This action might not be possible to undo. Are you sure you want to continue?

Lorenzo Ceretti, Michele Prencipe, Siddharth Choraria, Shih-Han (Jeff) Wu 12/13/2010

Contents

1. 2. 3. Executive summary ................................................................................................................................................................................................................................. 3 Companies Overviews............................................................................................................................................................................................................................. 4 Intrinsic Valuation ................................................................................................................................................................................................................................... 5 Summary ...................................................................................................................................................................................................................................... 5 Pegasystems ................................................................................................................................................................................................................................. 5 SNAI .............................................................................................................................................................................................................................................. 9 Aeropostale ................................................................................................................................................................................................................................ 12 Cadence ...................................................................................................................................................................................................................................... 14 4. Relative Valuation ................................................................................................................................................................................................................................. 17 Summary .................................................................................................................................................................................................................................... 17 Pegasystems ............................................................................................................................................................................................................................... 17 SNAI ............................................................................................................................................................................................................................................ 19 Aeropostale ................................................................................................................................................................................................................................ 20 Cadence ...................................................................................................................................................................................................................................... 22 5. Valuing Equity as an Option............................................................................................................................................................................................................... 24 Cadence ...................................................................................................................................................................................................................................... 24 6. Final Recommendation ....................................................................................................................................................................................................................... 25 Pegasystems ............................................................................................................................................................................................................................... 25 SNAI ............................................................................................................................................................................................................................................ 25 Aeropostale ................................................................................................................................................................................................................................ 25 Cadence ...................................................................................................................................................................................................................................... 25 Appendix ........................................................................................................................................................................................................................................................... 26 2

1. Executive summary

DCF Valuation Company Pegasystems SNAI Aeropostale Cadence Currency Share price $ € $ $ 35.0 2.6 24.5 8.2 Model FCFF FCFF FCFF FCFF Value 31.7 2.2 40.94 8.7 Delta (9.56%) (18.16%) 67.1% 6.01% Model

Relative Valuation Value 34.1 2.5 43.7 8.8 Delta (2.79%) (6.41%) 78.4% 6.76% Recommendation SELL SELL BUY HOLD

EV/EBITDA EV/EBITDA EV/SALES EV/EBITDA

Pegasystems: according to the various valuation methodologies used, the Company looks fairly priced by the market. Given our $32 per share target price vs. $35 per share current trading, we suggest to sell the stock and invest in an undervalued one to benefit from potential capital gains. SNAI: The stock is currently trading at €2.6 compared with the intrinsic valuation of $2.2 and the sector relative valuation of €2.5. SNAI seems to be overvalued and we recommend a sell rating. In particular, we recommend to sell the stock due to the potential risks and uncertainties related to SNAI new product offering for slot machines (for further details, see section “Sensitivity Analysis” of SNAI DCF model). Aeropostale: according to the various valuation methodologies used, the Company looks undervalued by the market. Given our $41 per share target price vs. $24.5 per share current trading, we suggest to buy the stock. Due to short term concerns given the departure of Co-CEO, Mindy Meads, the company’s shares have been under short term pressure. However, in Thomas Johnson, CEO and long-time visionary, Julian Geigher, Chairman, the company has solid management and an enviable track of positive same store sales throughout the recession. We also included in the appendix two LBO’s done as precedent transactions and multiples paid by TPG and Bain Capital respectively. Cadence: The valuation result indicates the company is fair valued. In our DCF and comparable regression analysis, it appears to us that the company is undervalued by 6.01% and 11.53%; by contrast, in multiple valuation and market regression analysis, we see the company is overvalued by 2.19% and 5.03%. Cadence has experienced net loss over the past two years, and is now gradually moving itself toward recovery. Therefore, due to the mix of valuation result, we suggest to hold the stock given its upside potential and limited downside risk. 3

was founded in 1987 and is headquartered in New York. markets. operates as a mall-based specialty retailer of casual apparel and accessories. In addition. automating programming. Companies Overviews Company Name Company Descriptions Pegasystems develops. consulting. The company offers a collection of apparel. and change enterprise applications by directly capturing business objectives.300 are located within its betting shops and corners. and outerwear. It designs. markets. 2. The Company licenses software. It also maintains alliances with systems integrators and technology consulting firms that also provide consulting services to its customers.2. sweaters.900 betting corners) and 850 third parties sport and horse concessions. SNAI core businesses are the collection and acceptance of bets on sports and horse racing and the operation of slot machines and skill games through a distribution network of betting shops and its online platform. training and technical support services to its customers. The Company provides implementation. The company is currently traded on the Milan stock exchange and operates four main divisions: . licenses. and supports software to automate business processes. Its customers use its products and services to design and develop complex integrated circuits (ICs) and electronics systems. aeropostale. tops. sells or leases hardware technology and provides engineering and education services worldwide to help manage and accelerate electronics product development processes. Cadence Design Systems. Inc. jeans. and hats. Inc. belts. 4 . New York. In addition. bottoms.Skill Games: mainly online poker and cash games (market share: 6%) Aeropostale. Inc. socks. The Company’s software enables organizations to build. including sunglasses. stores and franchise agreements in UAE. including graphic t-shirts. 35 P. deploy.Horse Betting (market share: 56%) and Horse track management (SNAI owns 3 of the most important tracks in Italy) . comprising approximately 3.Slot Machines (market share: 8%) . and sells merchandise principally targeting 14 to 17 year-old young women and men.S. (Cadence) develops electronic design automation (EDA).000 slot machines of which approximately 7. It also offers casual clothing and accessories focusing on elementary school children between the ages of 7 and 12.Sport Betting (market share: 34%) . the company sells its products through its e-commerce Website. as well as accessories. It also allows organizations to unify business rules with business processes in the software and automating the creation of system documentation. Aeropostale. SNAI manages a network of over 36.500 betting shops and corners operating throughout the country (600 betting shops. As of July 2010. software and hardware. the company operated 948 Aeropostale stores. and automating work.com. SNAI distribution network is one of the largest in Italy.

for the nine months ended 30 September 2010. for $5 per share in cash. Pegasystems revenues increased 29% to $247. while net loss totaled $1. vs.2% for the last 5 years.7 6.1% BUY Cadence $ 8.56%) SELL SNAI € 2.3.21 FCFF High 5 Years 2. Net loss reflects an increase in selling & marketing expense.01% HOLD Pegasystems Assumptions Pegasystems top line has been growing at a CAGR equal to 29.64 FCFF Stable 10 Years 2.1% in 2005 to 17.7 (9. At the same time. higher research & development expense and an increase in general & administrative expense.50% 40.00% 2.16%) SELL Aeropostale $ 24. or a total value of $154. increased income from professional services and higher maintenance revenue.2m. On April 2010. The acquisition pushed further the growth of the company but.03 FCFF High 10 Years 2.5 FCFF High 5 years 3. Revenues reflect higher income from software license. an income of $25. was disruptive for Pegasystems’ profitability and involved significant transactions costs.1% in 2009.2 (18. the company has been able to increase its profitability (EBITDA margin) from 4. a developer of customer relationship management software.94 67.2m.00% 31. Intrinsic Valuation Summary DCF Currency Share price Model Type of growth Lenght of plan Stable growth Target price Delta Recommendation Pegasystems $ 35.3m. which accounted for approximately 15% to 20% of sales depending on the years. Pegasystems acquired the entire share capital of Chordiant Software.9m in the previous year. at the same time. The growth has been mainly been supported by major investments in research and development. As a matter of fact.50% 8. Net loss also reflects the 5 .

2% in 2009). We also believe that in the long term the ROIC will tend to converge to the cost of capital. where we considered operating lease commitments as debt and calculated their present value by discounting future commitments at each company’s pre-tax cost of debt. We used a 35% marginal tax rates for all the calculation (effective tax rate equal to 29. Stage 3: stabilization phase . Reducing growth due to increased size and competitive pressure.2013 mainly due to the integration of Chordiant Software and the related synergies and to synergies of scale.5%. The Company will then progressively de-leverage since the reinvestment rate will decrease in the stabilization phase. Linearly stabilizing to a stable pace in line with long term target economic growth. In conclusion we obtained an EBIT of $72.4 years . Finally.15% growth in ATOP. The operating lease adjustment has been made in order to be consistent with the capital structure assumptions. WACC of 8%). Stage 2: high growth . 6 .3 years . 15. we estimated a ROIC of 15% in 2011.3 years – 50% growth in ATOP in the first year (consistently with the re-investment rate of the previous year and analyst expectations). We have made a number of adjustments to the operating profit and the cash flow to the firm in order to factor in the massive investments that the company has made in research and development and the operating lease costs sustained in 2010.1m in 2010 and an after tax operating profit (ATOP) of $46. we used a 4 stage FCFF model and built up a 10 year business plan: Stage 1: very high growth . As a consequence. however. Below last 5 year historical growth (99% CAGR in EBIT) and in line with analysts’ expectations (to be considered that last year growth has been generated mainly through the acquisition of a competitor) . 25% in year 2 and year 3. We also adjusted the operating profit accordingly by adding back 2010 operating lease expense and subtracting the estimated depreciation of the leased assets. which impacted Pegasystems income statement with additional extraordinary costs of circa $10m (operating figures have been adjusted accordingly). Since the company is still in a very high growth phase. We have estimated FY year 2010 as a starting point for our valuation based on the nine months ended 20 September 2020 and analyst consensus on the full year 2010.5% in 2012 and 16% in 2013. given its strong client base and technological competitive advantages. we assumed the company will be able to earn more than the cost of capital in perpetuity (ROIC of 10% vs. The R&D adjustment is key in order to better understand the reinvestment rate of the Company (we have assumed a life of R&D expenses equal to 5 years on the basis of the available information). we assumed that the company will slightly change its capital structure since it will have to take on debt to finance the massive re-investment rates supporting the growth in the very high growth and high growth phases.7% realized in 2010.5%.8m (tax rate equal to 35%). we have assumed a 100bps spread versus the 10 year US bond based on the company expected synthetic rating in the high and very high growth rata phases. versus 13.major impact related to the acquisition of Chordiant Software. we have assumed an improvement in the very high growth phase 2011 . Stable growth equal to 2.from 15% to 2. In terms of adjusted ROIC. In terms of cost of debt.

0% 3.0% 15.4 Yea r 7 287.0% 20.0% 15.0% 1.2% 1.6% 2.408 1.0% 15.7 35.0% 1.187 (53.6% 2.0% 15.33 35.0% 1.6% 2.0% 1.8% 1.8% 1.3 STABILISATION PHASE Yea r 8 312.0% 87.0% 2.8% 1.1% 9.1 35.6% 2.0% 3.($m) Market value of equity .0% 1.0% 3.0% 3.112.2 35.0% 1.7% 8.0% 126.3% 8.1 35.0% 203.173.2% 1.1% 10.33 35.49 2.3 35.0% 109.137.6% 2.5% 1.3% 9.9% 1.6% 2.9) 25. The intrinsic valuation for the company is $31.3 15.0% 1.5% 1.3) Yea r 6 256.0% 1.3% 25.0% 19.1% 1.153 103.33 35.1% 10.6% 2.0% 2.46 2.46 2.6% 5.9 35.0% 3.3% 8.0 35.6% 1.($) Current pri ce .3% 9.($m) Ta x ra te ATOP .4% 1.1% 10.3% 105.6% 5.3% 8.0% 70.0% 156.6% 5.33 35.0% 1.0% 1.0 2.667 (19.6% 5.0% 3.0% 15.6% 2.51 2.4% 111.9% 2.($) Premium / (discount) 7 .1% 10.6 52.0% 2. 2010).2 15.46 2.3 1.($m) ROIC RIR Growth Unl evered Beta Ta x Rate D/E Levered Beta Ri s k Free Rate Equi ty Ri s k Premi um Cos t of Equi ty Sprea d vs .0% 1.($m) Value of operating assets .0% 186.6% 5.0% 23.8 13.0% 225.1% 10.0 37.6% 5.33 35. Given the current price of $35. Pegasystems 2010E Adj EBIT .0 (Dec.0% 333.8 1.3% 1.3% 1.6% 94.1% 10.0% 1.1% 10.5% 161.33 35.2 Yea r 5 223.2% 1.3 1.6% 5.9% 1.0 10.0% 3. Pegasystems is correctly values by the market.1% 99.0% 2.7) HIGH GROWTH PHASE Year 4 194.1% 10.33 35.2% 1.1 11.0% 1.($m) Sum of NPV .($m) # of s ha re out Va l ue per s hare .977 51.3 35.3% 8.293 (61.0% 25.7% 368.815 10.3 35.6% 5.0% 3.0% 1.0% 1.1% 15.9 Stable 346.($m) 72.9% 1.0% 219.532 (7.33 35.6% 2.6% 2.5 10.0% 22.0 31.0% 1.0% 21.9% 51.5 35.7 per share.50 2.0% 3.6% 5.3% 9.33 35.9% 1.($m) Termi na l Va l ue .0% 166.3% VERY HIGH GROWTH PHASE Year 1 108.347 164. 9th.8 16.6% 5.34 2.4 Yea r 10 338.347 169.2 14. Trea s ury Pre-ta x Cos t of Debt After Ta x Cos t of Debt WACC Di s count ra te FCFF .48 2.3% 25.33 35.0% 25.0% 1.8 15.8 35.0% 1.8 12.0% 21.53 2.9 10.($m) PV of TV .9% 1.5) 16.3% 9.46 2.0% 46.2 Yea r 2 135.3% 8.0% 145.3% 8.2% 1.0% 3.0% 1.0% 3.7% 15.4 10.0% 1.3% 9.0% 1.9 13.3% 1.33 35.1% 10.51 2.52 2.8 35.8% 5.DCF Model The inputs to the 3-Stage FCFF model used to value Pegasystems are summarized below.6% 5.5% 11.0% 17.0% 1.0% 1.3% 50.6% 2.0% 1.1 35.0% 3.6% Ma rket va l ue of debt .($m) Val ue of ca s h a nd equi val ents Val ue of opti ons .3% 8.1% 10.610.0% 214.8) Yea r 3 168.33 35.7% 74.6% 5.090 (163.4 Yea r 9 330.6% 2.1% 10.

3 33.5% terminal growth rate is reasonable but we have analyzed in the sensitivity below a broader spectrum of possibilities (that would have an impact on the reinvestment rate).9 39.4 33.2 29.73% 8.7 34.4 32.5 31.0 Finally.9 37.2 35.9 31.4% 15.5 33.2 31.2 37.7% 13.6 30.7 31.6 32.7 35.73% 9. WACC – Share price in $ Share price-$ 31.5% 28.7 32.1% LT ROIC Perpetual growth rate 2.0 29.5 33.8 35. We think that that 2.Sensitivity Analysis Finally.5 1.2013).0 38.3 31. LT ROIC – Share price in $ Share price-$ 31.3 30.8 31. Sensitivity analysis – g vs. On the other side.8 29.6 32.2 30.23% WACC Perpetual growth rate 2.2 31.1 31.4% 9.7 35.0 31.0% 29.0 34.7 40.6 Sensitivity analysis – g vs.9 31.6 36.0% 30.0% 31.8 31.0% 30.2 35.4 35.0% 11. the value of the company could growth by 11% to circa $35 per share (meaning that it will need to re-invest less to generate the same growth rate). (ii) WACC.1 31.6 28.4 38.9 32.0 31.7 4.5% 3.2 32. Today in the US there are only circa 10 companies operating in the software and information technology industry with such a size.6 1.0% 2.98% 8.3 31.48% 8.0 31. as far as the ROIC is concerned.3 30.3 29.4 32.0% 28.8 30.48% 9.5 29.23% 8.0 30.7 32.4 4.3 32.5% 30.7 9.2 32. in case Pegasystems is not able to beat its long term cost of capital. (iii) return on invested capital. we have preformed two sensitivity analysis based on three of the variables that we deem to be particularly sensitive for the valuation of the company: (i) stable growth rate.6 30.1 33.1 30.9 34. we think that by then the market will be pretty stabilized and that it would be difficult to growth more than the economy without major investments or M&A activity.7 30.6 3.5 30.1 34.6 1.5 30.2 30.8 30.7 31.5 30.0% 2.0% 28.9 30.9 33.0 28.5 34.2 32. 8 .5% 29.5% 31.1 3.1 36.5% 3.5 31.7% 10.2 35.8 29.1 34.9 33.7 9.1 36.6 30.5 1.3 31.2 32. However.9 32. The growth rate that we applied over the 10 year business plan would lead to an over $1bn revenue company.4 28.7 33.4 30. in case Pegasystems will be able to maintain a ROIC equal to circa 15% (close to 2009 figure and in line with our assumptions for 2011 .0% 9.4 36. the value of the share will drop by 4% to circa $31.

called Video Lottery Terminal (“VLT”). the company will implement the introduction of the new VLT slot machine. we assumed no substantial impact on SNAI operating profit Given the above assumptions. the segment is suffering from more attractiveness of other games (poker and sport betting in particular) and therefore will be stagnating and slightly declining.5% due to higher competition in the market. with a sharp increase of ROIC that will pass from app. driven by online poker and cash games. This will result in a strong growth of the operating profit. we assumed a 15% spread versus the 10 year Euro bond based on synthetic rating method (C rated). for the 1st stage. due to a sharp increase of competition. we decide to use a two stage model. SNAI operates four different segments: we decided to analyze each segment individually in order to have a better understanding of the potential impacts on the company’s growth. 9 . focusing mainly on deleveraging the capital structure and reducing indebtness. a much broader games offering and are expected to increase substantially the amount of money spent per day by a single customer (called “coin-in”).SNAI Assumptions In the last few years. return on capital and operating profitability going forward: 1) Sport Betting: analysts expect the segment to grow 3% over the 2010-2012 period mainly driven by the online channel. We assumed that SNAI will reach after 10 years the D/E industry average equal to of 40%. These slot machines are expected to generate ca.In the second stage. Analysts are therefore predicting that the impact on the return on capital and company profitably will be significant. . €40 mln of operating profit in 2012 (40% of the company total operating profit in 2012). In order to react to these market dynamics. 2) Horse Betting: despite no substantial change in profitability (payout not expected to change). However the street consensus is that industry players will increase the payout ratio (amount won by the customer on the single bet) from current 78% to 79. the company will enter a stable phase. The company recently acquired concessions from Italian government to set up app. 6. In particular the company is replacing its current slot machines network (mentioned hereafter as “old model”) with a new generation of slot machines. 10% in 2010 to 20% in 2012. The new VLT machines have a much more appealing format. .In the first stage (2 years). the company is changing its product offering. However. 70%) and will greatly impact the company return on capital. This will have a negative impact on the company return on capital. SNAI has faced opposite market trends with the online segment growing with double-digit rates and the horse betting segment (where the company has a substantial exposure) decreasing sharply. 3) Slot Machines: this is the most important segment for the company future growth.000 VLT (with total consideration of €75 mln). As we mentioned the company overview. The new VLT will gradually replace a great portion of the old model machines (ca. In terms of cost of debt. 4) Skill Games: the segment is expected to grow very fast.

4 511.409 1.0% 0.5% 7.1 0 20.0% 5.9% 9.4 0 20.5% 1.0% 0 8.2% 9.61 34.6% 0 7.5% 0.61 34.2% 5.5% 0 8.0% 2.8% 0 9.6) of 18.6 34.2%.1 0 20.02 0 3.0 0 0 # of s hare out Va l ue per s ha re .3% 31.3% 60.4 0 20.3% 81.(€m) Value of operating assets .3% 8.9% 0 1.3% 8.8 0 20.6 34.5% 0 7.($m) Sum of NPV .4 0 0 Ma rket va l ue of debt .759 29.(€m) 29.0% 12.0% 0 7.(€m) 1.(€m) PV of TV .3% 28.5% 2.4% 0 6.2 34.8% 0 12.3% 32.4% 19.3 34.8% 0 0.3% 87.153 29.61 34.0% 0 12.80 0 Yea0 10 r 0 52.4 252.94 0 STABILISATION PHASE (Deleveraging) Yea r 5 0 0 47.0 0 20.61 34.0 8.5% 11.2% 0.5 298.3% 74.4 0 31.5% 0 8.3% 33.153 31.5% 0 8.0% 97.0% 0.883 2.5% 0 5.9% 7.9% 0 1.0% 2.0% 0.4 0 15.61 34.78 0 3. Treas ury Pre-ta x Cos t of Debt After Tax Cos t of Debt WACC Di s count rate FCFF .299 1.5% 0 0. SNAI 2010E 0 0 EBIT .DCF Model The inputs to the 2-Stage FCFF model used to value SNAI are summarized below.6 -18.00 0 Yea r 3 0 0 44.0% 145.2% 5.0% 0.0% 15.3% 67.(€m) Va l ue of ca s h a nd equi va l ents Va l ue of opti ons .(€m) ROC RIR Growth Unl evered Beta Ta x Ra te D/E Levered Beta Ri s k Free Ra te Equi ty Ri s k Premi um Country Ri s k Cos t of Equi ty Sprea d vs .5% 0 10.4% 0 6.3% 23.5% 8.3 34.83 0 Yea r 9 0 0 51.61 34.2 0 9.0% 8.5% 0 5.97 0 Yea r 4 0 0 45.0 0 20. current price 10 .2% 5.8% 0 9.2 34.0% 4.0% 0 0.3% 29.(€) Current pri ce .3% 8.3% 0.0% 0.7 0 8.2 0 0 7.7% 0 10.0% 2.3% 34.094 (10.3% 19.0% 9.5% 11.3% 46.5% 0.0% 15.1 0 20.014 2.3 34.8% 0.0% 13.0% 0 5.(€m) Ta x ra te ATOP .8 34.0% 15.0% 0 0.3% 31.7) 0 0 212.0% 20.0% 15.0% 17.8 0 0 313.61 34.6% 0 7.3% 35.3% 0 1.89 0 Yea r 7 0 0 49.0% 10.61 34.0% 0 0.0% 0 0.2 per share implying a discount on current share price (€2.61 34.0% 10.0% 0 0.7% 1.1% 0 7.5% 1.3% 33.0 54.5% 8.643 27.4 34.0% 10.2% 0 8.4 34.61 34.7 0 20.8 2.3% 101.4% 0 New Product (VLT) Yea r 1 0 0 35.5% 5.02 0 Yea r 2 0 0 42.4 8.61 34.0% 9.86 0 Yea r 8 0 0 50.5% 0 8.6% 21.0% 2.0% 0 12.61 34.6% 0 8.0% 8.0% 2.3% 30.8% 0.5% 3.0% 10.3% 40.4% 0 1.78 0 Stable 0 0 53.(€) Premium / (discount) vs.0% 13. The intrinsic valuation for the company is $2.8 0 30.196 0.8 0 26.3 34.8% 0 9.0% 9.4 34.4% 0 7.9% 0 2.7 642.1 0 20.9% 0 5.3 0 24.91 0 Yea r 6 0 0 48.0% 3.2 2.3% 40.6 0 0 116.3% 0 8.5% 0 0.0% 0.(€m) Termi na l Val ue .(€m) Market value of equity .5% 7.7% 0.0% 0 0.522 23.5% 5.3% 53.0% 5.1% 0 1.5% 0 0.3% 101.0% 10.0% 0 0.7% 0 5.0% 0 0.3% 94.

16 2.89 1. Consequently.51 1. (ii) WACC.51 3.82 1.38 1.26 1.71 2.98 2.0% Perpetual growth rate 2.66 2.38 2.75 2.91 2.16 2.5% 4.50 1.52 3.0% 1.16 1. we have preformed two sensitivity analysis based on three of the variables that we deem to be particularly sensitive for the valuation of the company: (i) stable growth rate.06 2.81 2.61 1.22 2.0% 23.5% 3.73 1.9% 7.9% 8.0% 5.87 1.84 1.37 2.92 1. Analysts currently assume that the coin-in (money bet per day by a single costumer) of the VLT will be 500€ per day versus the current value of 220€ per day of the old model.34 2.68 3.78 1.02 2. Sensitivity analysis – g vs.5% 1.9% Perpetual growth rate 2.66 2. both in terms of how appealing VLT machines will be to costumers and what will be the pay-out set by industry players.85 3.26 Sensitivity analysis – g vs.0% 26.0% 2.0% 1. LT ROIC – Share price in EUR Share price 2.0% LT ROIC 17.72 1.0% 20.63 As we mentioned before. Given the substantial impact of VLT machines (and related uncertainty). we believe that our recommendation based on the intrinsic value method will be SELL.29 2.55 2.20 2.98 1.38 2.09 2.46 2.5% 2.42 1.83 1.2 14.9% LT WACC 5. the expected growth of the return on capital will depend on how well these machines will perform.0% 2.Sensitivity Analysis Finally. (iii) return on invested capital.96 2. 11 .86 1.0% 3.2 4. the final recommendation on this stock is deeply linked to the expectations regarding the introduction of the new VLT slot machines.98 2.28 1. The increase of profitability in our DCF model seems already quite aggressive based on analysts’ consensus.04 1.83 1.9% 6. WACC – Share price in EUR Share price 2.

as compared to repurchases of 0.5% growth and steadily tapering off to 3% in the terminal year.1% in 2006 to 19. Stage 2: stabilization phase . On November 2010 this month. We use a 2 stage FCFF model as per the below assumptions: Stage 1: high growth – 5 years – 13.5MM. Furthermore. Aeropostale top line has been growing at a CAGR equal to 16% for the last 5 years. Recently. During the first twenty.57% growth the first year (consistently with the re-investment rate of the previous year and analyst expectations). we can expect a high growth phase for the next five years coming mainly from the P. In our growth assumptions.Aeropostale Assumptions Aeropostale is a US specialty retailer that targets the teen fashion retail market. Converting the operating lease obligations to debt.0%. Furthermore. the company grew sales per sq ft from $543 to $624. international franchise business and the new P.6% in 2010.6MM shares for $13. same store sales performance.15Bn. The growth of the company comes from new store openings.5MM during the first twenty. the company increased the share repurchase program by $300MM increasing the total to $1. online sales account for ~5% of revenues .4MM shares for $39. At the same time. segment (kids).2% in year 4 and 3.5% based on retail sector debt market comparables from Factset and speaking to debt syndicate financing professionals at investment banks. 12 . Since the company has over 950 stores in the US. international franchise and online sales. the shares have been under pressure due to near term comparable stores sales and departure of Co-CEO Meads.this will drive growth (and operating leverage) in the future.S.Stable growth equal to 3. Linearly stabilizing to a stable pace in line with long term target economic growth. we estimate a present value of leases of ~$510m.00% in year 5. In terms of ROIC. The company boasts the highest sales productivity per square foot with over over 170 stores at $800/sq ft and an average of $624/sq ft for its ~950 stores. the Company repurchased 1. we have made a number of adjustments to the operating profit and the cash flow to the firm. we have incorporated the company’s reinvestment rate and high return on capital and thus started out with 13. We have been conservative and assumed that in the long term growth slows down and the ROIC will tend to converge to the cost of capital. as retailers have off balance sheet operating leases obligations. From 2007 to 2010.six weeks of 2010. 11. the company has been able to expand EBITDA margins from 13. segment for kids.six weeks of 2009. and has engaged in share buyback and insider buying over the last year which we also believe demonstrates convinction in the company’s undervalued share price. the company boasts a high ROIC of 44% due to its low $ per unit cost and smaller stores compared to peers. The cost of debt assumed is 6.5% in year 3 and 7.S. It is worth noting that the company boasts a strong balance sheet.

13 2 13.45% 143.17% $379 $115 $11 $253 8.00% 42.22 $246.87 $40.602.tax rate) .391.12% 90.611.61% 1.4907 $160 Terminal $264 $21 $60 $183 $431.14% 1.18 $180.75% 33.75% $340 $93 $11 $236 8.00% 4.01% $406 $147 $8 $252 8.75% $299 $82 $10 $207 8.50 $3. Aeropostale Expected Growth Rate Cumulated Growth Reinvestment Rate EBIT * (1 .2659 $200 4 7.0814 $192 3.DCF Model The inputs to the FCFF model used to value Aeropostale are summarized below.42% 1.40 $510.86% $419 $176 $3 $239 8.39 Valuation Present Value of FCFF in high growth phase = Present Value of Terminal Value of Firm = Value of operating assets of the firm = Value of Cash.61% $4.57 $4. The intrinsic valuation for the company is $37.86% $246. Marketable Securities & Non-operating assets = Value of Firm = Market Value of outstanding debt = Market Value of Equity = Value of Equity in Options = Value of Equity in Common Stock = Market Value of Equity/share = $937.50 $4.945.14% 1.24% 1.(CapEx-Depreciation) -Chg. Working Capital Free Cashflow to Firm Cost of Capital Cumulated Cost of Capital Present Value Growth Rate in Stable Phase = Reinvestment Rate in Stable Phase = FCFF in Stable Phase = Cost of Equity in Stable Phase = Equity/ (Equity + Debt) = AT Cost of Debt in Stable Phase = Cost of Capital in Stable Phase = Value at the end of growth phase = Current 1 13.98 per share.14% 38.03% 8.98% 30.90 $9.57% 128.23% 154.90 $239.04 $3.122.1695 $201 3 11.65 $3.25 $2.77% 42.00% 158.57% 113.57% 30.882.94 13 .3725 $184 5 3.39 9.

50% 2.5% at the end of year five.9%. Stage 1: high growth phase. the firm seems regain its past momentum.5 years – 8.53 $35.00% Cadence Assumptions Despite its outstanding growth in 2006 and 2007.Sensitivity Analysis Finally.10 $31. since the firm has heavily invested in R&D to maintain its competitiveness in the market. respectively.44 $36.29 $43.62 $33. We used a two stage FCFF model and five year projection to evaluate the company’s intrinsic value.95 $39. Cadence experienced net loss in its last two reporting periods (2008 and 2009).28 $38. which equals to the ROIC.01% Stage 2: stable growth phase .86 $36. we turned to use its normalized earnings and average operating margin over the past five years.00% 1.07%.24 $34. 14 Perpetual growth rate 1. and used them as the basis in our projection.00% $51.5% comparing to that in 2009.00% 8. Cost of Capital at this stage dropped to 8.58 $31.96% growth in EBIT.50% $56.73 $40.79 $40. Therefore. we made the appropriate adjustment on its operating income and book value of assets and equity as well.26 3.9% and Reinvestment rate of 69. However.09 $36.79 $42.00% 9.1%.45 $30. The Cost of Capital is estimated to be 9.35 $37. based on ROIC of 12.50% 8.50% 10. we have preformed sensitivity analysis based on stable growth rate and WACC that we deem to be sensitive for the valuation of the company WACC 7.35 $32.83 .68 $34.39 $32. Over the same period.5%. The revenue over that last twelve months has grown 5.86 $33.14 $29. In 2008 and 2009.54 $49. And the consensus-estimated EBITDA margin in 2012 will trend back to historical average (25%).14 $30.75 $41. to reflect lower growth prospect.62 $30.12 $45.50% 9. Also.4% and 0.00% $37.92 3. revenue dropped by 35.Stable growth rate equals to 2.98 $44.53 $28. Cadence apparently now is in the recovery phase from the downturn.2% in 2007 to 3.35 $28.7% and 17.40 $27. the gross profit margin remained at the level around 80%. due to significant shrink from the top-line.50% $46. and EBITDA margin slide from 27.93 $26.81 2. for the purpose to evaluate the company’s ability to generate sustainable cash.32 $34. which later would be used to come up with the ROIC and growth rate. The expected growth rate is linearly adjusted to 2.42%.

Sensitivity Analysis In our estimation. comparing to Risk-free rate of 3.01% adopted. and assume this will be the norm through out both high and stable growth phases.70 per share. Therefore.75%. The intrinsic valuation for the company is $8.439 and 1. several variables used in calculation hold rooms of discussion. we have preformed sensitivity analysis based on two of the variables that we believe to be sensitive for the valuation of the company: (i) stable growth rate. respectively. We used a 35% marginal tax rates for all the calculations.08%.21 (Dec. we used an historical ERP of 5. and (ii) WACC. 15 . Cadence seems to be undervalued by the market. 3rd.2 for high grow and stable growth. DCF Model The two-stage DCF model used to value Cadence is summarized as below. Since we believed the firm is now adequately leveraged according to our analysis on its comparable peers.04%. In Cost of Equity.In estimating Cost of Debt. Given the current price of $8. 2010). we assume the firm will continue its capital structure with a Debt to Capital ratio of 22. and a beta of 1. we used current effective interest rate of 6.

75% from 9. from $8.70 to $8.51.76%. the value per share will drop by nearly 2.01% to 9.2%. 16 .If the WACC increases by 0.

87x 1. ERP.76% HOLD 11. Content Management.64 EV/EBITDA 7.6x 24.40% 34. The list of comparables is available in appendix 17 .70% 28. Infrastructure & Tools.6x 12.4% BUY 1.51%) HOLD Market Pegasystems Comparables We have identified 33 companies operating in the software and information technology industry.03 EV/EBITDA 24.0x 6.8 (4.07%) SELL SNAI 2. Systems & Network Management.5 EV/SALES 0. CRM / Demand Chain. Most of them are characterized by relatively low capital expenditures and massive investments in research and development.5x 79.7x 48.10% 7. EDA and Semiconductor Software.05% 8.5 (6.8 6.65% 2.6% BUY Cadence 8.8x 27.4x 23.4 101.7x 67.7 78.79%) SELL 8. We collected up to date data on theses firms through Capital IQ and Reuters (up to December 9rd). Business Intelligence.3 (11.1 (2. Relative Valuation Summary Relative valuation Current price Multiple Current value Comparable Regression value R sq adj Expected price Delta (%) Result Regression value R sq adj Expected price Delta (%) Result Pegasystems 35.41%) HOLD 6.4x 47.50% 2.7x 56. In particular we broaden the set of comps including companies operating in the following sub-sectors: Supply Chain. PLM.20% 43.7 (18. Enterprise Suite Vendors and others.4.50% 49.21 EV/EBITDA 14.5x 56.85%) SELL Aeropostale 24.

In running the EV/EBITDA multiple-regression. We ran a ‘Comps’ regression for each of these multiples and ultimately chose EV/EBITDA to perform our analysis and valuation since the comps regression was robust in terms of adjusted R2. we incorporated R&D among our predictors by adding the EBITDA / Capex variables with positive statistic results. we initially adjusted all the EBITDA and invested capital values by the research and development expenses.6 + 30.8360 1. The table below shows the result of the regression.0500) P 0. At the same time the level of R&D il clearly reflected in the regression with our second predictor. and reinvestment rate. In particular we used an EBITDA growth equal to 50% (in line with the growth used in the DCF model) and a R&D / EBITDA equal to 108.1430 3. in order to be consistent. and divided by the number of shares outstanding (37m). EV/EBITDA and EV/Sales).50521 R-Sq = 69.1.9870 T 4. ROIC. tax rate.0000 0. Predictor Cons ta nt EBITDA growth R&D / EBITDA Coeffi ci ent 11. We obtain a value per share equal to $34. page 24”). We therefore took a step back and regressed non adjusted EV/EBITDA multiples. Valuation relative to market We used the equation for the US cross sectional regression available on the Damodaran lecture notes (“Value/EBIT Multiples. Nonetheless. 18 .0400 (3.Choice of multiple We originally investigated three multiples (PE. EBITDA expected growth is the most relevant predictor.0050 S = 7.4% Valuation relative to Comparables Companies Substituting the values for Pegasystems in the regression function (EV/EBITDA = 11. we noticed that the R2 of the regression using this value was very low and the predictors were not significant.0000 0.3.0540) SE Coeff 2.6050 30.8 EBITDA growth .208. In order to get to the value per share we added back the net cash position as of the nine months ending September 2010 of $52. We analyzed and excluded from the regressions a number of variables since they were (surprisingly) non statistically significant: beta.9500 8.8300 (3. On the other hand (not surprisingly). in line with both our DCF valuation and the current market value.8m.05 R&D / EBITDA) we get to a valuation of the company (firm value) equal to $1.4% R-Sq(adj) = 67. EBITDA margin.6m. Since we are using a non R&D adjusted multiple. we obtained the firm value by multiplying the regressed EV/EBITDA multiple by the non adjusted EBITDA for Pegasystems. However.8%.

namely the comps’ beta. we decided to use EV/EBITDA NTM against LT expected growth and taxes due to its high R-squared value.211 + exp g in EPS 5yrs * 0. Among the different regression. Equipment manufacturers.287 + ROC1 * 11. depreciation and amortization. This time we decided to multiply it for the R&D adjusted EBITDA since the US market is a much broader space and the R&D adjusted ROI and operating profit give a better sense of the company performance in relation to its re-investment rate. Relative to the market. SNAI Comparables We have identifies 34 companies operating in the gaming and betting industry. As a source for our data.075 * Long Term Growth in EPS 19 .073 * Effective Tax Rate + 0. We used as independent variables the several ratios that mostly affect this multiple: expected growth. In particular. Lotteries and lottery technology providers. In addition. taxes.EV/EBITDA= 7. eliminating non-significant variables. using both last twelve months (“LTM”) and next twelve months (“NTM”) figures. Choice of multiple We originally used as dependent variables PE.7 per share (after net cash position adjustment). we used Capital IQ database. reinvestment requirements (CapEx and change in net working capital).1%.8x.953 . cost of capital. we decided to concentrate on EV/EBITDA LTM and EV/EBITDA NTM.110) Here we get to a regressed multiple of value of 8. As P/E and EV/SALES multiples reported results with low R-squared.3 or $28. The resulting regression equation is: EV/EBITDA NTM = 8. Our regressed value for the Company is equal to 1. Valuation relative to Comparables Companies We used Minitab to run a regression against the comparable companies.010. Online gaming. our listed comparable companies include players operating in the following segment: Sports betting.123 + effective tax rate * (0. the regression does not factor in directly R&D investments and we believe they are an essential part of the Pegasystems business model. EV/EBITDA and EV/Sales multiples.0. Pegasystems is overvalued by about 22.

Discount Retail. In order to be consistent with our set of data.50 + 11.40525 R-Sq = 56. Aeropostale Comparables We have identifies 20 companies operating in the specialty retail sector. EV/EBITDA.0194 T 13.5x. implying that SNAI is currently overvalued relative to the sector by about 7%. SNAI multiple on a LTM basis is equal to 7.5.0010 S = 1.0753) SE Coeff 0.7% Based on the regression equation.12. operating leases and target customer profile.51x.0728 (0. EV/EBITDAR (before rent expense) and EV/Sales.9532 0.88) P 0.08 (D/C) + 0. we computed the EV of SNAI using the book value of debt and we find an actual EV/EBITDA NTM multiple of 6. The data was compiled from Capital IQ LTM information and the list of comparables is included in the appendix. In particular we broaden the set of comps including companies operating in the following sub-sectors: Apparel Retail.0000 0. department Stores and others. Relative to the overall market. Luxury.10 (3.59 t . These comparables have similar characteristics in terms of capital expenditures. the predicted EV/EBITDA NTM multiple for SNAI is 6.5% R-Sq(adj) = 51. Valuation relative to market We used the equation for the European cross sectional regression available at Damodaran website EV/EBITDA = 13. we ran a ‘Comps’ regression with Minitab for each of these multiples and ultimately chose EV/Sales to perform our analysis and valuation since the comps 20 . To assist us.6543 0.6x.Predictor Cons ta nt LT EPS Growth Ra te Ta x Rate Coeffi ci ent 8.95x. Choice of multiple We explored the feasability of using various multiples include PE. implying that the company is currently over-valued by about 12%. the predicted multiple is 6.0060 0.0235 0.29 g .68 3.35 RIR Using LTM values.

We excluded from the regressions a number of variables .93 (Debt/Capital) Substituting growth estimates based on reinvestment and analyst expectations.40 Operating Margin – 0.5m.4800 2.1. Substituting an EBITDAR margin of 23%. also showing that the shares of Aeropostale are undervalued. we get to a regressed EV/Sales Multiple of value of 1.25.971 T (2. in line with both our DCF valuation consistent with our recommendation that the shares are undervalued. Predictor Coeffi ci ent SE Coeff 0. We obtain a value per share equal to $43.9m. and reinvestment since they were non-statistically significant. In order to get to the value per share we added back the net cash position of $239. and divided by the number of shares outstanding (88m).706 Beta . operating margin of 13% and Debt/Capital of 0. Valuation relative to market We used the regression equation for the US market available at ‘Damodaran Online’.regression was robust in terms of adjusted R2 and significance of the predictors (EBITDAR margin%. 21 .0220 0. and divided by the number of shares outstanding (88m).93 g + 6. tax.95 + 14.7x.ROIC.19 + 11. 0. In order to get to the value per share we added back the net cash position of $239. Beta and Operating Lease/Sales).6 EBITDAR margin + 0.5m. so we therefore moved to EV/Sales which is a relevant multiple for the retailing sector.7.5400 (2.278 4.248 0.950) EBITDAR ma rgi n 14. we obtained a predicted EV/Sales of 1.859) S = 0. Beta of 1.706 OL/Sal es (10.044 Cons ta nt (1. Initially.1 and OL/Sales of .06.2% Valuation relative to Comparables Companies Substituting the values for Aeropostale in the regression function (EV/SALES = .0300 0.6.4.5% R-Sq(adj) = 79. While performing the EV/Sales multiple regression. we started with EV/EBITDAR but the significance of the regression was not strong. we adjusted for operating lease characteristics and looked closely at EBITDAR numbers across the comparables.0000 0.2) P 0.10.576 Beta 0.822 2. We chose EBITDAR margin. we get to an Enterprise Valuation of $3608.433280 R-Sq = 82. Beta and Operating Lease/Sales among our predictors which yielded positive results.3700) 6. We obtain a value per share equal to $49.9 OL/Sales).

or an 11. it would probably provide us more grounds to explain the relationship better. we looked at the comparables’ main operating business and capital structure as well. Please note the above regression analysis was done without adjusting R&D expenses. Those businesses share a similar characteristic that they tend to operate with less capital investment on fixed assets. however.5832 * R&D exp.43%. The value per share derived from the metric is $9. and instead focus on research and development./EBITDA). Valuation relative to Comparables Companies Hence. Even though the EBITDA growth rate shows limited explanatory capability statistically. based on the predicting formula (EV/EBITDA = 7.8993 + 11. but by the investment on the intangibles. The dependant variables we selected are EBITDA growth rate and R&D/forward EBITDA. 22 . We concluded to use EV/EBITDA instead of P/E and P/S given that the revenue sources and capital structures varied across comparables selected. Also.16. We collected latest data of theses firms through Capital IQ and Bloomberg (up to December 3rd). we estimated the EV/EBITBA to be 13. the R-square is close to 47%.53% premium comparing to current market share price. based on forward EBITDA of 8. EV/EBITDA multiple.2x. The list of comparables is available in Appendix 4. we relaxed the criteria to broader category of Application software design and development. in our search of comparables. Choice of multiple Considering which multiple could better reflect the value driver of Cadence’s business.Cadence Comparables We have identified 47 companies operating in the same sector. we believed it makes intuitive sense to predict EV/EBITDA multiple because it is the underlying element affecting future EBITDA. In our regression analysis. as being done in our intrinsic valuation. and its ability to explain the independent variable. which give us a certain level of confidence about the result. If so.4021 * EBITDA growth + 5.96% and R&D/EBITDA of 77. P/B was also excluded from the consideration because we believed the value of such business is not driven from the balance sheet.

03%.83 * (RIR)1 With 8.57+ 49. we concluded an EV/EBITDA multiple of 11.80 value per share.17% Reinvestment rate.stern. 1 http://pages. Relative to the market.nyu. Cadence was overvalued by 5.4x for Cadence. 22.04% Debt to Capital ratio and 67.edu/~adamodar/New_Home_Page/datafile/MReg10. which gave us a $7. EV/EBITDA= 8.96% growth rate.html 23 .08 *(Debt/Capital) – 0.87 * growth rate – 5.Valuation relative to market We used the regression equation for the US market available at ‘Damodaran Online’.

or a 5.5.65. We concluded the equity value per share of Cadence is $8. Valuing Equity as an Option Cadence We used Black-Scholes model and the estimated firm value from our intrinsic valuation to estimate the valuation on Cadence’s common equity. 24 .4% of premium relative to current market price.

it appears to us that the company is undervalued by 6. respectively. Cadence We believe the company is valued appropriately by the market right now. we are confident of our target price of $41. the change in SNAI product offering for slot machines (introduction of VLT) is the main uncertainty for the future success of the company. SNAI SNAI operates in an industry and a market (Italy) that are driven by good fundamentals with proven strong growth in the past few years and a general consensus of future growth (especially in the online and slot machines segments). our final recommendation is a SELL rating. we suggest selling the stock and investing in an undervalued one to benefit from potential capital gains. the Company looks overvalued. Aeropostale According to valuation methodologies like the DCF and the relative valuation against its comparable companies (EV/Sales). Final Recommendation Pegasystems According to our DCF and to the relative valuation against its comparable companies (EV/EBITDA). Cadence has experienced net loss over the past two years. depending upon how capital intensive the firm is and how much reinvestment is needed to keep the business going and create growth. Given the company’s long-term record with positive same store sales growth throughout the recession. Since the EV/EBITDA multiple varies widely across firms in the market. Pegasystems looks fairly priced or slightly overvalued by the market. We think the short term concerns over same store sales and CO-CEO departure have impacted the share price in the near term. The precedent deals done by TPG and Bain Capital confirm our belief too. we tend to give more credit to the Pegasystems specific sector multiple regression.6. by contrast. since the company’s target price ($32) is slightly below its trading value. and is now gradually moving itself toward recovery. In our DCF and comparable regression analysis.03%. Since the EV/Sales multiple varies across retailers in the market. we give more credit to the regression results and DCF. we see the company is overvalued by 2.01% and 11. in multiple valuation and market regression analysis. However. we suggest to hold the stock given its upside potential and limited downside risk. According to the relative valuation against the market (EV/EBITDA). 25 . Therefore. depending upon how capital intensive the firm is and reinvestment needed to grow. due to the mix of valuation result. Given the potential risks of this challenge and already aggressive assumptions of future increase of profitability.19% and 5.53%. Aeropostale looks undervalued by the market. However.

(Na sdaqGS:CDNS) Citri x Systems. (Nas da qGS:MENT) Mi croStrategy Inc. Inc. (Na sdaqGS:ARBA) Art Technology Group Inc. Inc. (Nas da qGS:NTCT) Novell Inc. (Nas daqGS:ADSK) Bl ackba ud Inc. Inc. (Nas daqGS:NOVL) Open Text Corp. (Nas da qGS:ININ) JDA Software Group Inc. Inc. (Na s daqGS:CVLT) Compuware Corporation (Nas daqGS:CPWR) Epi cor Softwa re Corpora ti on (Nas daqGS:EPIC) F5 Networks. (Nas da qGS:SNPS) Tes s era Technol ogies Inc. (Nas da qGS:LWSN) Ma nha ttan As socia tes. Inc. (Nas daqGS:ORCL) Parametric Technology Corpora ti on (Nas da qGS:PMTC) Progres s Softwa re Corp. (Nas daqGS:PRGS) Quest Software Inc. (Nas daqGS:OTEX) Ora cle Corp. (NYSE:RHT) Ri ghtnow Technol ogies Inc. Inc. (Na s daqGS:FFIV) Fai r Is a ac Corp. (Na sdaqGS:TIBX) Primary industry Supply Cha in Content Ma nagement PLM ERP Sys tems & Network Ma na gement Sys tems & Network Ma na gement Softwa re and informa ti on technology Sys tems & Network Ma na gement Sys tems & Network Ma na gement Infras tructure & Tool s ERP Sys tems & Network Ma na gement Bus i nes s Intell igence Bus i nes s Intell igence CRM / Demand Chai n Supply Cha in ERP Supply Cha in EDA and Semi conductor Software Bus i nes s Intell igence EDA and Semi conductor Software Sys tems & Network Ma na gement Infras tructure & Tool s Content Management Enterpri se Suite Vendors PLM Infras tructure & Tool s Sys tems & Network Ma na gement Infras tructure & Tool s CRM / Demand Chai n Enterpri se Suite Vendors EDA and Semi conductor Software EDA and Semi conductor Software Integration 26 . (Nas da qGM:RNOW) SAP AG (DB:SAP) Synops ys Inc. (Nas da qGS:TSRA) Tibco Software. (Nas da qGS:BMC) CA Technol ogi es (Na sdaqGS:CA) Cadence Des ign Sys tems Inc. (NYSE:FICO) Informa ti ca Corpora ti on (Nas da qGS:INFA) Intera cti ve Intell i gence. (Na s daqGS:CTXS) CommVault Systems. Inc. (Na sdaqGS:QSFT) Red Hat. (Nas da qGS:MANH) Mentor Graphics Corp. (Na sdaqGM:ARTG) Autodes k. Inc. (Nas da qGS:JDAS) Laws on Softwa re. (Nas da qGS:MSTR) Nationa l Ins truments Corpora ti on (Nas da qGS:NATI) NetScout Sys tems Inc.Comparable Companies Company Ariba Inc. Inc. (Nas da qGS:BLKB) BMC Software Inc.Appendix Appendix 1 – Pegasystems .

A.p. (NasdaqCM:PTEK) Sportech plc (LSE:SPO) WMS Industries Inc. (CATS:CDR) GVC Holdings PLC (AIM:GVC) International Game Technology (NYSE:IGT) PokerTek. (NYSE:BYD) Carnival plc (LSE:CCL) Codere. (ASX:TAH) William Hill plc (LSE:WMH) 888 Holdings (LSE:888) Bet-At-Home. Inc.A. (CM:LTO) OPAP SA (ATSE:OPAP) Scientific Games Corporation (NasdaqGS:SGMS) Tatts Group Limited (ASX:TTS) The Rank Group Plc (LSE:RNK) Aristocrat Leisure Ltd.com AG (XTRA:ACX) Betbull Holding SE (DB:0BB) Betsson AB (OM:BETS B) bw in Interactive (WBAG:BWIN) i:FAO AG (XTRA:FAO2) PartyGaming Plc (LSE:PRTY) Redbet Holding Ab (OM:RBET) Sportingbet plc (AIM:SBT) Tipp24 AG (XTRA:TIM) Unibet Group plc (OM:UNIB SDB) Intralot SA (ATSE:INLOT) Lottomatica Group S. (NYSE:WMS) Industry Segm ent Sports betting Online gaming Lotteries and lottery technology providers Equipment manufacturers 27 . (NYSE:BYI) Boyd Gaming Corp. (ASX:ALL) Bally Technologies.Appendix 2 – SNAI – Comparable Companies Com pany Ladbrokes PLC (LSE:LAD) LP Hill plc (AIM:LPH) Paddy Pow er plc (ISE:PLS) Players Netw ork (OTCBB:PNTV) Probability Plc (AIM:PBTY) Tabcorp Holdings Ltd. Inc. S.

3 LTM EBITDA 213.2 772.5 258.54 1.4 2.063.362.96 17.340.8 921.5 1.686.6 454.212.0 271.304.9 201.8 217.2 258.29 2.0 1.2 1.33 16.159.08 10.542.075.1 1.917.2 936.334.934.7 3.0 1.43 1.9 269.049.76 1.3 156.381.641.9 477.8 322.45 10.266.204.88 13.98 1.196.7 836.37 1.8 199.2 350.057.2 258.5 1.5 569.186.033.1 483.0 2.113.589.5 (0.4 1.202.552.4 366.2 3.084.5 273.3 228.29 1.338.04 2.2 1.7 228.4 412.6 634.77 4.5 450.3 618.117.95 11.0 1.7 1.940.5 LTM Revenue 1.3 LTM EBIT 116.8 353.1 1.7 1.29 1.Appendix 3 – Aeropostale Comparable Companies Company Ann Taylor J Crew Childrens Place Dress Barn Gap Limited Brands Foot Locker Men's Wearhours Buckle Chicos Urban Outfitters American Eagle Guess Collective Brands Abercrombie & Fitch Ralph Lauren Bebe Coach Express Aeropostale Market Cap 1.0 108.0 175.5 364.9 334.993.8 2.0 3.7 170.1 413.6 504.3 1.1 135.44 3.6 1.7 808.3 Gross Profit 1.6 311.22 Cash & ST 223.7 2.9 457.982.439.0 187.757.5) 1.7 2.6 1.020.6 3.06 2.1 3.6 712.220.5 469.338.6 193.683.3 1.82 2.711.29 2.86 2.724.905.8 164.089.76 1.255.99 1.2 1.759.3 4.384.0 9.2 1.9 223.865.412.2 1.45 11.690.989.102.4 495.191.555.893.723.1 1.0 2.053.144.5 2.4 5.63 10.9 1.705.536.47 4.11 1.0 337.7 24.9 917.372.0 47.0 864.800.419.2 28 .4 422.598.314.8 320.46 2.8 239.0 81.8 194.2 408.8 481.5 FWD EBITDA 213.6 504.94 1.976.9 2.0 197.8 661.373.6 503.741.0 541.97 4.654.0 1.194.7 2.806.7 5.683.489.2 2.07 5.343.4 506.9 462.08 520.62 6.019.99 3.0 358.98 364.6 197.81 2.300.68 Total EV 1.5 505.2 200.831.175.555.5 228.018.134.629.8 14.173.990.017.4 3.8 391.

5 4155. Gymboree .5 297.5 92. It is worth noting the multiples paid by Bain Capital and TPG respectively for the below $1.5 92.8 4430.5 42.2 EV/Sales EV/EBITDA EV/EBIT EV/EBITDAR 1.7-8.40 470.31 4133.9 45.5 297.1 50.25 4621.0 7.5 43.1 3723.7 9.0 0.5 92.0 0.5 4673.Bain Multiple Enterprise Valuation Cash+ST -Debt Shares Value per share J Crew . Given the entire compan was taken private.5 297.5 92.6Bn and $3Bn buyouts.5 570.5 92.5 92.0 4376.3 417.5 92.0 3969.9 8.TPG Multiple Enterprise Valuation Cash+ST -Debt Entperpise Valuation Shares Value per share EV/Sales EV/EBITDA EV/EBIT EV/EBITDAR 2. 10x EV/EBIT and a 8x EV/EBITDAR (before rent expense).9 53. 6x EV/Sales. or 7. Applying the average 1.1 3903.05 297.84 3621.0 0.5 297.5 29 .8 4918.0 4452.6 4201. Two notable LBO’s done in the last three months include Gymboree and J Crew.Precedent Transactions for Aeropostale The specialty retail sector has attracted recent leveraged buyouts by private equity firms.5 297.327.6 7.3 3918.6 92.5 0 0 0 0 4021.0 297.4 47. the private equity firms have had to pay a premium to acquire the company.3 10.6 8.5 297.5 0.5 1.3 EV/EBITDA. we get a stock price of $42-$50.4 48.7 3672.5 42.

5x 5.5x 6.9% 27.4% 38.0% 2006 18.2x 18.0x 12.2% 17.4% 7.1% 13.2x 8.3% 50.2x 20.1% 39.6x 5.6x 8.7x 10.8% 40.7% 0.7x 10.9x 2004 1.5% 53.5% 26.1% 14.1% 2007 19.1x 8.9x 4.2% 15.6x 29.0x 6.5% 10.0% 7.9% 57.9% 5.4% 4.1x Profitability Return on Assets % Return on Capital % Return on Equity % Return on Common Equity % Margin Analysis Gross Margin % SG&A Margin % EBITDA Margin % EBITA Margin % EBIT Margin % Net Income Margin % Levered Free Cash Flow Margin % Unlevered Free Cash Flow Margin % 2003 NA NA NA NA 2004 20.0% 5.7% 2008 23.3x 18.8% 15.7% 6.7% 12.7% 2009 26.8% 11.7x 13.7% 35.1% 39.6% 32.9% 10.3% 53.1% 32.1% 34.0x 7.7x 12.9x 8.4% 13.3x 14.5x 5.6% 36.6% 41.4x 25.4x 9.7x 11.1% 8.7% 7.1% 4.2% 11.1% LTM 32.9% 13.8% 35.3% 13.6% 20.2x 9.4% 5.7% NA NA 37.3x 18.6% 25.Historical Multiples for Aeropostale Historical Multiples TEV/ Revenue TEV/ EBITDA TEV/ EBIT P/Normalized EPS P/BV TEV/Unlevered FCF 2003 1.2% 24.0% 54.1% 34.0% 56.6% 13.3x 18.6% 0.9% 10.0% 12.9% 17.4x 8.0% 2005 23.3% 4.7x 5.5% 9.5% 44.6% 8.6% 6.2x 21.6x 14.4x 25.1% 4.9% 9.1x 8.7% 11.6% 13.3% 25.8% 14.2% 7.6% 15.5% 5.5% 5.1% 54.3% 40.7% 50.1x 2005 1.3x 2006 1.5% 8.1% 8.6x Nov-29-2010 0.6% 13.2x 10.7% 35.9% 51.0x 2008 1.0% 27.1x 10.7% 10.5% 36.0x 58.6x 2009 1.9x 5.3% 26.9% 30 .1% 11.8x 34.1x 7.0% 26.4% 32.3x 2007 1.4x 6.

Appendix 4 – Cadence 31 .

- Choosing the right multiple.pdf
- Valuation Mergers
- TELETECH - Teaching Notes.pdf
- Monster V2
- gitman_12e_525314_IM_ch11r_2
- gitman_12e_525314_IM_ch11r
- Eva
- Corrected Assignment FM
- EVA MVA
- Time Technoplast Ltd Q4FY15 Update
- FIN 4604 12
- Wa Cc Europe
- Financial Journal
- Mauboussin - The Importance of Expectations
- Time Series.pdf
- art%3A10.1007%2Fs10910-007-9328-5
- CAPIQ - Excel Plug-InTemplate Guide
- Capital IQ Excel Plug-In Guide
- AFM Report
- The Old Man and the Tree or a Parable of Valuation
- Pagalguy Valuation
- Anosha
- MEI_Event_studies.ppt
- Premium Valuation
- Profitabilnost kupaca.pdf
- ACC501 - Final Term Papers 02
- document.pdf
- Chap 008
- centre
- Chapter 11
- Valuation Final Project

Are you sure?

This action might not be possible to undo. Are you sure you want to continue?

We've moved you to where you read on your other device.

Get the full title to continue

Get the full title to continue reading from where you left off, or restart the preview.

scribd