Financial Management Essay PDF

Preview

Summary

Group Project Sample...

Description

STRUCTURE AND ANALYSIS 1) Indication of the current market price, the estimated price (based on the analysis of point 4) and the final investment recommendation. 2) Brief description of company activity and products and recent developments Amadeus IT Group, S.A. is a leading Spanish IT provider of global tourism and travel industry. The company has two main sectors: global distribution and the IT Solutions business sector. It acts as an international network and provides search, reservation, ticketing and other real-time processing services to travel providers and travel agencies through the Amadeus CRS distribution business area. Through the IT Solutions business sector, the company offers travel companies software systems which automate processes such as reservations, inventory management and departure control. The major service of this business line is the Amadeus  Altéa Customer Management System (CMS), a software suite that deals with airlines' sales and reservations, inventory management and departure control. Amadeus’s most recent development (October 2019, 17th) is its launch of NDC (new distribution capacity)-enabled Selling Platform Connect that supports airline innovation while ensuring that travel agents can continue to work in their preferred environment. It is a cloud-based platform that allows travel sellers to shop, order, pay and service airline offers via an NDC connectivity. 3) Brief description of the sector: identifying key competitors, evolution of the product and the sector (Is it a mature product? Are many companies entering the market?) The company has multiple key competitors such as Travelport, Sabre, TravelSky, Iberia and Booking Holdings. All of these companies are active in the same sector as Amadeus, providing a similar if not equal service to their customers. Most of the companies present in this sector were founded a couple of decades ago, making it harder for new companies to enter the market in recent years. The sector of GDS (global distribution system) has evolved a lot over the years, especially after the creation of the internet, which allowed for an easier usage of such systems. GDS are still growing, thanks to the constant investment in R&D, allowing the system to evolve and satisfy the customers more, as well as offering new products. However, newer alternatives are becoming more and more popular among younger generations, such as Facebook or the use of Google itself, decreasing the overall usage of GDS in general. 4) Valuation based on multiples (process described below). No discounted cash flow analysis is required.

5) Final comments and conclusions. Here, students should discuss anything about the future evolution of the business (reasons for being cautious, existence of good prospects for the future, etc. ).

Analysis of valuation based on multiple

Valuation multiples is a form to compare more than one company, due to the fact that we use a relative number and no absolute numbers. In this way is the easiest way to compare business. The price-earnings Ratio: Market capitalization is the market capitalization divided by the Net Income (Earnings). This ratio basically tells us the value of equity compared to the total earnings and it just tells us if the stock price is undervalued or overvalued, if it’s high it’ll be overvalued and if it’s low it’ll be undervalued. Enterprise Value Multiples: This ratio explains the accurate value of the company as it discounts cash and adds debt. If the ratio is very low, the company will be undervalued and if the ratio is very high will be overvalued. Also, with this ratio we can obtain the EBITDA multiple. Other Multiples: One ratio that is very useful is Enterprise Value/Sales. This gives information to the investors how much it cost to purchase the company’s sales. - If the ratio is higher, this means is costlier company and is not bet for investors. They won’t have a benefits immediately. - If the ratio is lower, means is a good investment for investors, due to the fact they will receive benefits immediately. 1) Use three valuation multiples: P/E Ratio , Enterprise value / EBITDA , Enterprise

value/Sales

2) Calculate these three multiples for four "comparable" (publicly listed companies in the same industry or similar) companies. Justify the choice of the companies used for the comparison. Find the required figures in the financial statements of SABI, for example (you can also check the companies' web pages, which generally have all that information). Company 1: Booking Holdings The current stock price for Booking Holdings is $1851.82 and the earning per share is $45.54. Hence, the P/E ratio is 1851.82 / 45.54 = 40.66. The enterprise value is $79624 million whereas EBITDA is $6028 million. Therefore, enterprise value/ EBITDA = 79624/ 6028 = 13.21. In addition, the sales income = $3694 million. Hence, enterprise value/ Sales = 79624/ 3694 = 21.55 Company 2: Travelport As for Travelport, the current stock price is $15.75 while the earning per stock is $0.57; Hence, the P/E ratio = 15.75/ 0.57 = 27.63. The enterprise value / EBITDA = 405525 / 59011.7 = 6.87. The enterprise value / Sales = 405525/ 25510.64 = 15.896.

Company 3: Sabre

Stock price is 22.02 recently and the earning per stock is $0.23. As a result, the P/E ratio = 22.02/ 0.84 = 26.21. The enterprise value of Sabre is $8928 million while EBITDA is $739,548,000 and the revenue is $3,303,566,000. Hence, EV/EBITDA = 8,928,000,000/ 739,548,000 = 12.07 whereas EV/ Sales = 8,928,000,000/ 2,209,603,000 = 4.04.

Company 4: TravelSky The stock price is 17.18 and the earning per share is $0.87 and so the PE ratio = 17.18/0.87 = 19.75. The enterprise value, EBITDA, and Sales are 40044 million, 3472 m, 8190 m respectively. As a result, EV/EBITDA = 40044/3472 = 11.5 whereas EV/Sales = 40044/8190 = 4.89.

Justification for the choice of companies used for comparison: These companies are the competitors of Amadeus IT Group and they provide similar services which are related to the travel/ tourism industry. It is believed that comparing the figures with competitors within the same industry is meaningful.

3) Calculate the three multiples for your company in the past four years (" historical multiples "). Both SABI and the company's web pages have historical data, so there should be no problem in getting this information.

4) The averages of multiples for comparable companies lead to three comparable valuations, by applying the multiples to the current figures (EPS , EBITDA or sales ) of your company.

5) The average historical multiples lead to three valuations by historical multiples, by applying the multiple to the current figures (EPS , EBITDA or sales ) of your company. AVERAGE HISTORICAL MULTIPLES

6) You can combine the six previous values into one calculating the average of the "four intermediate values " (eliminating the two most extreme), or the median. This should be your estimate of the value of the stock which should be compared with the current market price to give a final investment advice.

Bibliography and annexes -

-

Amadeus IT Group. (2019). Retrieved 25 November 2019, from https://en.wikipedia.org/wiki/Amadeus_IT_Group Amadeus launches NDC-enabled Selling Platform Connect. (2019). Retrieved 25 November 2019, from https://amadeus.com/en/insights/press-release/amadeus-launches-ndc-enabled-selling-platfor m-connect Retrieved 25 November 2019, from https://craft.co/amadeus/competitors Channel Shock: The Future of Travel Distribution. (2019). Retrieved 25 November 2019, from https://skift.com/2017/08/07/channel-shock-the-future-of-travel-distribution/

-

Retrieved 25 November 2019, from https://ir.bookingholdings.com/static-files/9d54af02-13f7-4f0e-a82e-ba415226c9d3 Retrieved 25 November 2019, from https://investors.sabre.com/static-files/e65c94ec-73f5-4a50-95ee-6d743fc835da Retrieved 25 November 2019, from http://media.travelskyir.com/2019091117320772753606914_en.pdf...