Group 9 - Disney
Group 9 - Disney
Group 9 - Disney
Group
Ajay (537)
Ashutosh(596)
Rizwan(578)
Rohit(592)
Sampat(594)
Ujjwal(588)
About the Company Dividend Decision
Our Story
Mission Strategies
Philosophy Hurdle Rate
Products and Services Investment Returns
Key Achievements Optimal Mix
Investment Opportunities
Corporate Finance Closing
Investment Decision Summary
Focus Financial Decision Questions and
Answers
To look at different decision factors for the company
and take investment , financial and decision aspect
of Disney and how it affect the total valuation of the
Walt Disney group.
Objective – Main objective - Maximizing stock price
Fixed Claim vs Residual Claim It would be most benefitted from high tax rate in US (36%)
The added discipline will be good for Disney due to clear separation of
Tax Deductible vs Not Tax Deductible ownership and management
High Priority vs Low Priority Expected Bankruptcy cost will be lowed due to its more diversified nature
Agency cost will be higher in broadcasting and movie business lower in
Fixed Maturity vs Infinite theme park
No management Control vs Management The flexibility needs should be lower for Disney since it is mature and has
Control well established investment needs
Cost of Capital Approach
The right mix of debt and
equity is the one which
minimizes the cost of
capital
Unlevered beta for Disney
is 0.9239 using the bottom
up approach as shown in
investment analysis
Cost of equity = 2.75% +
levered Beta * 5.76%
The lowest cost of capital
occurs at 40% debt
Optimal Debt where cost
of capital is optimized
The right financing
The biggest advantage of using debt is tax benefits and
the biggest advantage of using equity is flexibility
Disney is used to investing a lion share of its earning into Effective tax rate = 31.02%
back to its operation or acquisition
Capital Expenditure (including acquisition) = $5,239
This increased the future prospect of a company Million
Since the cash is not outflowing from the company in Depreciation & Amortization = $ 2,192 Million
form of dividends , interest etc.
Change in non cash working capital = 103 Million
Disney Return on Capital has also grown a lot gradually
Dollars
over the 200’s and has levelled off in 2008-14 but started
improving again thereafter Free cash flow to Firm = After tax operating income –
Growth rate is based on reinvestment rate of a company net capital expenditure – change in working capital =
and increase in cash flow 6920 -3629 -103 = 3188 million dollars
Since Disney has been diligently reinvesting in itself and Reinvestment = 3629 + 103 = 3732 Million
return of capital is increasing on larger picture , its
valuation keep on increasing. Reinvestment rate = 3732/6920 = 53.93%
Valuation – Terminal Value
Though the company is expected to go on forever but the cash flows
cannot be approximated after a certain time and hence the terminal
value is needed
Terminal value is the total value of the firm at the end of the cash flow
prediction and it’s the total value of the company at that point
There are still the period of stable growth after high growth period and
that is why companies have a going concern prosperity
At this point every thing like cost of capital etc. have to be recalculated
Growth Factors in valuation
Due to diversified nature and a conglomerate style of
business operation of Disney, it remains well diversified
and quite shock resistant
The market size of the group is compounded by the fact
that it is showing almost high growth in each segment
Due to its policy of reinvestment and stock buyback and
dividend policy it has excess amount of cash
Long period of growth has been recognized by the some
of the expert in financial world
Competitive advantage of Disney stretches out due to the
fact that it has some of the most recognized brand names
in the world right now
Value of Control
Assumption – in future Disney will continue to
grow at high growth till 2020 and then hit the
transition phase and will go to stable growth
phase
Control is not always worth the investment
Sometimes dilution of control in pursuit of
increasing shareholders value can go a long
way
Historically none of the companies have
survived infinitely
Dilution of share might be a good idea in
declining phase of a company
Relative valuation of Disney
A study of relative valuation of
Disney with its contemporary it
seems Disney is overpriced
Its PEG ratio is greater than the
median
Its growth is lower than the
median
Final thoughts - Summary
Thank you
QUESTIONS?