly _________ in comparison with its narrow comps. We focused on liquidity and
fundamentals multiples like Debt to EBITDA, and Total Debt to Asset Ratio to support our
recommendation
33. Industry Comps EV/EBITDA
Total Enterprise Value 2,915.50
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 3,136.36
Shares Oustanding (millions) 35.1
Fair Value Share Price $89.35
Industry Comps P/E
Total Enterprise Value 3,253.90
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 3,474.76
Shares Oustanding (millions) 35.1
Fair Value Share Price $99.00
Industry Comps EV/Rev
Total Enterprise Value 5,247.14
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 5,468.00
Shares Oustanding (millions) 35.1
Fair Value Share Price $155.78
Industry Comps P/BV
Total Enterprise Value 2,560.30
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 2,781.16
Shares Oustanding (millions) 35.1
Fair Value Share Price $79.24
Industry Comps P/S
Total Enterprise Value 5,247.14
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 5,468.00
Shares Oustanding (millions) 35.1
Fair Value Share Price $155.78
Industry Comps P/FCF
Total Enterprise Value 3,501.68
- Debt (365.14)
- Preferred & Other -
+ Cash 586.00
Equity Value 3,722.54
Shares Oustanding (millions) 35.1
Fair Value Share Price $106.06
Current Trading Price (01/03-12016) $66.60
Discount to Valuation 34%%
Current Trading Price (01/03-12016) $66.60
Discount to Valuation 48%
Current Trading Price (01/03-12016) $66.60
Discount to Valuation 134%
Current Trading Price (01/03-12016) $66.60
Discount to Valuation 134%
Current Trading Price (01/03-12016) $66.60
Discount to Valuation 59%
Current Trading Price (01/03-12016) $66.60
Discount to Valuation 18%
A competitor comparison based on narrow and industry multiple does not predominantly signify
Tech Data Valuation in any way. Therefore, in tangent with our valuation methodologies, we believe
in our Hold/Sell recommendation on TECD
34. Appendix Q: Treasury Stock Method – Diluted Shares Outstanding (Natalie)
Treasury Stock Method
Current Share Price $65.11
Number of Basic Shares Outstanding 36,631,255
Number of Outstanding Options (In The Money) 42,110
Average Option Strike Price $33.97
Total Option Proceeds $1,430,476.70
Treasury Stock Method Shares Repurchased 21970
Additional Shares Outstanding 20,140
Total Diluted Shares Outstanding 36,651,395
Source: Tech Data's 10k
In order to calculate Tech Data’s fully diluted shares we decided to applied the Treasury Stock Method. By using TECD’s
latest 10-K, and taking into account the total amount of outstanding in-the-money options, we were able to arrive at
their Fully Diluted Shares Outstanding
35. Appendix R: Debt Structure and Schedule (Natalie)
Debt Schedule
(in US$ millions) Actuals Estimates
Period Ending January 31 2013A 2014A 2015A 2016E 2017E 2018E 2019E 2020E
Cash available to pay down debt
Cash at beginning of year 543.0 515.9 302.4 354.3 379.9
Cash flow before debt paydown (27.1) 136.5 52.0 25.6 79.7
Total cash available to pay down debt 515.9 652.4 354.3 379.9 459.6
Short term borrowings / revolver
Short term borrowings (beginning of year) 13.3 13.3 13.3 13.3 13.3
Mandatory issuances / (retirements) 0.0 0.0 0.0 0.0 0.0
Non-mandatory issuances / (retirements) 0.0 0.0 0.0 0.0 0.0
Short term borrowings (end of year) 13.3 13.3 13.3 13.3 13.3 13.3
Short term interest expense 0.0 0.0 0.0 0.0 0.0
Short term interest rate
Long term debt due within one year
Long term debt due within one year (beginning of year) 16.7 16.7 16.7 16.7 16.7
Mandatory issuances / (retirements) 0.0 0.0 0.0 0.0 0.0
Non-mandatory issuances / (retirements) 0.0 0.0 0.0 0.0 0.0
Long term debt due within one year (end of year) 16.7 16.7 16.7 16.7 16.7 16.7
Interest expense 0.9 0.9 0.9 0.9 0.9
Interest rate 5.1% 5.1% 5.1% 5.1% 5.1%
Obligations under capital leases due within one year
Obligations under capital leases due within one year (beginning of year) 0.0 0.0 0.0 0.0 0.0
Mandatory issuances / (retirements) 0.0 0.0 0.0 0.0 0.0
Non-mandatory issuances / (retirements) 0.0 0.0 0.0 0.0 0.0
Obligations under capital leases due within one year (end of year) 0.0 0.0 0.0 0.0 0.0
Interest expense 0.0 0.0 0.0 0.0 0.0
Interest rate
Long term debt
Long term debt (beginning of year) 353.1 353.1 3.1 3.1 3.1
Mandatory issuances / (retirements) 0.0 (350.0) 0.0 0.0 0.0
Non-mandatory issuances / (retirements) 0.0 0.0 0.0 0.0 0.0
Long term debt (end of year) 353.1 353.1 3.1 3.1 3.1 3.1
Interest expense 13.2 6.8 0.0 0.0 0.0
Interest rate 3.8% 3.8%
Long term obligations under capital leases
Long term obligations under capital leases (beginning of year) 4.2 0.0 0.0 0.0 0.0 0.0
Mandatory issuances / (retirements) (4.2) 0.0 0.0 0.0 0.0 0.0
Non-mandatory issuances / (retirements) 0.0 0.0 0.0 0.0 0.0
Long term obligations under capital leases (end of year) 0.0 0.0 0.0 0.0 0.0 0.0
Interest expense 0.0 0.0 0.0 0.0 0.0
Interest rate 0.0% 0.0% 0.0% 0.0% 0.0%
Total issuances / (retirements) 0.0 (350.0) 0.0 0.0 0.0
Total interest expense 14.1 7.6 0.9 0.9 0.9
Cash at the end of the year 543.0 515.9 302.4 354.3 379.9 459.6
Interest income
36. Appendix S: Discounted Cash Flow Analysis (Natalie)
TechData Corp. Discounted Cashflow Model - Valuation
Assumptions Model Summary
Projected Fiscal Years Ending January 31
10 Year US Treasury
2.23%
Forecast Summary 2015 2016 2017 2018 2019 2020
Expected market return
10.0%
Revenues 27,671 27,062 27,830 28,621 29,434 30,270
Market risk premium
7.8% Revenue Growth Rate 3.2% -2.2% 2.8% 2.8% 2.8% 2.8%
Beta
1.01
EBITDA 280 254 262 269 277 285
CAPM cost of equity
10.1%
EBITDA Growth Rate 13.9% -9.1% 2.8% 2.8% 2.8% 2.8%
Cost of debt
2.2%
EBITDA Margin 1.0% 0.9% 0.9% 0.9% 0.9% 0.9%
Tax Rate
26.8%
After tax cost of debt
2.3%
Target gearing
12.5%
WACC
9.09%
Perpetual growth of firm cash flows (post year 5)
1.90%
TechData Corp. Valuation Model - Discounted Cash Flow Valuation
Valuation
($ in millions of U.S. dollars except per share amounts) Projected Fiscal Years Ending January 31
Free Cash Flows 2015 2016 2017 2018 2019 2020
EBIT * (1-tax rate) 193 192 186 190 195 190
Depreciation And Amortization (19) (10) (12) (13) (13) (10)
Capex (19) (21) (20) (17) (18) (14)
Net change in working capital (147) 66 292 129 114 185
Free cash flows to the firm (FCFF) 9 228 446 289 278 352
Years to Discount 1.00 2.00 3.00 4.00 5.00 6.00
Cost of Capital 9.1% 9.1% 9.1% 9.1% 9.1% 9.1%
Discount Factor 0.92 0.84 0.77 0.71 0.65 0.59
PV Free cash flows to the firm (FCFF) 8 191 343 204 180 209
FCFF Fair Value Perpetuity Method FCFF Fair Value Multiple Method
EBITDA Multiple 5.6x
Grown TV FCFF 2,894 Last forecast EBITDA 285
Terminal Value 2,962 Terminal Value 1,593
Present Value of Terminal Value 1,758 Present Value of Terminal Value 946
Terminal Value as % of Total Value 60.7% Terminal Value as % of Total Value 45.4%
Present Value of Forecast FCF 1,136 Present Value of Forecast FCF 1,136
Forecast Period as % of Total Value 39.3% Forecast Period as % of Total Value 54.6%
Enterprise Value 2,894 Enterprise Value 2,082
- Debt (hardcode as of valuation date) (365.1) - Debt (hardcode as of valuation date) (365.1)
+ Cash (hardcode as of valuation date) 586.0 + Cash (hardcode as of valuation date) 586.0
Net Debt (220.9) Net Debt (220.9)
Equity Value (Market Cap) 3,115 Equity Value (Market Cap) 2,303
Shares outstanding 35.1 Shares outstanding 35.1
Fair value share price 88.74 Fair value share price 65.60
