Valuation of Two Degrees Mobile Limited

This assignment analyzes the valuation of Two Degrees Mobile Limited, a New Zealand telecommunications company. The report employs three valuation models: discounted cash flow, PE multiple, and net assets value. It provides calculations for each model and discusses their strengths and limitations. The report also includes financial data from Two Degrees Mobile's 2015 results and compares the company to its competitor, Chorus Limited.

Running Head: Finance
Valuation Report of Two Degree Mobile Limited

Finance 2
Brief Overview of Two Degrees Mobile Limited
This report provide discussion in the valuation of Two Degree Mobiles Limited which is
a company operating primarily in New Zealand. The company engages in the business of
telecommunication and it’s been serving the customers since quite long. In the recent years, the
growth of the company has been phenomenal. Its revenues and the earnings before depreciation
interest and tax have been observed to be increasing. This growth is putting the company in a
favorable position in the market and this is the reason that the company’s stock may be valued
upside (2degreesmobile, 2017).
Description of the Valuation Approach
There are various models and techniques that could be applied for the purposes of
valuation of the company’s stock, for example, PE multiple model, dividend discount model,
discounted cash flow model, and net assets model (Shim & Siegel, 2008). The choice of a
particular model or technique would depend upon the prevailing circumstances and the purpose
of valuation. In the current case of Two Degree Mobile Limited, the valuation models such as
discounted cash flow model, PE multiple model, and net assets value have been applied in order
to value the stock of the company.
As per the net assets value method, the value of stock of Two Degree Mobile Limited is
arrived at $0.28 as shown in the table given below:
Net assets value $'000
Total assets
573,608.0
0
Less: Outsider liabilities
(461,614.0
0)
Net assets
111,994.0
0

Finance 3
No of shares
403,809.0
0
Net assets value per
share
0.2
8
However, this method of valuation is least preferred because it does not take into account
the market value of the assets. It provides only the book value of the stock (Poitras, 2010). As
per PE Multiple valuation model, the stock’s value of the company has been arrived at $0.71 as
shown in the table given below:
PE Multiple
PE ratio of competitor (Chorus
Limited) (Yahoo finance, 2017) 21.5
EPS of Two Degree
0.0
3
Stock of Value of Two Degree
0.7
1
In this model, the PE ratio of the competing company namely Chorus Limited has been
used to compute the stock’s price of the company. It is assumed in this model that the company
which is under valuation will also carry on the same PE ratio. The reliability of the results under
the PE ratio will depend upon the characteristics of the competing company. If the characteristics
of the competing company are similar, the value of the stock would be more reliable (Poitras,
2010).
Under the discounted cash flow model, the value of the company’s stock is computed
with reference to the present value of the future cash flows that the business will generate for the
shareholders. Under this method, the company stock’s value has been arrived at $0.23 as shown
in the table given below:

Finance 4
Free Cash Flow for Equity Model
Operating cash
flows of 2016 107,705.00
Growth
rate
assumed 20%
Return on
equity (for
discounting) 11.92%
Year
Free cash flows
($'000)
PVF@12
%
Present
value
2016 107,705.00 0.893 96,165.18
2017 129,246.00 0.797 103,034.12
2018 155,095.20 0.712 110,393.70
2019 186,114.24 0.636 118,278.96
2020 223,337.09 0.567 126,727.46
554,599.42
Value of debt 461,614.00
92,985.42
No of shares
('000) 403,809.00
Value per share
($) 0.23

Finance 5
Reverences
2degreesmobile. 2017. 2degrees FY15 results – strong growth continues Revenue lifts 43.1% -
EBITDA up 43.9% - mobile network reaches 95% population coverage. Retrieved October 20,
2017, from https://www.2degreesmobile.co.nz/company/news-and-media-releases/2degrees-
fy15-results-strong-growth-continues-revenue-lifts-43-1-ebitda-up-43-9-mobile-network-
reaches-95-population-coverage/
Yahoo finance. 2017. Chorus Limited (CNU.AX). Retrieved October 20, 2017, from
https://finance.yahoo.com/quote/CNU.AX?p=CNU.AX
Shim, J.K. & Siegel. J.G. 2008. Financial Management. Barron's Educational Series.
Poitras, G. 2010. Valuation of Equity Securities: History, Theory and Application. World
Scientific.