Travel Centers of America Case Study Solution
Financial Calculations
Enterprise value of TCA at current market price of $29 per share will be $261 million (Exhibit 4). If we look into our DCF model (Exhibit 3) we get enterprise value of 1.9 billion. It can be concluded that HPT has paid reasonable amount of $1.9 billion for this transaction as it is also equal to the enterprise value calculated through DCF model (Exhibit 3). TCA will be having EPS of $18.24 after its lease payments to HPT in 2012 (Exhibit 5). However HPT will be having eps of 2.48 per share. It can be compared with FFO/share because cash generated by REITs are always calculated through FFO/share. TCA is getting better deal here as compare to HBT because of higher EPS. TCA shareholders yield cannot be compared with the HBT because these are from two different industries so risks and rewards are different from each other. There will be conflict of interests between shareholders of HPT and TA because of HPT influence on TA.
Recommendations
It can be recommended from evaluation done on the basis of discounted cash flow model that TA share is over paid. Its real worth is $22.81 per share but it is currently trading at $29.00 per share. It is suggested that it should not be purchased at price above than $22.4.
Exhibits
Exhibit 1
| EV/EBITDA of NEW-TA (From DCF Model) |
10.9 |
| EV/EBITDA of NEW-TA (Approximated by HPT) |
10 |
| EV/EBITDA of Industry (Exhibit 8) |
8 |
Exhibit 2
|
2003 |
2004 |
2005 |
2006 |
| Revenues |
2176230 |
2677864 |
4075296 |
4823789 |
| Operating Income |
59977 |
69285 |
86324 |
83500 |
| Return from Operations |
2.76% |
2.59% |
2.12% |
1.73% |
Exhibit 3
| DCF MODEL |
| |
0 |
1 |
2 |
3 |
4 |
| |
2003 |
2004 |
2005 |
2006 |
Terminal |
| Operating Profit |
59977 |
69285 |
86324 |
83500 |
83500 |
| Less Tax |
-20991.95 |
-24249.8 |
-30213.4 |
-29225 |
-29225 |
| Add Depreciation and Amortization |
60375 |
58750 |
64981 |
71027 |
|
| Less Capital Expenditure |
-70000 |
-70000 |
-70000 |
-125000 |
|
| FCFF |
29360.05 |
33785.25 |
51091.6 |
302 |
54275 |
| Discounted FCFF |
29360.05 |
32063.52 |
46016.9375 |
258.1423 |
2171000 |
| NPV of Cash Flows |
107698.7 |
| NPV of Terminal Value |
1855719 |
| Enterprise Value |
1963417 |
| Cash |
213205 |
| Debt Amount |
-123000 |
| Equity Value |
2053622 |
| Per Share Value |
22.81803 |
Exhibit 4
| Enterprise Value at Current Market Price |
| Current Stock Price |
$29 |
| No of Shares Outstanding |
9,000,000.00 |
| Total Debt |
328,335.00 |
| Cash and Cash Equivalents |
213,205.00 |
| Enterprise Value |
261,115,130.00 |
Exhibit 5
| Sales |
|
|
2012 E |
|
Fuel |
|
4941232 |
|
Growth % |
4% |
|
|
Non-Fuel |
|
1098778 |
|
Growth % |
4% |
|
|
Franchise Royalties |
|
12661 |
|
Growth % |
4% |
|
|
Total Revenues |
|
6052671 |
|
|
|
|
|
Gross Profit |
|
|
|
Fuel |
|
186935 |
|
Gross Profit/Gallon |
|
0.08 |
|
Gallons |
|
2336674 |
|
Growth % |
0% |
|
|
Non-Fuel |
|
637291 |
|
Margin % |
58% |
|
|
Franchise Royalties |
|
12661 |
|
Total Gross Profit |
|
836887 |
|
Margin % |
|
13.8% |
|
|
|
|
| Operating Expenses |
|
|
|
|
Operating Expenses |
|
540139 |
|
Growth % |
4% |
|
|
SG & A |
|
62528 |
|
Growth % |
4% |
|
|
Pre and Post Acquisition Data |
|
|
|
Pre Acquisition Depreciation |
|
70000 |
|
Post Acquisition Depreciation |
|
18029 |
|
Post Acquisition Mngt Fees |
|
7717 |
|
Post Acquisition Cash Rent |
|
7519.923 |
|
Pre Acquisition EBIT |
|
164220 |
|
Post Acquisition EBIT |
|
218983.1 |
|
|
|
|
|
Earnings per share (HBT) |
|
2.486064 |
|
Earnings per share (TCA) |
|
18.24667 |
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