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Valuation

Valuation. Prepared by iValuators. Agenda. GTAT’s Value Methods Free Cash Flow Economic Profit Forecast Analysis Private Equity Approach Value Summary. Single Estimate of Value. Intrinsic Equity Value = $612,961M Per Share Price = $5.18 Current Share Price = $3.12. Third Party.

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Valuation

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  1. Valuation Prepared by iValuators

  2. Agenda • GTAT’s Value • Methods • Free Cash Flow • Economic Profit • Forecast Analysis • Private Equity Approach • Value Summary

  3. Single Estimate of Value • Intrinsic Equity Value = $612,961M • Per Share Price = $5.18 • Current Share Price = $3.12 Third Party

  4. Valuation Models • Free Cash Flow • CF generated by the core operations after deducting investments in new capital • Economic Profit • Return on funds invested in capital less the cost of capital PROCESS Reorganize financial statements to deduce the historical financial performance of core operations Forecast key value drivers

  5. Financial Statement Analysis: IS Income Statement Reorganized Income Statement • NOPLAT: Profits generated from company’s core operations after subtracting the cash paid for income taxes related to the core operations NOPLAT Cash Taxes

  6. Financial Statement Analysis: BS Balance Sheet Reorganized Balance Sheet • Invested Capital: The cumulative amount the business has invested in its core operations – primarily PP&E and working capital. Invested Capital Op. WC

  7. Forecast Analysis • Forecast revenue for each segment • Forecast remaining drivers as percentage of revenue: • Direct sales • SGA • R&D • PP&E (depreciation as % of PP&E) • NOWC • Invested Capital • Link forecast analysis to NOPLAT and Invested Capital calculations GM SGA/R&D

  8. Revenue Forecast • Solar • Photovoltaic • Polysilicon • LED • Sapphire

  9. Solar • Alternative Energy Sources • Investment Tax Credits • Tariffs • Overproduction

  10. Solar: Alternative Energy Sources • Global demand for low carbon intensive fuels will grow faster than the average rate. • Exxon Mobile predicts Natural Gas will be the 2nd most used energy source by 2025 • Despite stronger than average growth rates, renewable energy sources like wind and solar will only account for 4% of global demand in 2040. Natural Gas

  11. Solar: Investment Tax Credits 2009 Impact of Federal Tax Credit Extension for PV and Wind* • 30% tax credit for residential and commercial solar projects till 2016 • After 2016 drops to 10% and only applied to commercial investments *WealthDaily.com

  12. Solar: Tariffs in China • Anti-Dumping duties around 24 to 36% for the next 5 years • Countervailing duties from 14 to 16% • Heightened tensions between U.S and China • China is now contemplating placing tariffs of its own on polysilicon products

  13. Solar: Overproduction • Current supply exceeds demand by 20% • Prices of polysilicon have dropped by as much as 70% • Threat or opportunity? • Tier 1 vs Tier 2 and 3 suppliers • China’s 2015 solar initiative

  14. LED • Green Trends • Alternative Uses

  15. LED: Green Trends • Dept. of Energy predicts 25% usage rate in 2020 • 62% by 2030 in residential usage • Commercial usage estimates range from 19% (DOE) to 46% (IMS Research) by 2015 • 74% by 2030

  16. LED: Alternative Uses • LED TV Market • LED TV’s to account for 88% of flat screen sales • 97% by 2015 • Mobile Devices • Signs and billboards • Untapped Market

  17. Forecast Analysis by the Numbers

  18. Revenue by Segment Sell PV

  19. NOPLAT and Revenue

  20. Invested Capital and Revenue

  21. Invested Capital and NOPLAT

  22. Free Cash Flow and Economic Profit

  23. Discount Factor: WACC Cost of Equity

  24. Continuing Value Calculation Free Cash Flow Economic Profit

  25. Value Revisited Free Cash Flow and Economic Profit

  26. Invested Capital and Spread

  27. NOPLAT and Newly Invested Capital

  28. Value Revisited • Discounted FCF • Value = $612,961 • Discounted EP • Value = $612,961

  29. Crystal Ball Sensitivity Analysis • Monte Carlo Simulation • Applied distributions to key metrics • Revenue growth • Value drivers as percentage of revenue • WACC • CV ROIC • CV growth rate • Ran 250,000 simulations

  30. Sensitivity Analysis: Results

  31. Sensitivity Analysis: Results • Value estimate most sensitive to changes in: • Direct Costs • SG&A • R&D SGA/R&D GM

  32. Private Equity Approach Comparable Company Analysis Precedent Transaction Analysis

  33. Comparable Company Analysis Details Financials

  34. Precedent Transactions Analysis • Researched recent M&A activity in green sector • 1Q12 greentech analysis by Peachtree Capital Advisors • Solar sector EBITDA multiples averaged 3.2x • Includes solar companies throughout supply chain • We assumed a multiple range of 1x (3.7x – 2.7x)

  35. Value Estimate Summary $613 Third Party

  36. Questions? Appendix A: Forecast Analysis Considerations Appendix B: Expanded Calculations Appendix C: Comparable Company Analysis Considerations Appendix D: Other Considerations

  37. Appendix A Forecast Analysis Considerations Questions

  38. Projected Costs and Current Costs Exxon Report EIA Commercial Energy Forecast Alt. Energy Sources

  39. Potential to Sell PV Segment Summary of M&A Activity 1H12 Renewable YOY Transaction Value • Deal volume in 2012 has fallen 14%, while value has fallen 75% • Focus has moved from manufacturers to installers • Only 28% of corporates and investors currently intend to acquire solar PV equipment manufacturers, compared with 38% last year Revenue by Segment

  40. Third Party Analysis • Value Line • Value Engine • Other Equity Research Value Summary Estimate of Value

  41. Forecast for SG&A and R&D Sensitivity Forecast Analysis

  42. Gross Margin Forecast Sensitivity Forecast Analysis

  43. Appendix B Expanded Calculations Questions

  44. Tax Adjustments Financial Statement Analysis: IS

  45. Operating Working Capital • Removal of all Non-Operating Current Assets and Current Liabilities • For our forecast we used Q2FY13 and LTM revenue • Excess Cash considered Financial Statement Analysis: BS

  46. Cost of Equity • CAPM •  30 year treasury rate •  yahoo beta •  McKinsey and Company WACC

  47. Continuing Value Calculation • Free Cash Flow • g = 2%, WACC = 10.67% • Economic Profit • g = 2%, WACC = 10.67%, ROIC = 15.67% Continuing Value

  48. Appendix C Comparable Company Analysis Considerations Questions

  49. Comparables

  50. Comparables

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