Thoughts on my EPV valuation of Next Plc. NXT
Posted: November 4th, 2018, 3:54 pm
Now that I am a little bit more au fait with Earnings power valuation I decided to apply this technique to NXT. Firstly, I looked at some Annual reports covering 2014-2018, and tried to figure out whether they are in a phase of growth or whether or not their books are showing any one-off type discrepancies which would require consideration. Looking just sales and EBIT, and calculating operating margin:
From looking at the above, and doing one or two sums, I decided to assume that Next is not going through a growth phase and that sales/margins etc. look fairly steady, so much so that I decided to only look at the latest figures without determining an averaged out value of "growth capex" to add back to increase the distributable cash flow amount.
So what I did with the above, was that since EPV ignores money paid or lost due to interest payments and works by merely accessing how much money can be extracted from the business and distributed as cash at that point, I merely took the EBIT, and taxed it at Next's tax rate added back all of the A&D and subtracted all the capex, and used this figure along with the net cash/debt position to calculate distributable cash profit for Next Plc.
Note however I've, in this first instance, completely ignored the figure described as Online customer receivables, which is present in the company's balance sheet as "Customer and other receivables".
After using a discount rate of 8% and dividing the EPV by the total number of shares we arrive at a EPV per share of £42.13.
Year 2014 2015 2016 2017 2018
Sales 3740 3999.8 4176.9 4097.3 4055.5
EBIT 722.8 812.1 867.2 827.7 759.9
Margin 0.19 0.20 0.21 0.20 0.19
From looking at the above, and doing one or two sums, I decided to assume that Next is not going through a growth phase and that sales/margins etc. look fairly steady, so much so that I decided to only look at the latest figures without determining an averaged out value of "growth capex" to add back to increase the distributable cash flow amount.
So what I did with the above, was that since EPV ignores money paid or lost due to interest payments and works by merely accessing how much money can be extracted from the business and distributed as cash at that point, I merely took the EBIT, and taxed it at Next's tax rate added back all of the A&D and subtracted all the capex, and used this figure along with the net cash/debt position to calculate distributable cash profit for Next Plc.
Note however I've, in this first instance, completely ignored the figure described as Online customer receivables, which is present in the company's balance sheet as "Customer and other receivables".
After using a discount rate of 8% and dividing the EPV by the total number of shares we arrive at a EPV per share of £42.13.