Amtelecom Group: Case Study
1. What does it mean if a company “trades at a discount”? Is Amtelecom Group Inc. (AGI) really trading at a discount?
If the market value of a stock is lower than its intrinsic value, this stock is defined as “trades at a discount”. To figure out whether AGI stock is traded at a discount to comparable companies, as its management believed, we can simply apply multiple which comes from the average multiple of its comparable companies. Considering fluctuation of future after-tax earnings caused by the change in capital structure, we prefer to use TEV/EBITDA multiple in this case. Amtelecom Group consists of two lines of business which has to been taken into consideration. We separately calculate the value of both companies and their summation. In this way, we get a relative conservative outcome which indicates the Enterprise Value of AGI is 56.9 million (Note 1). As it is mentioned in the case that AGI’s current stock price implied a TEV of 53.7 million, the stock is really traded at a discount.
2. Do you agree with AGI’s decision to break up the company? To sell the communications business rather than the courier business？
We agree the decision “break up” made by AGI. As well as this, we support the specific decision to sell the communications business. As being mentioned in the context, the board has realized the business combination was sub-optimal. Although we cannot simply come into a conclusion that breaking up the company is the best choice for the board, it is obvious selling some business to refund the company is the easiest action the board can take. According to Exhibit 3b and Exhibit 6a, ICS is incurring losses at this moment. Apparently, it is not wise to sell ICS courtier in this case because the aim of the board is to maximize the value of shareholders. Referring to Exhibit 4, sale of courier services takes up 80% of the total sale, but only 18.6% EBITDA realized. ICS’s business revenue is remarkable compared with FedEx and
If the market value of a stock is lower than its intrinsic value, this stock is defined as “trades at a discount”. To figure out whether AGI stock is traded at a discount to comparable companies, as its management believed, we can simply apply multiple which comes from the average multiple of its comparable companies. Considering fluctuation of future after-tax earnings caused by the change in capital structure, we prefer to use TEV/EBITDA multiple in this case. Amtelecom Group consists of two lines of business which has to been taken into consideration. We separately calculate the value of both companies and their summation. In this way, we get a relative conservative outcome which indicates the Enterprise Value of AGI is 56.9 million (Note 1). As it is mentioned in the case that AGI’s current stock price implied a TEV of 53.7 million, the stock is really traded at a discount.
2. Do you agree with AGI’s decision to break up the company? To sell the communications business rather than the courier business？
We agree the decision “break up” made by AGI. As well as this, we support the specific decision to sell the communications business. As being mentioned in the context, the board has realized the business combination was sub-optimal. Although we cannot simply come into a conclusion that breaking up the company is the best choice for the board, it is obvious selling some business to refund the company is the easiest action the board can take. According to Exhibit 3b and Exhibit 6a, ICS is incurring losses at this moment. Apparently, it is not wise to sell ICS courtier in this case because the aim of the board is to maximize the value of shareholders. Referring to Exhibit 4, sale of courier services takes up 80% of the total sale, but only 18.6% EBITDA realized. ICS’s business revenue is remarkable compared with FedEx and