1 / 20

Company History

Company History. The Issue: IPO. Impose IPO!!!. JetBlue was eager to further expand its business with more aircraft carriers and personnel staffs, which needs lot of capitals. The pros and cons of the IPO. Advantages.

mimir
Download Presentation

Company History

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Company History

  2. The Issue: IPO Impose IPO!!! JetBlue was eager to further expand its business with more aircraft carriers and personnel staffs, which needs lot of capitals

  3. The pros and cons of the IPO Advantages • The liquidity of the capital brings more flexibility for the management team and the company. • The capital from the founder can be diversify with a much easier way, which means the capital won’t be put in the one single basket. • Facilitates the possibility of M&A. • Gained the potential of market, which facilitate the customer to know the company better.

  4. The pros and cons of the IPO Disadvantages • The shareholders might take most of the control of the company. • The possibility of self-dealing might increase a lots, which the manager leverage it information asymmetry to do the insider trading and gain profit from it. • The information for all the things managers do have to reveal to the public, which make the managers hard to control.

  5. External Factor analysis The aviation industry was doing poorly due to the 911 crisis. Industry & Competitor The process of IPO was scrutinized by SEC, and the process itself was very complicated and took a long time. Government & Society • The underwriter, the Investment Bank, charge 7% commission from the IPO company, which would deteriorate the profitability of the company. Facilitator

  6. Methods to value the JetBlue company’s IPO share price Expected Dividend Model Market Multiples Analysis DCF method

  7. Methods to value the JetBlue company’s IPO share price Expected Dividend Model • This method views a company is only worth the amount of current and future dividends it plans to distribute to investors. • Assumes dividend returns are steady and grow at a constant rate. The formula : • P0=D1/(r-g). • Yet we cannot use this method to estimate the JetBlue IPO price because JetBlue is a growth company which does not plan to pay out any stock dividends. Market Multiples Analysis DCF method

  8. Methods to value the JetBlue company’s IPO share price • P/E ratio. • Compare a company’s EPS to other companies P/E Multiple, and represents how many times the current EPS are the investors willing to pay for the stock. • Time to use: • firms in the industry are profitable • firms in the industry have similar growth (more likely for “mature” industries) • firms in the industry have similar capital structure. Expected Dividend Model Market Multiples Analysis DCF method

  9. Methods to value the JetBlue company’s IPO share price Expected Dividend Model Market Multiples Analysis • Choose Airtran, WestJet, Frontier, Ryanair, Southwest and Delta as industry bencmark. • The average of the value, JetBlue current EPS multiplied by the P/E ratio of each firm, is equal to the estimated stock price for Jetblue. DCF method • Value of firm = • Average P/E multiple in industry ´ EPS of firm

  10. Methods to value the JetBlue company’s IPO share price Expected Dividend Model Market Multiples Analysis • EBIT multiple • The average of the value, JetBlue current EBIT per share multiplied by the EBIT multiple of each firm, is equal to the estimated stock price for Jetblue. DCF method

  11. Methods to value the JetBlue company’s IPO share price Expected Dividend Model Market Multiples Analysis DCF method

  12. DCF Method

  13. WACC calculation-Re part • Re, taking the CAPM as our calculation method • Re = Rf + ẞ* ( Rm – Rf) Given Rf= 5.5%, ẞ = 1.1, (Rm-Rf) = 5.5% • Re = 5.5% + 1.1*5.5% =10.5%

  14. WACC Calculation- Rd part • Adding up all the corporate bond, we got the total market of debt. • Rd=(5.65%+5.61%+7.41%+8.68%)/4 = 6.91%

  15. Total Market Value

  16. Wd and We Calculation • WACC = Wd*(1-t)*Rd + We*Re • Given t = 0.31%, • Wd= 1850/17922 = 0.103 • We = 16072/17922 = 0.89 We got the WACC = 9.9%

  17. Free Cash Flow Calculation • Free Cash Flow = NOPAT + Depreciation – Capital Expenditure – Delta NWC

  18. Share Price Calculation • The growth rate of future is 4%, because the prediction of future market will be good. • As the result, the terminal value of the 10th year is 227/(9.9%-4%) • Further got our cash flow • Using the NPV to calculate the market value / # of shares • Thus got 985.34/4 = $24.63/ share

  19. Conclusion • The comparable firms approach works best when a highly comparable group is available. • However, It might be undervalued or overvalued • As a result, we use the weighted average method to moderate the offering price. • Upon of these three methods, we recommended a stock price of___24.31____per share!

More Related