Английский язык. Практический курс для решения бизнес-задач
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At the same time, we note positively that Aeroflot operates at EBITDA margin of 16%, which is close to the average for the group of selected companies. It is worth noting that DM airlines operate, on average, at a 9% EBITDA margin, while GEM peers enjoy a 20% average.
Future Earnings Compared
Equity investors value the future earnings of the main Asian airlines higher than, or on a par with, those of the European majors. This is not surprising given the booming emerging Asian economies and moderate economic growth of the Euro-zone countries.
Aeroflot’s future earnings are valued the lowest among global peers, on a par with KLM and Thai Airlines. The fact that Aeroflot’s future earnings are presently valued 56% below the GEM average underscores the attractiveness of the stock and our Buy take on it.
ROCE
Regardless of the way in which return on capital employed is calculated – with or without financial leases included in the net debt position – Aeroflot produces an economic value that allows for ROCE to be higher than its cost of capital, which supports our positive view on the company.
Methods of Target Price Valuation
We used three methods to determine Aeroflot’s target price:
1. Present and future multiples relative to international peers;
2. DCF;
3. EBITDA multiple.
We have already demonstrated that the company is undervalued by more than 40% compared with GEM peers on this year’s multiples.
In our DCF model for Aeroflot for 2004—2010, we use a WACC of 14.3% as a discount rate. The DCF model built for the base-case scenario values the company at $1.20 per ordinary share for the end of 2004. This is our maximum for the fair value. Under DCF, 61% of the present EV comes from the perpetuity period.
Aeroflot DCF Model (Base Case Scenario)
For the WACC calculation, we used methodology, which determines the stock specific equity risk premium based on corporate governance rating (CGR) (1 being the lowest, 10 the highest). Our CGR for Aeroflot is 5.2. This compares with a 6.2 CGR for Baltika, 8.2 for Wimm-Bill-Dann, and 6.5 for SeverstalAvto. For the risk-free rate, we used a 3-month moving average on the mid yield on Russia’s 10-year sovereign bonds.
WACC Calculations
Another valuation method we used is an EV/EBITDA multiple-based calculation. As GEM peers have an average 2005E EBITDA multiple of 7.4, we use 7.0 for Aeroflot’s 2008E EBITDA multiple. The fair value derived from a 2008E EV/EBITDA multiple of 7.0 is $0.85.
We take $1.0 as our 12-month target price, which implies an 18% upside from the current price level.
Source: N. Zagvozdina, V. Tskhovrebov, Renaissance Capital, Aeroflot:
Taking off, Feb. 2004, (excerpt), www.aeroflot.ru
Essential Vocabulary
1. target price –
2. working capital – оборотный капитал
3. Hold – рекомендация «держать»
4. projection n – проектировка, оценка будущего уровня
5. operating cash flow (OpCF) – операционный денежный поток
6. actual (A) a – фактический (в статистических таблицах)
7. estimate (E) n – оценка (в статистических таблицах)
8. forecast (F) n – прогноз (в статистических таблицах)
9. Committee on Uniform Securities Identification Procedures (CUSIP) – Комитет по единым процедурам идентификации ценных бумаг (США)
10. International Securities Identification Numbers (ISIN) – международные идентификационные номера ценных бумаг
11. not available (n/a) – нет данных (обычно употребляется в таблицах)
12. lease n – аренда
lease v – арендовать
13. load n – груз, бремя, нагрузка, загрузка
load v – грузить, нагружать, заряжать, обременять
14. Russian Trading System (RTS) – Российская торговая система
15. schedule n – опись, список, перечень, расписание; таблица, график
schedule v – составлять список, включать в расписание, назначать, намечать, планировать
16. par n – равенство, паритет, номинал
on (at) par – по номиналу, наравне
17. Euro-zone – зона евро
18. base-case scenario – базовый сценарий
19. unleveraged a – без использования заемных средств
20. terminal value – конечная (терминальная) ценность
21. beta – коэффициент бета (показатель относительной неустойчивости цен акций)
Exercise 1. Answer the following questions.
1. Why did Renaissance Capital raise their target price for Aeroflot? 2. Was Aeroflot’s 2003 operating performance affected by the negative global air transportation environment? 3. How will its fleet upgrade affect Aeroflot’s market position? 4. What is the upside potential of Aeroflot, according to Renaissance Capital? 5. What are the key price drivers of Aeroflot? 6. What are the justified discounts for Aeroflot shares? 7. What are the GEM peers that are used for comparison with Aeroflot? 8. What methods did Renaissance Capital use to determine Aeroflot’s target price? 9. What methodology did it use for WACC calculation?