DEXO/SPMD
On the other hand, finally done with looking at DEXO/SPMD.
I wasnt able to justify an equity value per se for both of them.
What I worked on paper came up to this:
Calculations for the combined entity (Figures in USD m)
2012 2013 2014 2015 2016
FCF 588 775 632 495 363
ebitda 1169 1005 857 715 579
Debt ending 3200+ 3000 2587 2282 2090
cash interest paid 253 216 188 169 = total 825
amortisation paid 150 140 120 115 = total 525
amount swept 386 291 203 96 = total 976
Total cash paid to debt 789 647 510 380 = total 2326
Principal paid down 536 431 323 211 = total 1501
So the issue is everyone writes about long term and all, but i fail to see how the combined entity will last more than 5 years beyond 2016.
That means using EBITDA multiple of 4x of say 400-700M is not very feasible since even if Im assuming just 15% annual decline in topline and same decline in costs per year as per FY2011/3Q2012 leads to the numbers above.
Also many of the valuation is purely EV/EBITDA or EBITDA multiple and leads to equity value is erroneous. For example equity value of EBITDA (assuming 800M each year) * 4 years = $3.2B is not right. Firstly one has to deduct the debt of $3B to reach a $0.2B equity value. Secondly, 800M ebitda p.a is pretty high i would say, decline has been steep. Also the cash is about 200m+ which doesnt make much difference to the above number.
The above shows the firm paying down $1.5B in 4 years without retaining any residual cash flow.
In conclusion, I am starting to see that my previous assumptions were flawed and so was my previous valuations. A FCF of $400-500M p.a. is only possible when cost declines are very steep, like 20% p.a. levels while topline remains flat. Reality is that topline is likely to decline at least 10% p.a.
So any comments/ views?
