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Abnormal Enterprise Income Growth Model

Abnormal Enterprise Income Growth Model. Intercontinental Hotel Group IHG. Julia Lassarat March 17, 2014. Agenda. Industry and Firm Overview Abnormal Enterprise Income Growth Model (AEIG) Application of Residual Income Valuation Choosing a Valuation Model. Industry Overview.

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Abnormal Enterprise Income Growth Model

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  1. Abnormal Enterprise Income Growth Model Intercontinental Hotel Group IHG Julia Lassarat March 17, 2014

  2. Agenda • Industry and Firm Overview • Abnormal Enterprise Income Growth Model (AEIG) • Application of Residual Income Valuation • Choosing a Valuation Model

  3. Industry Overview • Resilient industry in the face of slowing economic pace • Revenue per available room (RevPAR) is standard performance metric • RevPAR was up 4.5% in 2012 in comparison to 5.9% in 2011 • Highly competitive market • The global hotel market is estimated to be 21.5 million rooms • 7.5 million of these are branded hotel rooms Source: IHG 2012 Annual Report

  4. Life Cycle Stage: Mature Operating Investing Financing

  5. The AEIG Model • Three components • Next-year EPAT • PV of agrt for finite horizon • PV of continuing value • All components are capitalized (divided by WACC) • Assumption that future abnormal enterprise income growth will be driven by sales growth

  6. Benefits of the AEIG Model • Greater portion of the valuation is captured data within the initial time horizon • Varying methods of accounting will not affect the valuation

  7. Residual Income Model v. AEIG Model • Difference in Accounting Anchor • RI Model uses forecast on current NEA • AEIG Model uses capitalized forecast of next year’s EPAT • Tradeoff between accounting information

  8. Applying the Abnormal Income Growth Model Yahoo! Finance estimates Enterprise Value at $9.46 Billion

  9. Value Captured by Each Model The Abnormal Enterprise Income Growth Model captures value much faster because it uses income instead of receivables in calculations

  10. Questions?

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