Tottenham Hotspur Plc Case Study Analysis

Multiple Analysis:

The financial ratio analysis –EBIDTA Multiple is primarily the comparison of the enterprise value of the company. The EBIDTA i.e. 5.00 and enterprise value i.e. 156 are given in the case exhibit 5 and 2 respectively.  The equity value is obtained i.e. 139 Million through adding the net debt (negative i.e. -16.79) with the enterprise value. Whereas EBIDTA multiple is calculated by dividing enterprise value with EBIDTA i.e. 31.20. Similarly, the per-share value of the club is estimated to be 14.98. The calculation demonstrates the difference in the enterprise value and per-share value of the club. Thus, the per-share value through DCF valuation is calculated as 13.99 whereas 14.98 using EBIDTA Multiple.

Fair Valuation of Tottenham:

Based on the analysis of the share price, if the current stock price is represented to be 13.99, it demonstrates that the share price of the club tends to be slightly undervalued. Considering the slightly varied share price of the club, the share price value of the Tottenham club tends to be fairly valued.

Current Stadium Value EBITDA Multiple
Enterprise Value 146.81 $156.00
Equity Value 130.02 139
Share price 13.996 14.985

Decision Evaluation:

Considering all the three options, building the new stadium, hire new strikers or doing both, the analysis of each of the options is based on NPV in terms of identifying the potential benefits associated with each option.

Build the New Stadium:

Considering the development of a new stadium, this option is based on expanding the capacity of the club to about 60,000 as compared to 36500 player seats.The development of new stadium demonstrated the potential to bring improvement in the revenue growth of attendance by 40 percent, sponsorship by 20 percent and operating cost by 14 percent. The initial investment amount required is approximately 250 M to be equally divided for a period of two years. In order to determine the feasibility, EBIT was calculated by subtracting the total revenues with operating expenses. Similarly, the value of NOPAT was obtained by subtracting the tax rate from EBIT.

Furthermore, the cash flows were calculated by subtracting the depreciation from the income statement, change in the working capital with respect to the maintenance cost and percentage of revenues. Thus, the NPV calculated represented a positive value i.e. 269.57 indicating the feasibility of the project and the capability to generate increased revenues (as shown in Appendix D).

Sign a New Striker:

The club is singing new strikers in order to improve the reputation of the club. The new strikers would allow the club to maintain its current performance.  The young players would be considered as highly talented. However, the young are not available at cheap prices. In order to hire the new striker, the transfer fee of about roughly 20 million is to be paid by the club. These fees would be paid directly to the players’ current club. The club would pay 50000 per year, therefore, the striker salary would be 2.6 million and would increase by 10% each year. Considering the option of contract, it tends to demonstrate greater risk. This is due to the reason that in case of injuries then this option might not provide significant contribution and add value in the operations. The NPV by hiring new players would be 89.91. Thus, the representation of the positive NPV value demonstrates the probability of increased profit growth. In this manner, the invested amount can be significantly recovered from increased revenue generation...............................

 

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