Equity Valuation Bruno Filipe dos Reis Carvalho 152112003 Advisor: José Carlos Tudela Martins August 25th 2014 Dissertation submitted as a partial fulfillment of the requirements for the degree of MSc in Business Administration with major in Corporate Finance and Control at Católica Lisbon School of Business and Economics, August 25th 2014. AGENDA Executive Summary ............................................................................................................................................................................ 1 Mediaset – The Industry Leader .............................................................................................................................................. 1 Spanish Economy Revival after the downfall ..................................................................................................................... 1 Cash Pile, Residual Investment, Profitability on the rise .............................................................................................. 1 Key reported Data 2013 ............................................................................................................................................................... 1 Abstract .................................................................................................................................................................................................... 2 Preface ...................................................................................................................................................................................................... 3 Introduction ........................................................................................................................................................................................... 4 Literature Review ................................................................................................................................................................................ 5 Overview ............................................................................................................................................................................................. 5 Option or Contingent Claim Theory ....................................................................................................................................... 7 The Discounted Cash Flow Approach .................................................................................................................................... 8 Cost of Capital ................................................................................................................................................................................. 10 Using WACC or APV...................................................................................................................................................................... 13 Economic Value Adedd valuation (EVA) ............................................................................................................................. 16 Multiples Valuation ...................................................................................................................................................................... 17 Cyclical Companies Valuation .................................................................................................................................................. 18 Company Presentation – Mediaset Comunicacio n Espan a ............................................................................................. 21 Shareholder Breakdown ............................................................................................................................................................ 27 Share Price Past Performance ................................................................................................................................................. 28 Industry and Drivers ........................................................................................................................................................................ 29 Macroeconomic Landscape ...................................................................................................................................................... 30 The Advertising Market ............................................................................................................................................................. 34 Regulatory Issues .......................................................................................................................................................................... 41 Operational Highlights and Peer Comparison ................................................................................................................. 42 Valuation Overview........................................................................................................................................................................... 48 Background ..................................................................................................................................................................................... 48 Valuation Method .......................................................................................................................................................................... 48 AGENDA Revenue Projections and Drivers........................................................................................................................................... 49 Costs Projections ........................................................................................................................................................................... 51 Weighted Average Cost of Capital (WACC) ........................................................................................................................ 53 Valuation Results .......................................................................................................................................................................... 54 Sensitivity Analysis ...................................................................................................................................................................... 55 Market Consensous (Bloomberg July 2014) ..................................................................................................................... 56 Multiples Valuation ...................................................................................................................................................................... 57 Comparison with Espí rito Santo Investment Bank ............................................................................................................ 58 Method Comparison .................................................................................................................................................................... 59 Assumption Comparison ........................................................................................................................................................... 59 Investment Case ............................................................................................................................................................................ 64 Conclusion ....................................................................................................................................................................................... 65 Appendix ............................................................................................................................................................................................... 66 Bibliography ......................................................................................................................................................................................... 82 Literature.......................................................................................................................................................................................... 82 Databases ......................................................................................................................................................................................... 84 Websites ............................................................................................................................................................................................ 84 Research............................................................................................................................................................................................ 84 Seminar and Course Material Material ............................................................................................................................... 85 Company Data ................................................................................................................................................................................ 85 Others ................................................................................................................................................................................................ 85 MEDIASET ESPAÑA EQUITY VALUATION Executive Summary MEDIASET – THE INDUSTRY LEADER Recommendation Mediaset is the largest free-to-air television