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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 Expanded B/S and I/S Sales Forecast EPM Forecast EATO Forecast Valuation and Adjustment Market Price Comparison Recommendation. Company Background.

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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 • Expanded B/S and I/S • Sales Forecast • EPM Forecast • EATO Forecast • Valuation and Adjustment • Market Price Comparison • Recommendation

  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. Operating Lease The Company leases all of its restaurant properties and some equipment under operating leases.

  5. Operating Lease (Cont’) Calculate implied interest rate and PV of operating lease payments

  6. Share Based Compensation (Cont’) Effect of change in exercisable options Effect of exercising, cancellation and forfeiture 1,631,660-586,291-2,196,509-10,328,-80,602

  7. Share Based Compensation (Cont’)

  8. Expanded B/S

  9. Expanded B/S (Cont’)

  10. Expanded I/S

  11. Expanded I/S (Cont’)

  12. NEA

  13. NEA (Cont’)

  14. NFL

  15. Lower Higher 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?

  16. 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%

  17. 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?

  18. Sales

  19. EPM Adjustment Cost of sales Manufacturing and commissary costs General and administrative costs Acquisition costs

  20. EPM

  21. EATO Adjustments Operating loss carryforwards State income tax overpayments Leasehold improvement Accounts payable Deferred gift card revenue

  22. EATO

  23. EATO (Cont’)

  24. Forecasts

  25. Regression Result

  26. Beta Summary • Wide range of beta from 0.43-1.51 • 95% confident that beta is between 0.67-2.41. Extremely large gap • Bate=1.2 • Restaurant industry • Volatile in nature • Consolidation in recent years • Highly Competitive

  27. Bloomberg WACC Prior WACC=7.32% Close to Bloomberg estimation May be a good discount factor

  28. DCF Valuation

  29. REI Valuation

  30. AEI Valuation

  31. Comparison – Market Price

  32. Recommendation • Sell Recommendation • Substantially Overpriced • Capitalization of operating leases • Big part of the enterprise assets • Market efficient?

  33. Thanks!Q&A

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