ISS A/S THE VALUATION ANALYSIS Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

ISS A/S THE VALUATION ANALYSIS Case Study Solution

PROFITABILITY

We are considering the current profitability of the organization and its current performance on its financial position, we will be looking through the Key performance indicators of the organization which are provided below:

Revenue Growth	2002 0.00%	2003 -5.03%	2004 10.38%
EBIT PER SALES	5.29%	17.82%	5.65%
Operating Margin	5.28%	5.43%	5.57%
Profit Before Goodwill	2.94%	3.26%	3.24%
Net Profit Margin	0.65%	0.79%	0.32%
Interest Cover ( times )	5.55	7.41	6.56
Goodwill Amortization Cover ( times )	2.25	2.20	1.85

The organization had fluctuating revenue growth despite its strategic growth measures with a decrease in the 2003 year of a negative -5%, the 2004 was a growth year for the organization with a positive 10% increase but this can be categorized towards the inorganic growth perspectives.

The Operating margin shows an upward trend from 5.28% to 5.57%, this means that the management of the organization is focusing on the management with limiting the costs to provide at a minimum. Goodwill Impairment is a big loss for the organization as it is a direct 2.94% of the revenue in 2002, increasing to 3.24% in 2004. This is a heavy expense for the organization, but does not include the cash flows in that perspectives which is also a positive sign.

Interest cover during the period is also reducing for the organization due to meeting its needs for acquisition through debt financing; increasing the overall debt of the organization.

In the Key performance indications matter, the organization is increasing its revenue principles but also increasing its financing costs which will limit the organizational capability as it is already affecting the business after tax profits.

VALUATION

The company has been offered a share value of DKK 470 per share by FS HOLDINGS for acquisition, which leads to an organizational value of DKK 22.1 Billion.

DISCOUNTED CASH FLOW METHOD (DCF METHOD)

We will be looking at the valuation principles through the Discounted Cash flow method, this is the valuation of the organization considering the required returns expected by the shareholders and the debt requirements. This methods is the most familiar and the most used method by the investors in coming with an amount which will total the organization’s future valuations and its revenue projections. (INVESTOPEDIA, 2018).

(Amounts in DKK Millions)	2002	2003	2004	2005	2006	2007	2008	2009	2009-----

Revenue	37984	36165	40355	41073	41804	42549	43306	44077
Staff Costs	25705	24414	26577
Cost of Sales	2825	2686	3146
Other Operating Expenses	6841	587	7736
Depreciation and Amortization	603	2032	617
EBIT	2010	6446	2279	3939	4009	4080	4153	4227

Operating Profit	2004	1964	2249	2230	2270	2310	2352	2393

Taxation	528	553	598	624	636	647	658	670
Profit After Tax	1476	1411	1651	1606	1634	1663	1693	1723

Additional Finance Costs on 15 million Debt				891	891	891	891	891
Additional Working Capital Requirements				508	81	94	109	127

NET CASH FLOWS				206	662	678	693	705	705

Discount at WACC @ 5%				0.952	0.907	0.864	0.823	0.784

DISCOUNTED CASH FLOWS				196.6	600.5	585.8	569.8	552.6
TERMINAL VALUE									11268.7

ENTERPRISE VALUE	13774.1
No. Of shares	44718982

PRICE PER SHARE - DKK	308.0

As per the DCF Method of Calculation being performed, the price per share suggested is at DKK 308 per share providing a value of DKK 13.7 Billion. This price is much higher than the anticipated purchase price of around DKK 470 per share. This amount is provided on the future projections of the organization and its capacity. The previous debt had not been accounted for as the organization has no obligation to pay off its debt previously taken.

The WACC has been calculated on the provided Return on Equity expected by the shareholders and the debt obligations on the organization. The DCF method opposes the Share purchase of ISS Organization.

MULTIPLES VALUATION

The other method to be implied in our valuation considerance will be through the market multiples method, this will consider the KPI’s and the profit multiples for the organization, its competitors, and the whole industry; this will provide a more market and realistic figure which will be considering the other factors ignored by the DCF method for appraisal. The calculation for the market multiples are provided below:

VALUATION USING MARKET MULTIPLES

	REVENUES	EBITDA	NUMBER OF SHARES	Market Value	EPS	PE RATIO
G4S	41,178.00	845.00	1,264.00	24,534.00	0.668513	29.03
RENTOKIL	23,396.00	5,422.00	1,810.00	40,924.00	2.99558	7.55
SECURITAS	48,758.00	4,693.00	630.00	41,544.00	7.449206	8.85
SODEXO	85,627.00	5,356.00	156.00	32,774.00	34.33333	6.12
ISS A/S	7,042.76	397.73	44.71898	13,818.17	8.89	34.74

ENTERPRISE VALUE OF THE ORGANIZATION	8,902.40

According to the market multiples method, the enterprise value of the ISS Organization had been calculated at DKK 8.902 Billion. Which suggests a cash share price of DKK 199.07. This method also opposes the acquisition of the entity because of its low value in its returns and growth perspectives.

CONCLUSION

After looking at the financial analysis of the firm, its internal factors and assessing the value of the organizational profitability, its revenues growth and future projections, and market comparable figures. Both the valuation figures provide a share price of DKK 308 / share and a value of DKK 199.07 / share. These figures considering the amounts are highly negative in support of the acquisition by the F/S HOLDINGS.

If the organization does go ahead and purchase the equity of the ISS Organization, then it would be on the market exposure and the organizational status as a global organization rather than the profitability or the future projections for the organization..........

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