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MOD 3:

MOD 3:. Market Multiples. Lauren Walaszczyk. Quick Background. Headquarter: Tokyo, Japan IFRS Accounting Products (enterprise activities) New/Used Cars Motorcycles Boats Financial Services Brands Acura America generates the most revenue and manufactures the highest volume of cars.

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MOD 3:

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  1. MOD 3: Market Multiples Lauren Walaszczyk

  2. Quick Background • Headquarter: Tokyo, Japan • IFRS Accounting • Products (enterprise activities) • New/Used Cars • Motorcycles • Boats • Financial Services • Brands • Acura • America generates the most revenue and manufactures the highest volume of cars

  3. Internal Strengths: • Diversified products • Large amount of R&D • Brand recognition • Large market share in Asia and America • Positive Financials • Opportunities: • Growing global demand • Depreciating Yen • New models • Demand for motorcycles • Offer low interest rates • Customer retention • Threats: • High competition • Strict emission laws • Sales dependent on disposable income and gas prices • Rising raw material costs • Appreciating Yen • Natural disasters: Japan earthquake and Thailand flood • Internal Weaknesses: • Product recalls • Weak market share in Europe

  4. Performance Measures • 2 Fundamentals • NEA • EPAT • 2 Industry Specifics • Research and development ratio • Advertising ratio • Average of all the multiples

  5. Comparable Companies • 2 comparisons • All • Only Toyota – IFRS Accounting and • based in Japan

  6. Value of the Enterprise • Current Price = ¥ 3,995 • Shares Outstanding = 1,811 M • Market Cap = ¥ 7,236,657 M

  7. EPAT Multiple – All

  8. EPAT Multiple - IFRS

  9. Ford is an outlier • Average market multiple is big compared to most of the companies’ multiples • Current stock price is way undervalued

  10. NEA Multiple - All

  11. NEA Multiple - IFRS

  12. NEA market multiples are closer together • Honda is still showing it’s undervalued

  13. R&D Ratio Multiple - All

  14. R&D Ratio Multiple - IFRS

  15. Research and development is a large amount for each company • New models each year • Have to follow strict air emissions laws • Hybrid/electric car • Need better gas mileage on the cars • Toyota is biasing up the value per share, again • Is it a true comparable? • Should be a better comparison for Honda as they account for research and development the same way

  16. Advertising Multiple - All

  17. Advertising Multiple - IFRS

  18. Advertising is just as big as R&D • Noticeable in the market with all the commercials on TV and radio • During commercial breaks, there is usually at least 1 car advertisement • Commercials are altered for certain geographic regions • So many different types of cars and car companies • Have to advertise and market constantly • Toyota’s multiple is a major outlier • Value per share is the closest to the current market

  19. Average Equity Value per Share

  20. Final Comments • Market Multiple is not the best valuation tool • Not consistent with value per share • But it is consistent with buy, sell or hold recommendation • If these are comparable companies, shouldn’t the multiples be closer and not as large of outliers?

  21. QUESTIONS?

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