A FINANCIAL ANALYSIS BY:

SHETTY SEKHAWAT SINGH MOH & THAKKAR

ASX:BBG

INTRODUCTION• FOUNDED IN 1973, LISTED IN 2000

• BRANDS INCLUDE :

• MAJOR COMPETITORS:

• DIVERSIFICATION AND EXPANSION IN LAST 7 YEARS

• 8 ACQUISITIONS AND 1 JOINT VENTURE SINCE 2001

INTRODUCTION

• SALES JUMPED 21% TO $1.0182 BILLION IN 2006

•CONSTANTLY INCREASING NPAT, LAST RECORDED $145.9 MILLION

•HEALTHY INDUSTRY, HEALTHY FINANCIALS, STRONG COMPETITION

•ISSUES STOCK OPTIONS TO SENIOR MANAGEMENT

CAPITAL STRUCTURE

DEBT / EQUITY

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

2002 2003 2004 2005 2006 2007

TIME

AU

D (

'000

)

Debt (,000)

Equity ('000)

CAPITAL STRUCTURE

DEBT TO EQUITY RATIOS 74.23% 20.72% 133.11%

EBIT / INTEREST

0

50000

100000

150000

200000

250000

300000

2002 2003 2004 2005 2006 2007

TIME

AU

D (

'000)

EBIT

Interest

CAPITAL STRUCTURE

ROA & ROE

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

2002 2003 2004 2005 2006 2007

TIME

RE

TU

RN

IN %

ROA

ROE

CAPITAL STRUCTURERATIOS

00.20.40.60.8

11.21.41.61.8

2

2002 2003 2004 2005 2006 2007TIME

VA

LU

ES

( %

)

LeverageRatioTax BurdenRatioInterestBurden ratio

  2002 2003 2004 2005 2006 2007Leverage Ratio 1.32 1.50 1.56 1.46 1.77 1.83

Tax Burden Ratio 67.51% 70.01% 68.06% 68.36% 68.51% 75.40%

Interest Burden ratio 91.22% 93.65% 95.73% 96.89% 95.92% 91.92%

CAPITAL STRUCTURE

• COST OF BILLABONG’S CAPITAL (UNLEVERED) = 22.23%

• COST OF EQUITY CAPITAL WHEN LEVERED= 33.36%

• WACC FOR BILLABONG = 28.03 %

DIVIDEND POLICY

• TWICE A YEAR, FULLY FRANKED• FIXED PAYOUT RATIO ~ 62%

$0.000

$0.100

$0.200

$0.300

$0.400

$0.500

$0.600

Div

ide

nd

Pe

r S

ha

re

2001 2002 2003 2004 2005 2006 2007

YEAR

HISTORICAL DIVIDENDS

INTERIM FINAL

DIVIDEND POLICY

HISTORICAL EPS TREND

0

20

40

60

80

100

2001 2002 2003 2004 2005 2006 2007

YEARS

EPS (in cents) Payout Ratio (%)

DIVIDEND POLICY

PAYOUT RATIO COMPARISON

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

2001 2002 2003 2004 2005 2006 2007

YEAR

PA

YO

UT

RA

TIO

(%

)

BBG GLB GZL

EPS COMPARISON

-40-20

0204060

80100

2001 2002 2003 2004 2005 2006 2007

YEAR

EP

S (

in c

ents

)

BBG GLB GLZ

DPS COMPARISON

0

10

20

30

40

50

60

2001 2002 2003 2004 2005 2006 2007

YEARS

DP

S (

IN C

EN

TS

)

BBG GLB GZL

DIVIDENDS POLICY

• NO BUYBACKS / SPLITS

• OPTIMISTIC VIEW ON THE PERMANENCY OF RISE IN EARNINGS ‘s’ = 1

DPS Vs EPS (% change)

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

2002 2003 2004 2005 2006 2007

YEAR

% C

han

ge

% Change in DPS % Change in EPS

OPTIMAL DIVIDEND POLICY

• ALTERNATIVES TO DIVIDEND PAYMENTS : REPURCHASES, PAYBACK DEBT

• PESSIMISTIC ‘s’

VALUATION

STEPS:

1. GET TOTAL DEBT & COST OF DEBT

2. GET TOTAL EQUITY

3. GET TOTAL V = D+E

VALUATION

• GET Re= Rf + β (Rm-Rf)= 16.75% where, Rf based on 10 yr treasury bond Rm based on AOI over the past 5 years β found out be regressing BBG’s returns

against AOI

• PUT EVERYTHING INTO FORMULA

WACC FOUND OUT TO BE 15.41%

VALUATION

• SHARE PRICE WAS FOUND TO BE $18.15 (GROWTH RATE = 6%)

• SENSITIVITY ANALYSIS

Share Price Sensitivity to change of Growth Rate for FCF's

$-

$5

$10

$15

$20

$25

$30

0% 2% 4% 6% 8% 10%

Growth Rate

Sh

are

Pri

ce

Share Price Sensitivity to change in WACC

0

5

10

15

20

25

30

13% 14% 15% 16% 17%

WACC

Sh

are

Pri

ce

EVENT STUDY

THE EVENT CHOSEN IS RESIGNATION OF CEO (MATTHEW PERRIN) OF BILLABONG ON 31ST OCTOBER 2002.

BBG share price

6

6.5

7

7.5

8

8.5

9

9.5

10

3/12

/200

1

3/01

/200

2

3/02

/200

2

3/03

/200

2

3/04

/200

2

3/05

/200

2

3/06

/200

2

3/07

/200

2

3/08

/200

2

3/09

/200

2

3/10

/200

2

3/11

/200

2

3/12

/200

2

3/01

/200

3Date

Sh

are

pri

ce $

BBG share price

31/10/2002

EVENT STUDY

CAR (-30 Days to +60 days)

-0.35

-0.3

-0.25

-0.2

-0.15

-0.1

-0.05

0

0.05

DAYS

CAR CAR (-30 Days to +60 days)

Market Model

Regression y = 1.3252x + 0.0003R2 = 0.1439

-0.15

-0.1

-0.05

0

0.05

0.1

-0.03 -0.02 -0.01 0 0.01 0.02 0.03

AOI

BBG Regression

Linear (Regression)

CAR (Event Window).

)(

1

n )()( stat value-t 11

ARS

AR

ARS

AR

CARS

CAR

n

t

tn

tt

CAR (-30 Days to +60 days)

-0.35

-0.3

-0.25

-0.2

-0.15

-0.1

-0.05

0

0.05

DAYS

CA

R

CAR (-30 Days to +60 days)

CAR (Pre-Event)

CAR Pre-Event (-30 Day to -2 Day)

-0.14

-0.12

-0.1

-0.08

-0.06

-0.04

-0.02

0

0.02

DAYS

CA

R CAR Pre-Event (-30 Day to -2Day)

The t-stats for these windows posted a result between -0.4097 and 0.3899, which underwent hypothesis testing at 95% confidence interval. Null hypothesis was consistently accepted in all cases, since result is in acceptance region (-2.045<t<2.045) and thus proving that there was no significant movement to show abnormal returns during the pre-event period.

CAR (Event Announcement)

CAR Event Day (-1 Day to +1 Day)

-0.2

-0.15

-0.1

-0.05

0

-1 0 1

DAYS

CA

R CAR Event Day (-1 Day to +1Day)

Single Day Abnormal Return

Event Days AR t-stat Result

-1-

3.6934% (0.4831) H0 Rejected

0-

4.0928% (0.5354) H0 Rejected

1-

2.1100% (0.2760) H0 Rejected

The t-stat test suggests that there are no significant changes to the returns during the event window

2

131

230

2

t

AR - 199

1

AR stat -t

ttAR

CAR (Post-Event)

CAR Post Event (+2 Day to +60 Days)

-0.35

-0.3

-0.25

-0.2

-0.15

-0.1

-0.05

0

DAYS

CA

R CAR Post Event (+2 Day to +60Days)

.The Calculation of the t-stats was the same as in pre event and it ranged from -1.3257 to 0.1766, which goes to show the stability of the company’s returns and its ability to absorb the effect of the events and not show abnormal return

Event summary

• NO ABNORMAL RETURNS PRE-EVENT.

• NO ABNORMAL RETURNS ON EVENT DATE.

• NO ABNORMAL RETURNS POST DATE.

QUESTIONS ?