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Analysis & Valuation Using Financial Statements Specialty Eateries – Einstein Noah Dennis Dai

Analysis & Valuation Using Financial Statements Specialty Eateries – Einstein Noah Dennis Dai. Agenda. Company Background WACC Calculation Forecast Valuation using FCF Valuation using REI Issues. Company Background. Einstein Noah Restaurant Inc.

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Analysis & Valuation Using Financial Statements Specialty Eateries – Einstein Noah Dennis Dai

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  1. Analysis & Valuation Using Financial Statements Specialty Eateries – Einstein Noah Dennis Dai

  2. Agenda • Company Background • WACC Calculation • Forecast • Valuation using FCF • Valuation using REI • Issues

  3. Company Background • Einstein Noah Restaurant Inc. • largest owner/operator, franchisor and licensor of bagel specialty restaurants in the United States. • Business presence • it had 817 restaurants in 40 states and in the District of Columbia. • Business Emphasize • high-quality foods for breakfast, lunch and afternoon snacks in a bakery-café atmosphere • Brands • Einstein Bros. restaurants, • Noah’s restaurants in California • Manhattan Bagel restaurants

  4. WACC Calculation • Not using Bloomberg WACC • Bloomberg Beta of 0.6 is too low • Large past price fluctuations

  5. Forecast Sales: 2% EPM from Sales: 3.5% EATO: 2.7

  6. Valuation Using FCF

  7. Valuation Using REI

  8. Calculating AEI Cum-FCF EPAT is compared to last year’s EPAT grown at the cost of capital The amount of earnings expected given the EPAT earned last year serves as a theoretically expected earnings; the earnings if earnings grows at the cost of capital

  9. Valuation Using AEI Growth

  10. Choosing A Valuation Model AEI growth model captured over 90% of value within the horizon.

  11. Valuation Cont’ Market inferred enterprise value is much larger than estimated value Conservative forecast

  12. Issue: Sales Substantially lower than industry and GDP growth rate

  13. Lower Higher Issue: Sales • Slow moving US economy • Increased competition • Aggressive pricing strategies in casual dining • Lower customer traffic in restaurant industry • Most customers seeking value • Downward revenue pressure • Strong cost controls maintain profit margin • Franchisee strategy • Everyday value strategy • Health concern • Bulk sale and catering services • driving frequency through increased coffee and specialty beverage focus Convincing?

  14. Issue: Sales • Earnings conference call • Sales moderated • Focus on cost cutting • Focus on franchising • Value menu expansion • Analysts expectations • Hold/(Buy) • Moderate earnings growth projections for 2014-2016 • High: 6% Low: 1.2% Median: 2-3%

  15. Strategic Alternative Review • On May 3, 2012 • authorized a review of strategic alternatives to the Company, including a possible business combination or sale • On December 6, 2012 • completed its review and elected to recapitalize the Company by amending existing credit facility and declaring a one-time special cash dividend • Going concern? • Profitability?

  16. Thanks!Q&A

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