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Module 3-Multiples

Module 3-Multiples. Drew Williams. Basic Facts. Energy technology, project management, and maintenance (97% from oil and gas) Headquarted in Paris, France Revenue = 8.2 Billion Euros 11.5 Billion in Assets Employ 38,000 people in 48 countries 2 Major Segments Onshore/Offshore

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Module 3-Multiples

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  1. Module 3-Multiples Drew Williams

  2. Basic Facts • Energy technology, project management, and maintenance (97% from oil and gas) • Headquarted in Paris, France • Revenue = 8.2 Billion Euros • 11.5 Billion in Assets • Employ 38,000 people in 48 countries • 2 Major Segments • Onshore/Offshore • Subsea—niche area

  3. Customers

  4. Financial Goals and Operating Priorities 6-8% margins on Onshore/Offshore projects ~15% margins on all subsea projects Continue to be the leader in tough climate and subsea contacts Keep a consist and robust order backlog Continue to innovate through extensive investment in R&D Focus on high growth areas i.e. Asia, Middle East, Brazil

  5. Products

  6. Major Acquisitions • Global Industries Ltd. • December 2011 • 100% Ownership • Sub-Sea know-how • Further entry into US and Mexican waters • $1.262 Billion Purchase • Issues • Did not produce 2011 Financials • Solution: Use 2010 financials + Extrapolate 2011 Quarterly Income Numbers

  7. Major Acquisitions • Stone & Webster Process Technologies • Purchase segment from The Shaw Group • Refining and Petroleum Chemicals—diversify • Further enter US Market • $295.3 Million Purchase • Isssues • No Financials for this Segment within Shaw • Purchased a segment of a segment • Different Fiscal Year (August 31 Year End) • The Shaw Group purchased in Feb 2013 • Solution: Input=0, cite as flaw in calculation, rely on group members more heavily

  8. Combined Balance Sheet • Potential Issues: • GAAP vs. IFRS • Synergies • Currency Translation Changes • Different Account Classifications • Does not include a major acquisition

  9. Combined I/S • Potential Issues: • GAAP vs. IFRS • Synergies • Currency Translation Changes • Different Account Classifications • Does not include a major acquisition • Extrapolation of 2011 numbers

  10. Reformed Balance Sheet

  11. Reformed Income Statement

  12. Valuation Using Multiples • Select performance measure • Balance Sheet • BV • NEA • Earnings • EPAT • NI • CI • Sales • Select Comparable Companies • SLB • HAL • BHI • Compute

  13. Steps to Computation Step 1: Start with Enterprise of Equity Value for comparable forms Step 2: Divide by Performance Measure for each firm Step 3: Average given multiples Step 4: Multiply Average multiple by company specific measure Step 5: Subtract out claim of debt holders (if any) Step 6: Divide by shares outstanding

  14. Industry Comparables *All firms are much larger and offer more products/services than Technip • Schlumberger • Sales = $42,149 • NEA = $45, 794 • Halliburton • Sales = $28,503 • NEA = $18,426 • Baker Hughes • Sales = $21,361 • NEA = $21,189

  15. Balance Sheet Multiples *Current Price = $22.13

  16. Earnings Multiples *Current Price = $22.13

  17. Sales and Industry Specific *Current Price = $22.13

  18. Eliminating SLB • SLB • Much larger • Multiples vary from other companies • Different Services *Current Price = $22.13

  19. Averaging All Methods Final Estimation = $23.19 *Current Price = $22.13

  20. Analysis • Comparable Problems • Industry group is less than perfect • Huge size differences • GAAP vs. IFRS • Differences in services and margins • Input Problem • EPAT/NEA are imperfect • 2013 Financial Data • Company Specific details ignored

  21. Final Conclusion • Bad Valuation • Too many unknowns • Comparables are crude and unspecific • Difficult to discern which multiples are best • Static analysis, new information available • Assumes comparable companies are correctly valued • Positives • Gives a good estimate • General idea of what measures are important in the industry

  22. Questions

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