J Sainsbury Plc is one of the largest food retailer in the United Kingdom with the revenue of £21.2bn during the year of 2010 and employing over 1,38,000 people. They operate approximately 872 stores all over the country. According to J Sainsbury Plc (2010), Company generates its revenue from various venues established throughout the country which includes 537 supermarkets and 335 convenience stores. Sainsbury also owns Sainsbury`s Bank which was established in 1997, below is the working of different valuation of the company.
Valuation
Multiple valuation model shows that company enterprise value has been increased as compared to 2009 and so as price earnings ratio of the company, which shows a positive sign that investors are ready to invest in this company.
Multiple Model Comparison
2010(m)
2009(m)
EV
6,668(m)
21,421
20,383
EV/Sales
0.311
0.327
EV
6,668(m)
610
519
EV/EBIT
11
13
P/E
10.37
10.21
This DCF Valuation shows that in 2010 Company is expecting a net cash operating flow of 1595 million, which also shows that company is in strong position. Secondly company should increase its working capital requirements by 3243 million; in general we have applied very conservative income growth assumptions as shown in the table
Net Operating Free Cash flow
2010
2009
2008
2007
2006
Sales(in Millions)
21,421
20,383
19,287
18,518
17,317
% Change
7.45%
7.83%
7.45%
8.61%
9.21%
(in Millions)
1,595
1,595
1,595
1,595
1,595
EBITDA
610
519
434
339
244
% Change
38%
33%
27%
21%
15%
(in Millions)
working Capital
3,243
-
-
-
-
Net operating Cash flow
1,595
-
-
-
-
Discounted operating FCF
1,658
-
-
-
-
DCF or discounted cash flow valuation method is used for making an approximation of attractiveness of an investment opportunity. This model of Discounted cash flow uses future free cash flow which are projected and it discounts them (normally using the weighted average cost) to arrive at a present value, which is used to evaluate the chances for investment. If the value derived through discounted cash flow model, is greater than the present cost of the investment, the opportunity may become attractive for investment point of view.
Assuming Growth Rate
5%
Assuming Wacc
10%
Net operating cash flow:
Net income -Changes in Working capital -+ Depreciation -Repayment of long term debt