Equity stub valuation with JVs / Associates

CFA Level II Equities
#1

Hello,

am looking at an example where a company has a number of JVs and associates and the task is to calculate the value of the so called stub.

A company owns 80% of JVs worth 100m due to a recent deal with an investor, has 10m in net cash, the JVs are valued at 5m on the balance sheet, the current market cap is 150m, total EBIT is 5m and the pre-tax income from JVs is 1m. There is also PP&E worth 10m.

So I calculated the following:

-> Equity value = 0.8*100 for JVs + net cash 10m + 0 for JVs on balance sheet as recently valued in a transaction = 90m

-> Stub value = market cap 150m - equity value 90m = 60m

-> Implied EV/EBIT = (stub 60m - net cash 10m) / (EBIT 5m - profit from JVs 1m) = 12.5x

Is that the right way to look at it?

If at all, how should the net PP&E be accounted for?

Thank you

#2

Do you think possible to post the full question verbatim?

#3

Am on the road and the numbers are not the same 1 for 1. Basically a stub valuation.

#4

Anyone have an idea here?

#5

tbh, i’m not sure what your question is referring to in the L2 curriculum. when i google “CFA stub valuation”, your post is the first link: which is why i asked if possible to post the question verbatim.