Corporate Finance: Economic Value Addition Analysis of Zoopla Property Group PLC

This document provides an economic value addition (EVA) analysis of Zoopla Property Group PLC over the last five years. The analysis has been conducted using various methods including net asset value, price earnings ratios, EBITDA capitalization, and discounted free cash flows. The current valuation of equity has also been calculated using net asset value method.

Running head: CORPORATE FINANCE
Corporate Finance
Name of the Student:
Name of the University:
Authors Note:

1CORPORATE FINANCE
Contents
Introduction:....................................................................................................................................2
Zoopla PLC:.....................................................................................................................................2
Economic Value Addition (EVA) analysis:....................................................................................2
Current valuation of equity:...........................................................................................................10
Conclusion:....................................................................................................................................16
References:....................................................................................................................................17

2CORPORATE FINANCE
Introduction:
The investors and the shareholders of an organization primarily have two objectives
while making investment, namely to earn return on their investment in the form of dividend for
the shareholders and to maximize their wealth in the form of capital appreciation of their
investments. The economic value addition (EVA) is a concept often used to calculate the return
earned by the shareholders over a period of time on the amount investment in the form of capital
appreciation. Detailed calculation has been made to discuss the EVA to the shareholder of
Zoopla Property Group PLC in this document.
Zoopla PLC:
Owned by Silver Lake Partners, Zoopla Property Group PLC, here in after to be
mentioned as ZPG only in this document, is a company based in United Kingdom. The company
is a listed entity of London Stock Exchange. It is mainly involved in providing customers access
to the information about real estate properties including statics about current valuation along
with expected future values of such properties. The renowned property website Zoopla belongs
to the company and provides useful information to the users about prices of sold houses,
statistics and other data about such properties.
Economic Value Addition (EVA) analysis:
As already mentioned that EVA analysis helps in identifying the effects on the wealth of
investors in a company over period of time. In order to analyse the EVA of the company over the
last five years the financial information required has been collected from the annual reports of
the company of last five years including 2017 (Laszlo and Cescau, 2017).
Net asset valuation:

3CORPORATE FINANCE
The EVA analysis on the basis of net asset value of the company over the last five years have
been calculated by deducting the total outside liabilities from the aggregate amount of total assets
of the company.
All amounts are in GBP’000:
Years 2017 2016 2015 2014 2013
Intangible assets 49
1,020.00
32
2,621.00
253,
674.00
1
,457.00 106.00
PPE
6,560.00 6,413.00
1
,930.00
75
,194.00
76
,537.00
Financial assets available
for sale 4,461.00 724.00
9
,563.00
Trade receivables
3,262.00
7
,446.00 437.00
Current trade and other
receivables
3
8,531.00
3
6,615.00
22
,780.00
5
,887.00
4
,903.00
Cash at hand and cash at
bank
7
5,368.00 3,367.00
19
,199.00
31
,025.00
28
,123.00
(A) Total assets 61
5,940.00
37
3,002.00
305,
029.00
114,
000.00
119,
232.00

4CORPORATE FINANCE
Trade and other payables 5
1,379.00
3
2,522.00
22
,251.00
11
,418.00
10
,140.00
Current tax liabilities
2,948.00 6,146.00
4
,990.00
3
,777.00 720.00
Consideration deferred 1
6,799.00
2
8,143.00
35
,393.00
Provisions
259.00 1,304.00 190.00 492.00
Borrowings 26
6,865.00
14
9,696.00
112,
432.00
Deferred consideration 2
1,622.00 2,533.00
2
,739.00 534.00
Long term Provisions
1,440.00 1,410.00 609.00
Deferred tax liabilities 1
4,687.00 9,021.00
9
,185.00
Provisions
634.00 59.00
(B): Total outside 37 23 187, 15 11

5CORPORATE FINANCE
liabilities 5,999.00 0,775.00 789.00 ,829.00 ,945.00
Net assets (Total assets –
Total outside liabilities)
23
9,941.00
14
2,227.00
117,
240.00
98
,171.00
107,
287.00
Economic valued added 9
7,714.00
2
4,987.00
19
,069.00
(9
,116.00)
Except in 2014 where the EVA to the shareholders was in negative the company has added
significant value to the shareholders wealth as can be seen in the table above as per the net asset
method. In 2017 the EVA as per net asset method was GBP 97,714,000 from 2016. This is a
significant increase in the shareholders’ wealth of the company (Jensen, 2017).
Price earnings ratios:
On the basis of price earning method the shareholders wealth over the last five years have been
calculated below to determine the amount of EVA to the shareholders wealth in the last five
years.
PE ratios
Years 2017 2016 2015 2014 2013
PE ratios 41.3 36.7 34 31 30
EPS (Pence) 8.8 8.9 6.2 5.1 5.4
Value per share 3.6344 3.2663 2.108 1.581 1.62

6CORPORATE FINANCE
Weighted average number of
ordinary shares
426813751 413262135 412509761 410953217 410694460
Value of total shares
(GBP’000)
1,551,
211.90
1,349,
838.11
869,
570.58
649,
717.04
665,
325.03
Economic valued added
(GBP’000)
201
,373.79
480
,267.54
219,
853.54
(15,
607.99)
As per PE ratios and multiplication of Earnings per share (EPS) of the company the EVA to the
shareholders wealth in 2017 is GBP 201,373,790 and in 2016 it was GBP 480,267,540. In 2014
however, the EVA was in negative with GBP 15,607,990 compared to the shareholders of value
of 2013 (Schaltegger and Wagner, 2017).
EBITDA capitalization:
All amounts are in (GBP’ 000):
Years 2017 2016 2015 2014 2013
EBITDA 96410 77110 48694 39614 29433
Appropriate rate of
capitalization
12.50% 12.80% 13.10% 12.10% 12.40%

7CORPORATE FINANCE
Capitalization value
(EBITDA / Capitalization
rate)
7
71,280.00
6
02,421.88
371
,709.92
327
,388.43
237
,362.90
Economic valued added 1
68,858.13
2
30,711.95
4
4,321.49
9
0,025.53
237
,362.90
Discounted free cash flows:
The EVA analysis has been conducted on the basis of discounted cash flows of the last five years
to evaluate the effects of net operating cash flows of the company on the shareholders’ value.
The net cash generated by the company from operating activities have been discounted using
appropriate rate of discount to calculate the present value of cash flows from operating activities
with 2013 considered as the base year. The present value of cash flows have been capitalized to
calculate the economic value of shareholders and subsequently the addition to the Economic
value of the shareholders (Rothaermel, 2015).
All amounts are in GBP’000
Years 2017 2016 2015 2014 2013
Net cash generated from
operating activities of the
company
80984 60867 39111 30981 31580
Appropriate rate of discount 5% 5% 5% 5% 5%

8CORPORATE FINANCE
Discounting factor
0.82 0.86 0.91
0.95238095
2
1
6
6,625.74 52,579.20
3
5,474.83
29,
505.71
3
1,580.00
Cost of capital has been
calculated at 6%
6% 6% 6% 6% 6%
Capitalization of discounted
cash flow
1,11
0,428.95 876,320.0
5
59
1,247.17
491,
761.90
52
6,333.33
Economic valued added 23
4,108.90 285,072.8
9
9
9,485.26
(34,
571.43)
Even using discounted free cash flows of the company over the five year supports the EVA
analysis conducted using other methods in the above as the EVA is positive for all the years
except 2014 as determined in all other methods earlier (Fernandez, Pershin and Fernández Acín,
2017).
Total return to the shareholders of the company:

9CORPORATE FINANCE
In order to calculate the Total Shareholders Return (TSR) of Zoopla it is important to consider
both the annual dividend paid to the shareholders as well as appreciation in the value of capital
of the shareholders of the company in last five years (Malik, 2015).
Using the Price Earnings ratios of the company the capital appreciation has been calculated. The
amount of dividend paid by the company over the last five years have then been added to the
capital appreciation to calculate the TSR (DeFusco et. al. 2015).
Years (All amounts are in
GBP’000)
2017 2016 2015 2014 2013
PE ratios 41.3 36.7 34 31 30
EPS (Pence) 8.8 8.9 6.2 5.1 5.4
Value per share 3.6344 3.2663 2.108 1.581 1.62
Weighted average number of
ordinary shares
426813751 413262135 412509761 410953217 410694460
Value of total shares 1,551,
211.90
1,349,
838.11
869,
570.58
649,
717.04
665,3
25.03
Economic valued added 201
,373.79
480
,267.54
219,
853.54
(15,
607.99)
Add: Dividend payment 23 16 8 35

10CORPORATE FINANCE
,609.00 ,554.00 ,667.00 ,528.00
Total return to the
shareholders
224
,982.79
496
,821.54
228,
520.54
19
,920.01
The total shareholders returns in 2017 is GBP 224,982,790 which is significantly low from the
total shareholders returns of 2016. In 2016 the shareholders’ returns in total was GBP
496,821,540. Thus, within a period of 12 months the total shareholders’ return has reduced
significantly. In 2014 the total return to the shareholders was only GBP 19,920,010 thus,
compared to that it is clear that the company has provided significant return to its shareholders
over the last five years (Goh et. al. 2016).
Current valuation of equity:
Net asset value:
Using net asset value method the current valuation of equity of ZPG is calculated below:
Net asset value
Years 2017
Intangible assets 491,020.00
PPE 6,560.00
Financial assets available for sale 4,461.00
Trade receivables

11CORPORATE FINANCE
Current trade and other receivables 38,531.00
Cash at hand and cash at bank 75,368.00
615,940.00
Trade and other payables 51,379.00
Current tax liabilities 2,948.00
Consideration deferred 16,799.00
Provisions 259.00
Borrowings 266,865.00
Deferred consideration 21,622.00
Long term Provisions 1,440.00
Deferred tax liabilities 14,687.00
Provisions
375,999.00
Net assets (GBP’ 000) 239,941.00

12CORPORATE FINANCE
The total tangible and intangible assets of the company as on 30th September 2017 has been
aggregated to deduct the outside liabilities of the company from the resultant amount to calculate
the net asset value of the company as on that date. As can be seen that the net asset of the
company as on 30th September 2017 is GBP 239,941,000.00. This is the amount of equity as on
the date of September 30, 2017 as per the net asset value method (Enever et. al. 2014). The
weighted average number of shares outstanding as on that date is 426,831,751 accordingly, the
value of each share on the basis of above calculation will be (239,941,000 / 426,813,751) =
₤0.56 per share (Pless et. al. 2016).
PE ratio:
In order to calculate the current value of an equity of an organization by using PE ratio the
Earnings per share of the organization is multiplied with PE ratio. Using the value of each equity
it is possible to easily calculate the value of equity of an organization. In case of Zoopla the
current value of equity of the company is calculated below in the table using the financial
information as on September 30, 2017 (Garleanu and Pedersen, 2018).
PE ratios
Years 2017
PE ratios 41.3
EPS (Pence) 8.8
Value per share 3.6344
Weighted average number of ordinary shares 426,813,75

13CORPORATE FINANCE
1
Value of total shares (GBP’ 000) 1,551,21
1.90
The equity value of the company as on September 30, 2017 is GBP 1,551,211,900 as can be seen
using the PE ratio method. The number of shares outstanding as on the date is 426,831,751 thus,
the value of each equity of the company using PE ratio method as on that date is ₤3.6344
(Michalski, 2014).
EBITDA capitalization:
In Earnings before interest, tax and depreciation (EBITDA) capitalization method, the amount of
EBITDA is capitalized using an appropriate rate, generally the cost of capital is used for
capitalization. The value of equity of the company as on 30th September, 2017 is calculated
below in the following table:
Years (Amounts are in GBP’000) 2017
EBITDA 96410
Appropriate rate of capitalization 12.50%
Capitalization value (EBITDA / Capitalization
rate)
771,28
0.00

14CORPORATE FINANCE
The equity value of the company as on September 30, 2017 is GBP 771,280,000 and with
weighted average shares of 426,813,751 outstanding as on that date the value of each equity
share is GBP 1.81 per share (Nekrasova, Leventsov and Axionova, 2016).
Discounted free cash flows:
The table below shows the cash flows from operating activities in 2017. The appropriate rate of
discount assumed for the purpose is 5% per annum. The terminal value has been determined by
considering a 15% rate as it is assumed that such rate is appropriate for calculation of terminal
value of discounted free cash flows of the company (Christersson, Vimpari and Junnila, 2015).
(All amounts in the table below are in GBP’000)
Years 2017
Net cash generated from operating activities of the
company
80,9
84.00
Appropriate rate of discount 5%
Years 2018 2019 2020 2021 2022
Net cash generated from
operating activities of the
company
89,082.40 97,990.64
10
7,789.70
11
8,568.67
13
0,425.54
Appropriate rate of discount 0.9523809 0.9070294 0.8638375 0.8227024 0.7835261

15CORPORATE FINANCE
52 78 99 75 66
Discounted cash flow
84,840.38 88,880.40
9
3,112.80
9
7,546.74
10
2,191.82
Terminal value of discounted
cash flow
6
81,278.83
Discounted value of terminal
cash flow (681278.83 x
0.783)
5
33,799.79
The terminal value of discounted free cash flow calculated above shows that the value of the
equity of the company is GBP 533,799,790. The number of shares outstanding is 426,813,751 as
on September 30, 2017 and accordingly, the value of each equity of the company is GBP 1.25
per share of the company (Pinto, Robinson and Stowe, 2015).
Conclusion:
Discussion in the above document shows that the value of shareholders equity as well as total
return to the shareholders changes with the change in valuation method. However, if the
assumptions are appropriate and practical it is clear that most the valuation methods and
technique show similar trend as per the valuation of equity and total shareholders returns are
concerned. It is important to use practical assumptions to calculate the value of equity and
shareholders returns of an organization. In case of Zoopla, the company has continuously

16CORPORATE FINANCE
provided positive return to its shareholders and the value of equity of the company has increased
with passing of each year.

17CORPORATE FINANCE
References:
Christersson, M., Vimpari, J. and Junnila, S., 2015. Assessment of financial potential of real
estate energy efficiency investments–a discounted cash flow approach. Sustainable Cities and
Society, 18, pp.66-73.
DeFusco, R.A., McLeavey, D.W., Pinto, J.E., Anson, M.J. and Runkle, D.E., 2015. Quantitative
investment analysis. John Wiley & Sons.
Enever, N., Isaac, D. and Daley, M., 2014. The valuation of property investments. Estates
Gazette.
Fernandez, P., Pershin, V. and Fernández Acín, I., 2017. Discount rate (Risk-Free Rate and
Market Risk Premium) used for 41 countries in 2017: A Survey.
Garleanu, N. and Pedersen, L.H., 2018. Efficiently inefficient markets for assets and asset
management. The Journal of Finance, 73(4), pp.1663-1712.
Goh, B.W., Li, D., Ng, J. and Yong, K.O., 2015. Market pricing of banks’ fair value assets
reported under SFAS 157 since the 2008 financial crisis. Journal of Accounting and Public
Policy, 34(2), pp.129-145.
Jensen, M.C., 2017. Value maximisation, stakeholder theory and the corporate objective
function. In Unfolding stakeholder thinking (pp. 65-84). Routledge. Available at:
https://www.taylorfrancis.com/books/e/9781351281874/chapters/10.4324%2F9781351281881-4
[Accessed on 21 October 2018]
Laszlo, C. and Cescau, P., 2017. Sustainable value: How the world's leading companies are
doing well by doing good. Routledge.

18CORPORATE FINANCE
Malik, M., 2015. Value-enhancing capabilities of CSR: A brief review of contemporary
literature. Journal of Business Ethics, 127(2), pp.419-438.
Michalski, G., 2014. Factoring and the firm value. Available at:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1844306 [Accessed on 21 October 2018]
Nekrasova, T., Leventsov, V. and Axionova, E., 2016. Evaluating the efficiency of investments
in mobile telecommunication systems development. In Internet of Things, Smart Spaces, and
Next Generation Networks and Systems (pp. 741-751). Springer, Cham.
Pinto, J.E., Robinson, T.R. and Stowe, J.D., 2015. Equity valuation: a survey of professional
practice.
Pless, J., Arent, D.J., Logan, J., Cochran, J. and Zinaman, O., 2016. Quantifying the value of
investing in distributed natural gas and renewable electricity systems as complements:
Applications of discounted cash flow and real options analysis with stochastic inputs. Energy
Policy, 97, pp.378-390.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Schaltegger, S. and Wagner, M., 2017. Managing the business case for sustainability: The
integration of social, environmental and economic performance. Routledge.