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Abnormal Enterprise Income Growth Model. Intercontinental Hotel Group IHG. Julia Lassarat March 17, 2014. Agenda. Industry and Firm Overview Abnormal Enterprise Income Growth Model (AEIG) Application of Residual Income Valuation Choosing a Valuation Model. Industry Overview.
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Abnormal Enterprise Income Growth Model Intercontinental Hotel Group IHG Julia Lassarat March 17, 2014
Agenda • Industry and Firm Overview • Abnormal Enterprise Income Growth Model (AEIG) • Application of Residual Income Valuation • Choosing a Valuation Model
Industry Overview • Resilient industry in the face of slowing economic pace • Revenue per available room (RevPAR) is standard performance metric • RevPAR was up 4.5% in 2012 in comparison to 5.9% in 2011 • Highly competitive market • The global hotel market is estimated to be 21.5 million rooms • 7.5 million of these are branded hotel rooms Source: IHG 2012 Annual Report
Life Cycle Stage: Mature Operating Investing Financing
The AEIG Model • Three components • Next-year EPAT • PV of agrt for finite horizon • PV of continuing value • All components are capitalized (divided by WACC) • Assumption that future abnormal enterprise income growth will be driven by sales growth
Benefits of the AEIG Model • Greater portion of the valuation is captured data within the initial time horizon • Varying methods of accounting will not affect the valuation
Residual Income Model v. AEIG Model • Difference in Accounting Anchor • RI Model uses forecast on current NEA • AEIG Model uses capitalized forecast of next year’s EPAT • Tradeoff between accounting information
Applying the Abnormal Income Growth Model Yahoo! Finance estimates Enterprise Value at $9.46 Billion
Value Captured by Each Model The Abnormal Enterprise Income Growth Model captures value much faster because it uses income instead of receivables in calculations