James Oates, The Art of Valuing a Company

The Art of Valuing a Company

Making qualitative judgments

James OatesPärnuApril 2012

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Analysts try to Predict theFuture�

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�and they almost always FAIL

Current v. Forecast Valuations

� P/BV

� Current P/E� Current P/CF� EBIT/EBITDA

� EV� DCF:NAV

�STATIC VALUES

� PEG

� Prospective P/E� Forecast Growth

�DYNAMIC VALUES

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Quantitative Qualitative

Investment: Reward versus Opportunity

� Price/Earnings

� Price/Book Value� Price/Cash Flow

� PEG: Price/Earnings Growth

� EBIT

� EBITDA� EV/EBITDA

� Size of Economy

� Economic Freedom� Leverage

� Taxation� Administration Cost

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Myth: Estonia tax haven

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Salary after taxSalary after tax

(based on gross pay of $25,000) (based on gross pay of $200,000)

Germany $18,149 72.60% Italy $108,189 54.10%

Net pay India $18,663 74.70% Netherlands $109,417 54.70%

after tax France $18,750 75.00% Ireland $111,905 56.00%

Italy $18,800 75.20% Germany $111,953 56.00%

Estonia $19,518 78.10% Israel $112,363 56.20%

Mexico $20,534 82.10% France $117,519 58.80%

UK $20,799 83.20% UK $121,819 60.90%

Egypt $20,847 83.40% Spain $127,332 63.70%

Brazil $21,023 84.10% Canada $129,340 64.70%

Netherlands $21,087 84.30% Malaysia $137,128 68.60%

Malaysia $21,140 84.60% USA $139,709 69.90%

Israel $21,177 84.70% India $141,163 70.60%

Canada $21,204 84.80% Japan $144,083 72.00%

Spain $21,328 85.30% Mexico $146,377 73.20%

Russia $21,750 87.00% Brazil $148,088 74.00%

USA $22,660 90.60% Estonia $152,515 76.30%

Japan $22,704 90.80% Egypt $160,847 80.40%

Ireland $23,937 95.70% Russia $174,000 87.00%

Dubai $25,000 100.00% Dubai $200,000 100%

Source: UHY

Myth: Estonia small state

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Source: Statistics Estonia, www.stat.ee

Government has reshaped a bit, but Private sector took more of the pain. Unemployment continues to be high.

Economic Recovery�

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Source: Statistics Estonia, www.stat.ee

Sharp recovery to above EU trend & Growth Outlook looks good for the coming yearsIndustry and Exports leading the way

Euro crisis and Estonia

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� Euro default is a risk to Estonian reserves- could wipe them out

� Yet Estonian policy is to retain a link to the �D-Mark� bloc, i.e. the Northern Euro

� This implies maintaining fiscal discipline� Euro crisis is structural- Estonia OK� Problem of Infrastructure & Investment

The Opportunities

� Estonian Drive to Excel� Culture� Innovation� Moral Voice in the World� Trade & Economy� Lifestyle

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Estonian �Maximalism�

� In 1920, the target was to be �the most democratic state in the World�

� In 1990, the target was to be �the most open economy in the world�

� Now so much is done, what could the next national project be?

� Estonians want to excel, but at what?

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Estonia- Window on the West?

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Over to You...

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James Oates+372 5081769+447767 [email protected]