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Airways IPO Valuation

Airways IPO Valuation

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Airways IPO Valuation

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  1. Airways IPO Valuation 黃致嘉、呂建輝、顏睿甫、陳柏誠、戴肇逸、端木偉葶

  2. Background • July 1999, Jetblue Airline that would bring "humanity back to air travel"-David Neeleman (founder) • New manager team David Barger, President and COO John Owen, CFO • Strategy • Raised $130 million in funding • Lowest cost per available-seat-mile • point-to-point service to large metropolitan • estabilishedto be known as a safe, reliable, low-fare airline

  3. Why IPO?

  4. Why IPO ? • Access to capital going public is to raise primary capital to fund growth, repay debt or fund an acquisition • Increased Liquidity whenthe company is public, the existing owners have a public marketplace through which they can liquidate their holdings • Branding event by listing on the NYSE, the company will receive worldwide media coverage through the financial markets, which provide constant live coverage on publicly traded companies. • Enhanced benefits for current employees Stock-based compensation incentives align employees’ interests with those of the company.

  5. IPOPros and Cons Advantages • Raising additional capital through IPO • Support growth • Offset venture capitalist's portfolio losses • Greater public awareness • Increase liquidity • Available information

  6. IPOPros and Cons Disadvantages • Increased costs • Dilution of ownership • Exposure to idiosyncratic risks • Public pressure by stockholders • Overpriced IPO can cause company challenges • Industry in decline

  7. IPO Valuation

  8. IPO Valuation • Initial price range • Initial price range: $22 to $24 • Facing excess demand:$25 to $26 • Problems • Current price would leave money on the table • Raising the price could compromise the deals success

  9. IPO Valuation • At what price should JetBlue offer their shares? • DCF Analysis • Comparable Analysis

  10. DCF Analysis

  11. DCF Analysis • PV=∑ • FCF(free cash flow)=EBIT (1 – Tax) + Depreciation – Change in Working Capital(networking capital的change) – Capital Expenditure • Discount rate:WACC • Growth Rate =NOPAT

  12. WACC Southwest’s WACC • Cost of Equity • Cost of Debt WACC=8.994%

  13. Free Cash Flow

  14. DCF Pricing • Historically Expected Inflation Rate =2%~4% • Growth Rate = 3 % 35.1+5.5=40.6 M shares The price is 27.81

  15. Comparable

  16. Comparable • EPS*=P Other firms in the same industry

  17. Comparable valuation: Price/Earning Ratio Price/Earning Ratio

  18. Comparable valuation: Price/Book Value Ratios Price/Book Value Ratios *Average Comparable Price = 27.69

  19. Underpricing of IPOs • Average Comparable Price = 27.69 • DCF= 27.81 Ifwechoose27.69,we’llleavetoomuchmoneyonthetable. But after 911 accident, if we choose 27.81, the price will be overpriced and too greedy. So the final price will be (27.69+27.81)/2=27.75