Billabong Financial Analysis

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Billabong International analysis from Corporate Finance Perspective

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Billabong Financial Analysis

  1. 1. A FINANCIAL ANALYSIS BY: SHETTY SEKHAWAT SINGH MOH & THAKKAR ASX:BBG
  2. 2. INTRODUCTION <ul><li>FOUNDED IN 1973, LISTED IN 2000 </li></ul><ul><li>BRANDS INCLUDE : </li></ul><ul><li>MAJOR COMPETITORS: </li></ul><ul><li>DIVERSIFICATION AND EXPANSION IN LAST 7 YEARS </li></ul><ul><li>8 ACQUISITIONS AND 1 JOINT VENTURE SINCE 2001 </li></ul>
  3. 3. INTRODUCTION <ul><li>SALES JUMPED 21% TO $1.0182 BILLION IN 2006 </li></ul><ul><li>CONSTANTLY INCREASING NPAT, LAST RECORDED $145.9 MILLION </li></ul><ul><li>HEALTHY INDUSTRY, HEALTHY FINANCIALS, STRONG COMPETITION </li></ul><ul><li>ISSUES STOCK OPTIONS TO SENIOR MANAGEMENT </li></ul>
  4. 4. CAPITAL STRUCTURE
  5. 5. CAPITAL STRUCTURE DEBT TO EQUITY RATIOS 74.23% 20.72% 133.11%
  6. 6. CAPITAL STRUCTURE
  7. 7. CAPITAL STRUCTURE 91.92% 95.92% 96.89% 95.73% 93.65% 91.22% Interest Burden ratio 75.40% 68.51% 68.36% 68.06% 70.01% 67.51% Tax Burden Ratio 1.83 1.77 1.46 1.56 1.50 1.32 Leverage Ratio 2007 2006 2005 2004 2003 2002  
  8. 8. CAPITAL STRUCTURE <ul><li>COST OF BILLABONG’S CAPITAL (UNLEVERED) = 22.23% </li></ul><ul><li>COST OF EQUITY CAPITAL WHEN LEVERED= 33.36% </li></ul><ul><li>WACC FOR BILLABONG = 28.03 % </li></ul>
  9. 9. DIVIDEND POLICY <ul><li>TWICE A YEAR, FULLY FRANKED </li></ul><ul><li>FIXED PAYOUT RATIO ~ 62% </li></ul>
  10. 10. DIVIDEND POLICY
  11. 11. DIVIDEND POLICY
  12. 12. DIVIDENDS POLICY <ul><li>NO BUYBACKS / SPLITS </li></ul><ul><li>OPTIMISTIC VIEW ON THE PERMANENCY OF RISE IN EARNINGS ‘ s’ = 1 </li></ul>
  13. 13. OPTIMAL DIVIDEND POLICY <ul><li>ALTERNATIVES TO DIVIDEND PAYMENTS : REPURCHASES, PAYBACK DEBT </li></ul><ul><li>PESSIMISTIC ‘ s’ </li></ul>
  14. 14. VALUATION <ul><li>STEPS: </li></ul><ul><li>GET TOTAL DEBT & COST OF DEBT </li></ul><ul><li>GET TOTAL EQUITY </li></ul><ul><li>GET TOTAL V = D+E </li></ul>
  15. 15. VALUATION <ul><li>GET Re= Rf + β (Rm-Rf)= 16.75% </li></ul><ul><li>where, Rf based on 10 yr treasury bond </li></ul><ul><li>Rm based on AOI over the past 5 years </li></ul><ul><li>β found out be regressing BBG’s returns against AOI </li></ul><ul><li>PUT EVERYTHING INTO FORMULA </li></ul><ul><li>WACC FOUND OUT TO BE 15.41% </li></ul>
  16. 16. VALUATION <ul><li>SHARE PRICE WAS FOUND TO BE $18.15 </li></ul><ul><li>(GROWTH RATE = 6%) </li></ul><ul><li>SENSITIVITY ANALYSIS </li></ul>
  17. 17. EVENT STUDY <ul><li>THE EVENT CHOSEN IS RESIGNATION OF CEO (MATTHEW PERRIN) OF BILLABONG ON 31ST OCTOBER 2002. </li></ul>
  18. 18. EVENT STUDY
  19. 19. Market Model
  20. 20. CAR (Event Window).
  21. 21. CAR (Pre-Event) The t-stats for these windows posted a result between -0.4097 and 0.3899, which underwent hypothesis testing at 95% confidence interval. Null hypothesis was consistently accepted in all cases, since result is in acceptance region (-2.045<t<2.045) and thus proving that there was no significant movement to show abnormal returns during the pre-event period.
  22. 22. CAR (Event Announcement) The t-stat test suggests that there are no significant changes to the returns during the event window H 0 Rejected (0.2760) -2.1100% 1 H 0 Rejected (0.5354) -4.0928% 0 H 0 Rejected (0.4831) -3.6934% -1 Result t-stat AR Event Days Single Day Abnormal Return
  23. 23. CAR (Post-Event) . The Calculation of the t-stats was the same as in pre event and it ranged from -1.3257 to 0.1766, which goes to show the stability of the company’s returns and its ability to absorb the effect of the events and not show abnormal return
  24. 24. Event summary <ul><li>NO ABNORMAL RETURNS PRE-EVENT. </li></ul><ul><li>NO ABNORMAL RETURNS ON EVENT DATE. </li></ul><ul><li>NO ABNORMAL RETURNS POST DATE. </li></ul>
  25. 25. QUESTIONS ?

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