Question
2. XYZ Ltd is a family-based private company operating in the pharmaceuticals industry. XYZs management is planning to expand its operations by raising capital through
2. XYZ Ltd is a family-based private company operating in the pharmaceuticals industry. XYZs management is planning to expand its operations by raising capital through initial public offerings of 450,000 shares. As XYZ is currently unlisted, management doesnt know its current market price. As a first step of understanding XYZs relative value, the management is seeking your advice on the matter. The management has considered the following five pharmaceuticals companies from 2019.
Company | Share Price | Shares Outstanding | Book Value | Sales revenue | R&D | Net Earnings |
Wipe Corp | 3.25 | 1,950,000 | 4,890,132 | 1,450,650 | 950,726 | 238,000 |
Kleen Inc | 60.38 | 145,000 | 6,220,550 | 1,090,200 | 852,980 | 287,940 |
Sani Group | 25.32 | 469,500 | 5,990,000 | 850,000 | 469,420 | 124,000 |
SA Group | 105.29 | 24,500 | 589,400 | 1,650,232 | 1,150,000 | 153,920 |
Blue Crop | 15.87 | 845,670 | 9,883,260 | 2,476,000 | 986,450 | 328,990 |
XYZ | ? | ? | 6,750,550 | 1,500,650 | 975,000 | 468,955 |
Using these numbers:
- Calculate relevant multiples.
- Estimate a value for XYZ.
- What should be the value per share of XYZ?
- If XYZ management is hoping for the initial share price to be $35, should management continue with the initial public offering?
- What are the limitations of the analysis?
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