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General motors

General motors. Mod 12 & 13: Final Valuation. Enterprise operations. General Motors. Client Strategy Template: GM . Strategies.

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General motors

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  1. General motors Mod 12 & 13: Final Valuation

  2. Enterprise operations General Motors

  3. Client Strategy Template: GM Strategies Growth Strategy:Focus on “alternative propulsion strategies” (hybrid, electric, FlexFuel, hydrogen fuel cell) in an attempt to create environmental diversity and fuel efficiency throughout product line Financial Goals & Operating Priorities:Aim to be the industry leader in fuel efficiency, pursue top market share in both domestic and global market Characteristics of the Business Major Business Units: GMNA, GME, GMIO, GMSA, GM Financial Markets: Automotive assembly and manufacturing, financial services (leases, contracts), automotive safety technology Products: Chevrolet, GMC, Buick, Cadillac, OnStar technology, GM Financial services Customers: Auto wholesalers, Rental car agencies, Authorized dealerships Competitors:Toyota, Ford, Nissan Strategic Alliances/Joint Ventures: Mostly concentrated in China Potential Adverse Influences: Constant technology innovation, oil prices, raw material prices, government regulation, dependence on suppliers, product recalls (safety issues)

  4. Markets & products • Auto brands • Chevrolet • GMC • Buick • Cadillac • OnStar (wholly owned sub) • GM Financial • Formerly AmeriCredit Corp • Strategic Alliances • Concentrated in China • JV with SAIC Motor

  5. “Government motors” • June 2009: filed Chapter 11 bankruptcy • July 2009: emerged from bankruptcy with ownership split between: • US Federal Government • United Auto Workers Association • Canadian Government • GM bondholders • November 2010: GM shares returned to the NYSE at $33 per share • Throughout bankruptcy: • Eliminated 1/3 workforce and plant assets • Reduced debt from 95 billion to 17 billion • Discontinued manufacturing of brands: • Hummer • Pontiac • Saturn

  6. Parsimonious Forecasting General Motors

  7. Break down RNEA Enterprise Profit Margin (EPM) -Measure of profitability -How much operating profit does the firm earn from each sales dollar? -Used EPM from sales Enterprise Asset Turnover (EAT) -Measure of efficiency -What level of sales does the firm realize from each dollar invested in enterprise assets?

  8. Initial assumptions:Parsimonious assumptions

  9. Insights from the 2013 10K General Motors

  10. Sales & Revenue • GM Financial experiencing huge growth after acquisition of Ally Financial’s international operations

  11. GM Financial Receivables • Increase in GM Financial’s receivables accounts for large portion of increase in NEA • Provides insight into company’s fluctuating EATO

  12. Impact of GM financial Growth • Increase Enterprise Assets •  Increase NEA •  Lower EATO •  Lower entity value (Sales remaining relatively constant)

  13. Expanded Financials & Forecasts General Motors

  14. Income Statement • Note reclassification of equity income as enterprise activity • Raises EPAT, Lowers FEAT

  15. Forecasting: EPM Assumptions • Each line item as a percentage of sales • Auto Sales vs. GM Financial Revenue (shifting focus in company)

  16. Adjusted EPAT Calculation

  17. EPAT Check

  18. Balance Sheet • Note reclassification of equity in nonconsolidated affiliates as enterprise assets • Increases NEA

  19. Forecasting: EATO Assumptions • Each line item as a percentage of sales

  20. Adjusted NEA Calculation • NEA increasing due to GM Financial related items • Much more in line with Ford (NEA driven by finance receivables

  21. Adjusted NFL Calculation • Taking on more debt • Still far below industry due to bankruptcy reorganization

  22. NEA Check

  23. Updated Assumptions General Motors

  24. Breaking Apart RNEA • Sales  2.82% • EPM  3.34% • EATO  3.77 • EPM and EATO lower than original assumptions • GM Financial acquisitions create new base going forward • Steady state

  25. Cost of enterprise capital • rEnt = (rD * VD/VEnt) + (rEq * VEq/VEnt) • Cost of equity = 12.6% • Cost of debt = 0.58% • Calculated WACC = 10.41% • Bloomberg calculates 10.1%

  26. Valuation Models General Motors

  27. Valuation using cash flows • FCF = EPAT - ∆NEA • Discount rate  10.41% • Enterprise Value = 62,618

  28. Valuation using Residual Value • Anchored on NEA • Discount rate  10.41% • Enterprise Value = 62,618

  29. Valuation using AGR • Total to be capitalized anchored on EPAT • Discount rate  10.41% • Enterprise Value = 62,618

  30. Checking our figures • Enterprise value remains $62,618throughout all models

  31. Sensitivity Analysis

  32. Final Adjustments General Motors

  33. Final Adjustments • Mid Year • Adjustment to Valuation Date • Adjust for Value of Debt • Per Share Adjustment • Recommendation  BUY

  34. Recall effects • GM Ignition Recall • Over 2.6 million vehicles affected • Brand Image • “Uneconomical fix” • Legal expense • Stock price fluctuation Should it affect the valuation??

  35. Questions?

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