GXMBA May 2017: Corporate Finance - Altadis Valuation Report

This report provides an analysis of the Altadis valuation, focusing on its financial strategies, market position, and shareholder value. The report examines the company's approach to market strategies, including restructuring, share buybacks, and expansion into new markets. It highlights how these strategies impact the company's financial performance and valuation, discussing the use of discounted cash flow techniques and ratio analysis to assess Altadis' financial health relative to its competitors. The report also considers the implications of shareholder remuneration policies and the role of investment strategies in enhancing the company's long-term value and profitability. The author suggests that improvements in investment and capital structure strategies could further boost the company's financial performance and market share price. The report concludes by supporting the valuation approach, emphasizing the positive impact of the company’s strategies on its net cash flow, debt management, and earnings per share.

Corporate Finance
Altadis Valuation
Samer Jalal – July- 2018
GXMBA May 2017

1) Altadis is a multinational organization that produces and markets cigars, cigarettes and tobacco. The
company develops and implements various strategies to be successful in the market and make profits.
Firstly, the implementation of strategies such as restructuring of the firm, buying back shares and
growing and expanding in MENA countries in addition to growth in Logistics and Cigar business
assists Altadis to gain a competitive advantage over its business rivals. Secondly, the firm focuses on
selling large volumes of goods in countries in which prices of its products are higher. For example,
because prices of cigarettes in Spain are higher than in other countries across Europe, the firm markets
more cigarettes to make more sales and profits. Coupled with improved market forecasts, employing
better product mix create an opportunity for the firm to improve its financial valuation and growth.
Putting such strategies into practice helps in improving the financial value of the firm. Moreover,
adopting shareholder remuneration policy and share buyback strategy makes shareholders wealthier
and increase financial leverage on the short term as it seems it’s financed through debt.
In my opinion, Altadis needs to improve its operational/investment strategies. For instance, it would be
more beneficial that Altadis utilizes its cash to invest in the firm’s operations addressing the challenges
faced and growing more in MENA and in the Cigar and other businesses which should improve its
operational cash flow, and this would boost company’s valuation and build more reputation in the
market. Through shares buying back, Altadis is signaling it’s undervalued and may be out of vision for
investment opportunities. Better investments strategy in addition to improved financial and capital
structure strategy need to be there to improve company’s future value.
2) According to the article, Altadis valuation is carried out by utilizing internal valuation (discounted
cash flow technique) in addition to external valuation (ratios for comparable businesses). Based on the
data provided and assumptions made in the article, we can conclude that Altadis’s strategies put the
company in healthier financial position than its competitors.
It is evident that net profits and earning per share are positively related to improving the financial
position of the company. Adopting shareholder remuneration policy can significantly increase
expenses through dividends. In this case, the company repurchases of its shares from shareholders can
reduce expenses incurred.
In regard to ratio analysis, the firm trades at substantial discount on EV/EBITDA and EV/EBIT and
thus there is room to improve Altadis ratios. The Altadis’ price/earnings ratio trading somehow similar
compared to those of its competitors because of lower leverage and financial investments. Moreover,
Altadis’s revenue grows continuously and there is a trend in reduction of debt and increase in equity
over years and thus reflecting increase of WACC is appropriate (from 6.37% in 2004 to 7.7% in 2008).
Accordingly, I find the economic valuation has been done appropriately and reflecting the need to
increase the market share price for Altadis.
3) I believe the strategy mentioned in the article fits well with the offered evaluation as buying back
shares and investing in MENA along with other positive strategies would support the shareholder
remuneration policy and puts the company in better financial position for the future. For example,
Altadis is showing increase in net cash flow and improvement in its net debt, earning per share and
stable profit margins.
The additional investment strategies (if existed) would fit/improve in the positive valuation suggested
due to the fact this would improve the financial performance of the company and the long-term return
for the shareholders and therefore lowering of the remuneration percentage and then increasing it
would increase the economic valuation and profit of the company as well as satisfy the shareholders
with increased returns.