23.21 7.85 Permas Glove 4.56 1.54 Kuala Kepong Rubber 7.54 2.12 Aurelia Gloves It also obtained the following ratios for each of the companies listed above Market value/book value Sales/market value* Riverstore 3.2 30 4.1 Sempornarex 1.8 Max Glove 3.2 3.2 Permas Glove Kuala Kepong Rubber 3.0 2.0 Aurelia Gloves 2.8 3.3 These values refer to the ordinary shares of each company In the early stages of negotiation between the two companies, the following information was provided by Anatha Raj . The sales and FBIT of UNITED GLOVE is expected to grow at about 4% each year over the next five years They will stabilise (zero growth) after that because the market is fairly competitive and there is little prospect of growth . The amount of capital expenditure (CAPEX) spent to replace old machinery items (non current assets) will be more or less the same with the annual depreciation expense of these items Therefore, both items will offset each other. However, the company is committed to another separate CAPEX on building a new plant custing $8.0 million over the next four years. The cost of this new plant would be spread evenly over the four-year period . Additional working capital needs over the next 3 years are estimated to be around $1.2 million each year. No additional working capital is needed after year 3. . In previous years, the total dividend paid was around $1,500,000 per year Renco Group has an estimated cost of capital of 10% in which the management believe is applicable to the valuation of UNITED GLOVE once is acquired and becomes part of the group. Assume a tax rate of 20 per cent is applicable for both Rence Group and UNITED GLOVE. Renco has 10 million ordinary shares in issue and the current market value of a share is $15. Assume that you are a consultant with Penang Consulting i) From the above case study and the data provided, perform a corporate and stock valuation using the following approaches and therewith justify the most suitable fair price per shive for UNTEED GLOVE Free Cash Flows (FCF) approach Multiples approaches PVGO approach-based on the additional information below There is a group of analysts who are pessimistic about the outlook of glave industry post the COVID-19 pandemic They believe that the over expansion of outputs among the glove manufacturers during the pandemic has caused the oversupply of gloves in the international market and as such glove manufacturers (including UNITED GLOVE) are expected to he earning back only their cost of capital in the foreseeable future. These analysts estimated UNITED GLOVE's next year net earnings to be only 5% higher than the current net earnings (12 marks) . 12.70 2.02 2.96 0.9 0.6 0.0 24.2 12.3 16.9 The Valuation of UNITED GLOVE Key figures and ratios relating to Renco Group for the past five years are set out below: Year 5 Year 4 Year-3 Year-2 Year -1 (last year) Revenue (Sm) 2162.9 18626 1526.1 1283.0 952.8 EBIT (Sn) 182.8 162.5 121.8 84.3 65.8 P/OCF ratio 20.1 26.5 14.1 105 74 The most recent financial statements of the company are given below: Statement of financial position (balance sheet) as at 31 January of Current Year (Year 0) $000 Non-current assets (cost less depreciation) Premises 12.546.5 Plant and equipment 5.937.1 Motor vans at cost 8262 19.309.8 Current assets Inventories 2,182.7 Trade receivables 2018.6 Cash at bank 1.2469 5.448 2 Total assets 24.758.0 Equity $1 Ordinary shares 2,2000 Retained profit 7.9279 10,1279 Non-curvem halthnes 7% Loan notes 6.9050 Current liabilities Trade payables. 6,362.3 Accrued expenses 1.362 8 7.725 1 Total equity and habiliter 24.758.0 Information from Income statement for the year ended 31 January of Current Year (Year 0) $000 Sales revenue 61,9378 Less Cost of sales 32.9376 Gross profit 29,000.2 minus Selling and distribution expenses 15,083 2 minus Administration expenses 10.986.6 Year Ended 31 January Operating profit (EBIT) 2,930 4 470.0 minus interest expense Earning after interest minus Taxation 2.460 4 492.08 1,968 32 Net Farning Penang Consulting extracted the following latest information relating to public listed glove companies from the Bloomberg terminal: Stock Stock Company Latest Dividend P/E ratio Stock Yield price price 52-week High (S) Price (5) (%) 52-week Low (S) 8.32 4.12 Riverstone 6.82 2.5 19.8 10:54 5.21 Sempornarex 5.92 12 173 3.92 181 Max Glove 2.94 1.5 15.2 23.21 7.85 Permas Glove 4.56 1.54 Kuala Kepong Rubber 7.54 2.12 Aurelia Gloves It also obtained the following ratios for each of the companies listed above Market value/book value Sales/market value* Riverstore 3.2 30 4.1 Sempornarex 1.8 Max Glove 3.2 3.2 Permas Glove Kuala Kepong Rubber 3.0 2.0 Aurelia Gloves 2.8 3.3 These values refer to the ordinary shares of each company In the early stages of negotiation between the two companies, the following information was provided by Anatha Raj . The sales and FBIT of UNITED GLOVE is expected to grow at about 4% each year over the next five years They will stabilise (zero growth) after that because the market is fairly competitive and there is little prospect of growth . The amount of capital expenditure (CAPEX) spent to replace old machinery items (non current assets) will be more or less the same with the annual depreciation expense of these items Therefore, both items will offset each other. However, the company is committed to another separate CAPEX on building a new plant custing $8.0 million over the next four years. The cost of this new plant would be spread evenly over the four-year period . Additional working capital needs over the next 3 years are estimated to be around $1.2 million each year. No additional working capital is needed after year 3. . In previous years, the total dividend paid was around $1,500,000 per year Renco Group has an estimated cost of capital of 10% in which the management believe is applicable to the valuation of UNITED GLOVE once is acquired and becomes part of the group. Assume a tax rate of 20 per cent is applicable for both Rence Group and UNITED GLOVE. Renco has 10 million ordinary shares in issue and the current market value of a share is $15. Assume that you are a consultant with Penang Consulting i) From the above case study and the data provided, perform a corporate and stock valuation using the following approaches and therewith justify the most suitable fair price per shive for UNTEED GLOVE Free Cash Flows (FCF) approach Multiples approaches PVGO approach-based on the additional information below There is a group of analysts who are pessimistic about the outlook of glave industry post the COVID-19 pandemic They believe that the over expansion of outputs among the glove manufacturers during the pandemic has caused the oversupply of gloves in the international market and as such glove manufacturers (including UNITED GLOVE) are expected to he earning back only their cost of capital in the foreseeable future. These analysts estimated UNITED GLOVE's next year net earnings to be only 5% higher than the current net earnings (12 marks) . 12.70 2.02 2.96 0.9 0.6 0.0 24.2 12.3 16.9 The Valuation of UNITED GLOVE Key figures and ratios relating to Renco Group for the past five years are set out below: Year 5 Year 4 Year-3 Year-2 Year -1 (last year) Revenue (Sm) 2162.9 18626 1526.1 1283.0 952.8 EBIT (Sn) 182.8 162.5 121.8 84.3 65.8 P/OCF ratio 20.1 26.5 14.1 105 74 The most recent financial statements of the company are given below: Statement of financial position (balance sheet) as at 31 January of Current Year (Year 0) $000 Non-current assets (cost less depreciation) Premises 12.546.5 Plant and equipment 5.937.1 Motor vans at cost 8262 19.309.8 Current assets Inventories 2,182.7 Trade receivables 2018.6 Cash at bank 1.2469 5.448 2 Total assets 24.758.0 Equity $1 Ordinary shares 2,2000 Retained profit 7.9279 10,1279 Non-curvem halthnes 7% Loan notes 6.9050 Current liabilities Trade payables. 6,362.3 Accrued expenses 1.362 8 7.725 1 Total equity and habiliter 24.758.0 Information from Income statement for the year ended 31 January of Current Year (Year 0) $000 Sales revenue 61,9378 Less Cost of sales 32.9376 Gross profit 29,000.2 minus Selling and distribution expenses 15,083 2 minus Administration expenses 10.986.6 Year Ended 31 January Operating profit (EBIT) 2,930 4 470.0 minus interest expense Earning after interest minus Taxation 2.460 4 492.08 1,968 32 Net Farning Penang Consulting extracted the following latest information relating to public listed glove companies from the Bloomberg terminal: Stock Stock Company Latest Dividend P/E ratio Stock Yield price price 52-week High (S) Price (5) (%) 52-week Low (S) 8.32 4.12 Riverstone 6.82 2.5 19.8 10:54 5.21 Sempornarex 5.92 12 173 3.92 181 Max Glove 2.94 1.5 15.2