Case Study 3 FINC3015 85%

Case Study 3  Q1. Choosing Comparable Companies  Ideally you use exactly the same asset when conducting comparable analysis, this may be easy when pricing  Pokémon cards but all companies are different. While trying to find comparable companies I have balanced  the strictness of my criteria to ensure the companies truly represent DSH without creating a small sample bias.  Choosing companies correctly will ensure that multiples correctly compare the companies. I have used the  companies indicated in the table based on the categories that follow.  ASX:JBH

ASX:MYR

ASX:HVN

NYSE:BBY

SEHK:493

LSE:DXNS

NYSE:RSH

NYSE:GME

TSE:9435

  Industry Selection  DSH is in the consumer electronics industry but the broad retail industry represent comparable companies as  they are exposure to very similar risks; the freedom of entry and exit of new firms to the industry ensures that  margins stay low. They try to differentiate on quality of service and rely heavily on the product marketing of  their suppliers, exposing them to fashions that are out of their control. Traditional bricks and mortar stores  have all felt the impact of online retailers and most have now developed omni‐channel retail strategies.  Excluding online only retailers the industry is exposed to similar operating costs structure and profit margins  and therefore DSH can be compared with retailers such as MYR. A weakness of comparing the whole industry  comes from long term cycles that effect cash flows in the short term for one retail sub‐category such as the  release of a new gaming console. As this happened in 2013 it is the forward proxies have been used. The  portion of HVN that operates as a retailer is very small, being a franchise that owns a large property portfolio  and is involved in a variety of non‐retail businesses makes it unfit for comparable analysis.  International Comparison  Globalisation has integrated fashion and retail trends across the globe, this increases the comparability of  international companies with DSH. Australian's may be considered to have high incomes and developing  markets middle class is growing but retail is a mostly unregulated industry with freedom of entry to markets,  making it easy for international companies to compete for these customers and leveling long term growth  opportunities. Best Buy is a good example of this as it operates in the US, Canada, China and Mexico but with  the latest revenue figures 40x DSH it is the only company that is too big to compare. Tax and accounting  standards may vary from country to country, this creates an issue in comparison across borders. Differences in  standards for recording D&A, different tax rates and financing costs change the way assets performance looks  on paper but using EV/EBITDA and EV/Revenue help standardise the companies, more on this in multiple  selection.  Growth Potential  Retail is a highly competitive industry, the three biggest players in the Australian electronics market are  estimated to have only 54% of Australian market share. Customers are rarely loyal and if one retailer starts  providing better service or cheaper prices they don't think too much about making the switch and all  companies have room for growth. With the excepting of Best Buy growth potential is relatively similar for the  remaining retail companies and good management will be able to expand market share. As RadioShack has  particularly bad management, earning a loss, losing market share and not forecasted to earn a profit in the  medium term, it is not useful to compare with DSH. They can be considered an outlier and not industry  standard. A potential weakness in this is that it assumes equally ambitious and skilled management but this is  not often the case.  Capital Structure  The capital structure of a firm will change the risk profile of a company, as leveraging earnings might appear to  be good the volatile nature of earnings in retail could change a leveraged companies position rapidly,  therefore Smaller debt to equity ratios are desirable. Rather than eliminate comparables the choice of  multiples is used to value companies of different capital structure, discussed further in Q2. 

Q2. Identifying Appropriate Ratios  The ratio's chosen are important as they standardise the price of a firm, the  Multiple Weight difficulty arises because one ratio may identify your stock to be over priced and  EV/Revenue (FY+1) 20% another may suggest it is under priced. To address this issue I have chosen to  EV/EBITDA (FY+1) 40% triangulate 3 ratios, more depth on triangulation in question 3, according to  P/E (FY+1) 40% their importance. The ratios and weights used, shown in the table, are justified  below.     Consistency  I used only consistent ratios, the numerator and denominator must both be equity value or enterprise value  and not one of each, as this will avoid major pricing differences that arise from capital structure. For example  the price/EBITDA ratio is likely to make a firm with a large amount of debt look cheap compared to one with  little debt. As the net profit of a firm will be affected by the interest payment but the operating profit will not  the ratio will not accurately measure the performance of the assets or the value to the shareholder. Using this  ratio would underestimate the risk for equity holders that is associated with high levels of debt and not  provide a good comparison price.  Forward Estimates  I have used the 1 year estimated revenue, EBITDA and EPS as cash flow proxies in my multiples as value is  determined in a company's future, not it's realised, cash flows. When using consensus estimates the growth  and risk potential of a company is accounted for but the assumption that the analysts have accurate estimates  is made. Although analysts accuracy can be questioned there is more useful information captured in the  estimates. Although it is rare to use forward estimated of revenue and EBITDA in this case it was necessary as  the gaming consoles released in 2013 have affected the cash flows of each retailer differently depending on  their dependence on gaming revenues. To use further forward estimates such as 2 years ahead reduces  accuracy and that's why I have chosen the 1 year forecast.   

Enterprise Value Multiples 

The use of foreign companies makes it necessary to try and mitigate the effects of different accounting  standards. Using the EV/Revenue multiple helps us achieve this, measuring a firm's ability to generate cash  flow. However profitability is not measured and using only this multiple would assume efficiency is the same  across all companies being compared. As profitability measures value to shareholders more accurately this  ratio gets a smaller weighting, 20%. The EV/EBITDA measures cash flow efficiency of the firm's assets and is a  better proxy for value to all investors, therefore gains a larger weighting of 40%. Being enterprise value  multiples they have the advantage of directly comparing the performance of the company's assets regardless  of capital structure, standardising the price before the leverage effects of debt. For this reason I have given a  combined weight of 60% to the enterprise value multiples.    Price to Earnings  The most commonly used value metric is the price to earnings, although there are different rules used to  dictate what is cheap or expensive, it has the benefit of comparing profit directly available to shareholders.  This does come at the downfall of not accounting for the effects of capital structure, differences in accounting  methods and taxation but is considered important as profit available to the shareholder is an important  measure of value. This ratio therefore receives a weighting of 40%.   

Unused Ratios 

The PEG ratio was disregarded in this valuation as growth has been worked into the model by using the  forward earnings estimates. The price to book ratio was not used, although this ratio may be useful in valuing  troubled companies or setting a minimum price it does not measure the ability of the firm to generate cash  flows from its assets and to strengthen the comparative analysis unprofitable firms were not used. It is also  troublesome because retail company’s asset values are not regularly updated and store fixtures or old stock  may not accurately be measured by the company's book value. EBITDA has been used as a proxy for FCFF 

rather than directly due to the volatile nature cash flows due to abnormal expenses and temporary changes in  CAPEX and working capital from year to year. EBITDA provides a more comparable steady measure.   

Q3. Comparable Value  I have determined a value range of $1.56 to $2.55 by triangulating the ratios with the weights stated above.  The current price, $2.25, sits just above the triangulated median price, $2.19, and close to the offer price of  $2.20. My comparative analysis shows that DSH was valued fairly at the time of the initial public offering.     The companies I have picked fit a strict criterion to  ensure comparison is accurate and the multiples are  comparable. Visually you can see the different  results achieved by each ratio. From a low of $1.01  given by the EV/Revenue ratio to a high of $2.82  from the P/E. The EV/Revenue also gives the largest  range. The triangulation incorporates information  from each ratio. This Eliminates the need to hold to a  strict set of assumptions that is likely to be  unrealistic, for example using only the EV/Revenue  assumes firms have the same efficiency. As you can  see the P/E ratio alone would have suggested that the company was undervalued but both EV ratios suggest it  is overvalued. Proving triangulation has used more information and produced a more accurate value range for  DSH. To further remove biasness I have used the median, 25th percentile and the 75th percentile for the  average, low and high value estimates respectively, it removes outliers that are likely to be undervalued or  overvalued themselves and companies that are effected by special circumstances and have abnormal prices,  refer to question 4 for more on statistical bias, strengths and weaknesses of my methods.   

Q4. Strengths and Weaknesses    

Strengths 

Many of the strengths have been mentioned in the justification of various methods, to avoid repetition these  will not be repeated. Some ratio's have certain statistical properties that have been accounted for by using the  median, 25th and 75th percentile's. The inability of any earnings multiple to be negative ensures a positively  skewed distribution. Outliers are also more likely to be extremely positive due to 0 being the minimum value.  Irregular situations such as a recall on a product can affect earnings for 1 year; this may inflate the current  price to earnings ratio substantially and therefore affect the average measure. The retail environment was  temporarily distorted, especially in the electronics sub‐sector, with the release of new gaming consoles in  2013. Adjustment to provide more accurate comparison has been made by using the consensus analysts'  estimates for 2014 figures. The use of the consensus estimates eliminates the biasness that using a singular  analyst is exposed to, this is often the topic of debate as to whether this is a strength of weakness of  comparative analysis. One of the luxuries of the stock market is recent pricing, as the comparable companies  used all have better liquidity than DSH, a median of 0.45% daily turnover, this ensures prices are reliable and  up to date.     Weaknesses  As not all companies report on the same date the multiples do not compare the exact same earnings periods,  as few months can sometimes make a large difference to multiples the analysis is exposed to inaccuracy. This  can be adjusted for by using interim or quarterly reports to derive a more accurate cross‐section of the  companies being compared. Often the dark side of comparative analysis is exposed when whole sectors  deviate from any realistic value, as happened in the dot‐com bubble. In a situation like this a stock that is  expensive may appear to be cheap when compared to peers. Comparing long run averages of sector or market 

multiples can be used in the analysis to avoid large market distortions. The company may have information  that causes it to trade at a discount to market comparables over the long term, if no quantitative analysis is  done it may be hard to pick this information up. One possibility is to use the long term average multiple and  compare it to the long term average sector multiple, if a long term pricing discount is exposed an issue that  cannot be seen in a simple cross‐sectional analysis should be considered.    

Q5. Holistic valuation and fair value in the long term  As valuation differs from person to person and from situation to situation a holistic valuation approach is open  to interpretation. Relative valuation is the most commonly used but other extreme examples include  Astrology. Discounted cash flow analysis and variations of are considered, especially amongst academics, to  capture the most information. The ability to forecast earnings into the longer into the future provide an  analyst with a better understanding of intrinsic value. When a DCF was performed on DSH with the pro forma  and WACC given in the case study I came up with a share price of $5.79(assuming 3% terminal growth).  Immediately this is open to criticism as the assumptions of the provider of the pro‐forma are taken as true  accurate estimates. Bias is a well known attribute of valuation, Aswath Domodoran has done an experiment  where he has provided his opinion on intrinsic value of a company while giving an assignment out to one class  but not another, not surprisingly the class provided with the opinion returned very similar values whereas the  other class didn't. The pro‐forma provided already has errors in cost measurements associated with the  management incentive scheme and other non‐recurring items for 2014. My judgment would be to dampen  profitability measures as I think the analyst’s estimates are optimistic. I believe that when suppliers see that  Dicksmith is producing a healthy profit they will want to return their own margins to previous standards. The  bias is likely to be present because the provider of the pro‐forma has an incentive, the IPO, to make the  company look cheap. This then exposes the problem inherent in all valuation techniques, the assumptions  determine the price. In relative valuation the assumptions are made indirectly through the consensus of the  market, although this gives the benefit of diversifying biasness it is dangerous as because at times the market  can move off momentum rather than value. Various stock market crashes are proof of this and at these times  relatively cheap stocks may still be over priced. I then believe that discounted cash flow valuation is a more  accurate measure of intrinsic value; however the assumptions should be analysed and a judgment made as to  the accuracy in a model especially with a rapid turnaround such as DSH. Many situations should be analysed to  determine a value range rather than holding a strict set of assumptions to determine a single price. For  purpose of example I have done another valuation simply assuming the statutory pro‐forma's EBIT estimate is  accurate and then attached growth to the growth in the number of stores, the result is $2.27. This shows the  fragility of valuation to the assumptions made.    As the purpose of valuation is often for negotiations it is obvious why the institute of chartered accountants  define fair value to be ‐ "The price that would be received to sell an asset or paid to transfer a liability in an  orderly transaction between market participants at the measurement date (an exit price)." In this case it makes  sense why relative valuation is used more often to DCF, if a company wants to go public today they want to  know what is a realistic price range they will get. However for the long term investor Warren Buffet's definition  is more appropriate "price is what you pay, value is what you get". The contrast of the two definitions provide  a good answer to the question, as fair value depends on the underlying assumptions of the valuation model  and the time horizon of the investment fair value will differ from person to person. For the long term investor  the projections of the DSF provides a holistic approach to determine the ‘fair value’ of an asset. 

Dick Smith Holdings Limited: Financial Summary A$ in millions, year end Jun

Profit And Loss Revenue COGS Gross Profit SG&A EBITDA Depreciation and Amort EBIT Interest Income Interest Expense Pre-tax Profits Tax Expense NPAT No. Stores

FY11 1,281 946 335 299 36 13 24 0 1 23 7 16 320

FY12 1,370 1,030 340 307 33 13 20 0 1 19 6 13 325

FY13 1,280 (977) 304 (280) 24 (13) 11 0 (1) 10 (3) 7 323

FY14E 1,228 (920) 308 (236) 72 (13) 59 0 (2) 57 (17) 40 369

FY15E 1,303 (974) 329 (247) 83 (14) 69 2 (3) 68 (20) 47 382

FY16E 1,366 (1,017) 348 (257) 92 (15) 77 2 (3) 77 (23) 54 395

6.67 -11.03 -17.32 -17.98 24.83 2.38 1.47 1.6%

-6.73 -32.73 -60.28 -66.33 23.71 1.84 0.86 -0.6%

-4.18 111.97 167.62 177.69 25.11 5.86 4.79 14.2%

5.91 13.86 15.56 16.69 25.27 6.35 5.27 3.5%

4.70 10.33 11.54 12.27 25.51 6.72 5.65 3.4%

FY13 7 13 (50) 3 (27)

FY14E 40 13 (6) 15 62

FY15E 47 14 (3) 3 61

FY16E 54 15 (2) 3 69

Growth and Margins (%) Sales growth EBITDA growth EBIT growth NPAT growth Gross margin EBITDA margin EBIT margin Store Growth

-

26.17 2.84 1.87

Cash Flow StatemenFY11 FY12 Net Income 16 D&A (add) 13 Working Capital (Change) Other Operating Cash Flow Cash Flow from Operations CAPEX Acquisitions Diverstitures Others Cash Flow from Inves Dividends Paid Debt (Change) Common Stock Issuanc Other Financing Cash F Cash flow from Financ Total Cash Flow

13 13

(53) 0 0 5 (48)

(24) 0 0 0 (24)

(5) 0 0 0 (5)

(20) 0 0 0 (20)

(18) 0 0 0 (18)

(21) 0 0 0 (21)

0 0 0 0 0

0 0 0 0 0

0 0 0 0 0 (33)

0 0 0 0 0 42

(31) 0 0 0 (31) 12

(33) 0 0 0 (33) 15

Balance Sheet

FY11

FY12

Cash and Cash Equivalents Accounts Receivable Inventory Other Current Assets Total Current Assets Net PP&E Net Intangibles Total Investments Other Long Term Assets Total Assets

FY13 13 10 169 16 208 60 0 0 39 307

FY14E FY15E 55 66 10 11 203 215 15 16 283 308 67 72 0 0 0 0 37 40 387 419

FY16E 81 11 225 17 334 78 0 0 42 454

Accounts Payable Short-term Debt Other Current Liabilities Total Current Liabilities Long-term Debt Other long-term Liabilities Total Liabilities

129 0 19 148 27 16 190

157 0 18 175 27 46 248

166 0 19 186 27 51 263

174 0 20 195 27 58 279

Preferred Shares Total Common Equity

0 117

0 139

0 156

0 175

Total Liabilities and Equity

307

387

419

454

FY14E FY15E 41 48 13 14 (6) (3) (20) (18) 28 40 26.19 35.95

FY16E 54 15 (2) (21) 46 38.35

Intrinsic Value Best Case Free Cash Flows FY11 EBIT*(1-Tax Rate) D&A (add) Working Capital (Chang CAPEX Free Cash Flows Discounted Terminal Growth Rate WACC

FY12 17 (13) 0 (53) (49)

14 (13) 0 (24) (22)

3% 6%

Terminal Value sum of PV debt Equity Value no. shares Share price

1316.53 65.68 13.50 1368.71 236.50 5.79

Intrinsic Value Worst Case FY11 Free Cash Flows EBIT*(1-Tax Rate) D&A (add) Working Capital (Chang CAPEX Free Cash Flows Discounted Terminal Growth Rate WACC Terminal Value sum of PV debt Equity Value no. shares Share price

FY13 8 13 (50) (5) (35) -34.80

FY12 17 (13) 0 (53) (49)

14 (13) 0 (24) (22)

FY13 8 13 (50) (5) (35) -34.80

1568.00

FY14E FY15E 23 24 13 14 (6) (3) (20) (18) 10 17 9.48 14.75

FY16E 25 15 (2) (21) 17 14.11

3% 6% 484.36 65.68 13.50 536.54 236.50 2.27

576.88

Comparative Analysis for Dick Smith Holdings Limited Company Information

ASX:DSH

ASX:JBH

(AUD in millions, except per share data)

Dick Smith Holdings Limited

JB Hi-Fi Limited

Latest Fiscal Year: LTM as of: 52-Week High 52-Week High Date 52-Week Low 52-Week Low Date Current Price (2/12/14) % of 52-Week High % of 52-Week Low Daily Volume % Turnover Total Common Shares Market Capitalization Plus: Total Debt Plus: Preferred Stock Plus: Minority Interest Less: Cash and Equivalents Net Debt Enterprise Value Valuation Total Revenue Enterprise Value / Rev EBITDA Enterprise Value / EBITDA eps P/e Revenue Growth EBITDA Growth EBITDA Margin

ASX:MYR SEHK:493 LSE:DXNS NYSE:GME TSE:9435 Myer Holdings Limited

30/06/2013 30/06/2013 27/07/2013 29/12/2013 31/12/2013 25/01/2014 $ 2.41 $ 23.13 $ 3.26 10/01/2014 7/11/2013 29/04/2013 $ 1.99 $ 12.04 $ 2.19 20/12/2013 18/02/2013 12/06/2013 $ 2.25 $ 18.50 $ 2.58 93.4% 80.0% 79.1% 113.1% 153.7% 117.8% 0.2 0.6 2.1 0.09% 0.56% 0.36% 236.5 100.3 585.7 532.2 1,854.8 1,511.0 26.5 49.9 423.2 9.7 13.0 44.9 81.5 13.5 5.0 351.4 545 7 545.7 1 859 8 1,859.8 1 862 4 1,862.4

FY+1 FY+1 FY+1 FY+1 FY+1 FY+1 1 Year 5 Year 1 Year 5 Year FY+1

Leverage/Coverage Ratios Net Debt / Equity % Net Debt / Capital % EBITDA / Int. Expense

GOME Dixons Electrical Retail plc Appliances Holding Limited 31/12/2013 30/04/2013 31/12/2013 31/10/2013 $ 0.22 $ 0.97 25/11/2013 17/12/2013 $ 0.09 $ 0.47 25/06/2013 26/02/2013 $ 0.19 $ 0.87 87.5% 89.0% 214.5% 185.7% 47.1 11.8 0.28% 0.32% 16,875.1 3,656.1 3,205.9 3,168.9 396.6 577.9 (86.9) 1.0 1,470.4 650.7 (1,160.6) (71.8) 2 045 3 2,045.3 3 097 1 3,097.1

GameStop Corp.

25%Q

Median

1/02/2014 31/03/2013 1/02/2014 31/12/2013 $ 63.97 $ 98.11 $ 1.69 $ 13.20 $ 43.55 14/11/2013 16/01/2014 $ 25.88 $ 42.89 $ 1.23 $ 7.12 $ 18.96 4/03/2013 13/02/2013 $ 40.45 $ 90.76 $ 1.56 $ 10.54 $ 29.47 63.2% 92.5% 80% 84% 91% 156.3% 211.6% 136% 171% 199% 3.5 0.3 3.01% 0.54% 0.45% 115.8 47.7 4,684.3 4,333.7 1682.92 3187.39 3769.81 633.5 118.8 688.0 275.9 (688.0) 476.4 3 996 3 3,996.3 4 810 1 4,810.1 1861 12 1861.12 2571 18 2571.18 3546 67 3546.67

1,228.0 0.4x 72.0 7.6x 0.19 12.1x (30.7%) 0.0% (87.6%) 0.0% 6.1%

3,538.8 0.5x 227.4 8.2x 1.27 14.5x 5.8% 12.6% 9.7% 12.6% 6.4%

3,130.6 0.0x 289.8 0.0x 0.20 3.9x 0.4% (1.7%) (3.8%) 6.3% 9.3%

10,947.5 0.2x 330.2 6.2x 0.01 15.6x 10.4% 4.2% NM (8.0%) 3.0%

13,910.0 0.2x 608.1 5.1x 0.05 16.8x 3.0% (0.1%) (9.3%) 8.6% 4.4%

10,892.9 0.4x 940.4 4.2x 4.20 9.6x 1.7% 0.5% (5.7%) (1.4%) 8.6%

5,977.3 0.8x 387.5 12.4x 6.24 14.6x 0.2% 9.8% 28.4% 1.8% 6.5%

0.2x 258.6 4.7x 0.12 10.8x 0.3% (0.1%) (8.4%) (0.7%) 5.2%

0.4x 330.2 6.2x 0.20 14.5x 1.7% 0.5% (4.7%) 1.8% 6.4%

0.5x 497.8 7.9x 2.74 15.1x 4.4% 7.0% 6.4% 7.5% 7.6%

2.5% 2.5% 1.3x

0.3% 0.3% 24.9x

23.3% 18.9% 11.0x

0.0% 0.0% 25.0x

0.0% 0.0% 10.6x

0.0% 0.0% 137.8x

11.0% 9.9% 78.1x

0.0% 0.0% 10.8x

0.1% 0.1% 24.9x

6.8% 6.2% 51.5x

Comparative Value EV/Revenue (Fwd) EV Debt - cash Equity(EV Equity(EV-Debt) Debt) Shares outstanding Share Price

1st Qrt 251.42 13.50 237 237.92 92 236.51 $ 1.01

median 450.51 13.50 437 437.01 01 236.51 $ 1.85

3rd Qrt 595.52 13.50 582 582.02 02 236.51 $ 2.46

EV/EBITDA (Fwd) EV Debt - cash Equity(EV-Debt) Shares outstanding Share Price

336.35 13.50 322.85 236.51 $ 1.37

$

445.92 13.50 432.42 236.51 1.83

$

567.23 13.50 553.73 236.51 2.34

P/E (Fwd) Share Price

$

$

2.71

$

2.82

Comparative Value  P/E (Fwd) EV/EBITDA (Fwd) EV/Rev (Fwd) Triangulated

2.02

$0.90 Price Range EV/Rev EV/EBITDA fwd P/E Triangulated

Low $1.01 $1.37 $2.02 $1.56

75%Q

Hikari Tsushin, Inc.

Mid $1.85 $1.83 $2.71 $2.19

High $2.46 $2.34 $2.82 $2.55

Weight 0.2 0.4 0.4

$1.40

$1.90

$2.40

$2.90

Dick Smith Holdings Limited: Financia A$ in millions, year end Jun

Profit And Loss

FY15E

1281.1 945.9 =B4-B5 298.8 =B6-B7 12.5 23.9 0 1.4 =B10-B12 6.7 =B13-B14 320

1369.5 1029.5 =C4-C5 307.4 =C6-C7 12.5 20.1 0 1.4 =C10-C12 5.5 =C13-C14 325

1280.4 -976.8 =D4+D5 -280.1 =D6+D7 -12.5 =D8+D9 0 -1.4 =D10+D11+D12 -2.8 =D13+D14 323

1228 -919.6 =E4+E5 -236.4 =E6+E7 -13.2 =E8+E9 0.1 -1.5 =E10+E11+E12 -17.2 =E13+E14 369

1302.8 -973.6 =F4+F5 -246.5 =F6+F7 -14 =F8+F9 1.9 -2.7 =F10+F11+F12 -20.4 =F13+F14 382

FY16E 1365.5 -1017.1 =G4+G5 -256.7 =G6+G7 -14.6 =G8+G9 2.3 -2.7 =G10+G11+G12 -23 =G13+G14 395

Sales growth EBITDA growth EBIT growth NPAT growth Gross margin EBITDA margin EBIT margin Store Growth

-

=(LN(C4/B4))*100 =(LN(C8/B8))*100 =(LN(C10/B10))*100 =(LN(C15/B15))*100 =(C6/C4)*100 =(C8/C4)*100 =(C10/C4)*100 =C16/B16-1

Cash Flow Statement

FY11 =B15 =B9

FY12 =C15 =C9

=(LN(D4/C4))*100 =(LN(D8/C8))*100 =(LN(D10/C10))*100 =(LN(D15/C15))*100 =(D6/D4)*100 =(D8/D4)*100 =(D10/D4)*100 =D16/C16-1 0 FY13 =D15 =-D9 -49.6 2.8 =SUM(D29:D32)

=(LN(E4/D4))*100 =(LN(E8/D8))*100 =(LN(E10/D10))*100 =(LN(E15/D15))*100 =(E6/E4)*100 =(E8/E4)*100 =(E10/E4)*100 =E16/D16-1 1 FY14E =E15 =-E9 -6.3 15 =SUM(E29:E32)

=(LN(F4/E4))*100 =(LN(F8/E8))*100 =(LN(F10/E10))*100 =(LN(F15/E15))*100 =(F6/F4)*100 =(F8/F4)*100 =(F10/F4)*100 =F16/E16-1 2 FY15E =F15 =-F9 -3.4 3.1 =SUM(F29:F32)

=(LN(G4/F4))*100 =(LN(G8/F8))*100 =(LN(G10/F10))*100 =(LN(G15/F15))*100 =(G6/G4)*100 =(G8/G4)*100 =(G10/G4)*100 =G16/F16-1 3 FY16E =G15 =-G9 -2 2.6 =SUM(G29:G32)

CAPEX Acquisitions Diverstitures Others Cash Flow from Investments

-53 0 0 5.4 =SUM(B35:B38)

-24 0 0 0 =SUM(C35:C38)

-5.4 0 0 0 =SUM(D35:D38)

-20.3 0 0 0 =SUM(E35:E38)

-18.3 0 0 0 =SUM(F35:F38)

-20.9 0 0 0 =SUM(G35:G38)

Dividends Paid Debt (Change) Common Stock Issuance (Repurchase) Other Financing Cash Flows Cash flow from Financing Total Cash Flow

0 0 0 0 =SUM(B41:B44)

0 0 0 0 =SUM(C41:C44)

0 0 0 0 =SUM(D41:D44) =D33+D39+D45

0 0 0 0 =SUM(E41:E44) =E33+E39+E45

-31.2 0 0 0 =SUM(F41:F44) =F33+F39+F45

-32.9 0 0 0 =SUM(G41:G44) =G33+G39+G45

Revenue COGS Gross Profit SG&A EBITDA Depreciation and Amortisation EBIT Interest Income Interest Expense Pre-tax Profits Tax Expense NPAT No. Stores

FY11

FY12

FY13

FY14E

Growth and Margins (%)

Net Income D&A (add) Working Capital (Change) Other Operating Cash Flow Cash Flow from Operations

=(B6/B4)*100 =(B8/B4)*100 =(B10/B4)*100

Balance Sheet Cash and Cash Equivalents Accounts Receivable Inventory Other Current Assets Total Current Assets Net PP&E Net Intangibles Total Investments Other Long Term Assets Total Assets

FY13 13 10.4 168.5 15.8 =SUM(L4:L7) 60.3 0 0 38.9 =SUM(L9:L12)+L8

Accounts Payable Short-term Debt Other Current Liabilities Total Current Liabilities Long-term Debt Other long-term Liabilities Total Liabilities

129.3 156.7 166.2 174.2 0 0 0 0 19 18.2 19.3 20.3 =SUM(L15:L17) =SUM(M15:M17) =SUM(N15:N1=SUM(O15:O17) 26.5 26.5 26.5 26.5 15.6 46.3 51.2 57.6 =SUM(L19:L20)+L18=SUM(M19:M20)+=SUM(N19:N2=SUM(O19:O20)+O

Preferred Shares Total Common Equity

0 116.5

0 139.4

0 156.1

0 174.8

Total Liabilities and Equity

=L13

=M13

=N13

=O13

Intrinsic Value Best Case Free Cash Flows EBIT*(1-Tax Rate) D&A (add) Working Capital (Change) CAPEX Free Cash Flows Discounted Terminal Growth Rate WACC

FY11

FY12

0

FY11 =B$10*0.7 =-B$9 =B$31 =B$35 =SUM(J30:J33)

FY12 =C$10*0.7 =-C$9 =C$31 =C$35 =SUM(K30:K33)

EBIT*(1-Tax Rate) D&A (add) Working Capital (Change) CAPEX Free Cash Flows Discounted Terminal Growth Rate WACC Terminal Value sum of PV debt Equity Value no. shares Share price

1

3 FY15E FY16E =D$10*0.7 =E$10*0.7 =F$10*0.7 =G$10*0.7 =-D$9 =-E$9 =-F$9 =-G$9 =D$31 =E$31 =F$31 =G$31 =D$35 =E$35 =F$35 =G$35 =SUM(L30:L33) =SUM(M30:M33) =SUM(N30:N3=SUM(O30:O33) =N34/(1+$L$3=O34/(1+$L$38)^O2 =L34/(1+$L$38)^L28 =M34/(1+$L$38)^M FY13

2

FY14E

0.03 0.06

Terminal Value sum of PV debt Equity Value no. shares Share price

Intrinsic Value Worst Case Free Cash Flows

FY14E FY15E FY16E 54.7 66.4 80.8 10 10.6 11.1 202.6 215 225.3 15.2 16.1 16.8 =SUM(M4:M7) =SUM(N4:N7)=SUM(O4:O7) 67.4 71.7 78 0 0 0 0 0 0 37.3 39.6 41.5 =SUM(M9:M12)+M=SUM(N9:N12=SUM(O9:O12)+O8

=$O$40/(1+L38)^O28 =SUM($L$35:$O$35) =$L$19-$L$4 =L40+L41-L42 236.5 =L43/L44

FY11 =B$10*0.7 =-B$9 =B$31 =B$35 =SUM(J50:J53)

FY12 =C$10*0.7 =-C$9 =C$31 =C$35 =SUM(K50:K53)

=O34*(1+$J$37)/(L3

0 0

1 1

2 2

3 3

FY13 =D$10*0.7 =-D$9 =D$31 =D$35 =SUM(L50:L53) =L54/(1+$L$38)^L48

FY14E FY15E FY16E =33.5*0.7 =M50*(1+F26 =N50*(1+G26) =-E$9 =-F$9 =-G$9 =E$31 =F$31 =G$31 =E$35 =F$35 =G$35 =SUM(M50:M53) =SUM(N50:N5=SUM(O50:O53) =N54/(1+$L$3=O54/(1+$L$38)^O4 =M54/(1+$L$38)^M

0.03 0.06 =$O$60/(1+L58)^O48 =SUM($L$35:$O$35) =$L$19-$L$4 =L60+L61-L62 236.5 =L63/L64

=O54*(1+$J$37)/(L5

C

ti

A

Company In

ASX:DSH

ASX:JBH

(AUD in millions

Dick Smith Holdings Limited

JB Hi-Fi Limited

Latest Fiscal Year: LTM as of: 52-Week High 52-Week High Date 52-Week Low 52-Week Low Date Current Price (2/12/14) % of 52 52-Week Week High % of 52-Week Low Daily Volume % Turnover Total Common Shares Market Capitalization Plus: Total Debt Plus: Preferred Stock Plus: Minority Interest Less: Cash and Equivalents Net Debt Enterprise Value Valuation Total Revenue Enterprise Value / Rev EBITDA Enterprise Value / EBITDA eps P/e Revenue Growth EBITDA Growth EBITDA Margin

41455 41637 2.41 41649 1.99 41628 2.25 0.933609958506224 1.13065326633166 0.20791 =D15/D17 236.51136 532.15056 26.5 0 0 13 =SUM(D19:D21)-D22 545.65056

FY+1 FY+1 FY+1 FY+1 FY+1 FY+1 1 Year 5 Year 1 Year 5 Year FY+1

41455 41639 23.13 41585 12.04 41323 18.5 0.799827064418504 1.53654485049834 0.56043 =E15/E17 100.26168 1854.84108 49.946 0 0 44.945 =SUM(E19:E21)-E22 1859.84208

1228 3538.79575 =D$24/D27 =E$24/E27 ='Exhibit 'E hibit 1 - Fi Financial i l St Statem t 227.42187 227 42187 =$D$24/D29 =E$24/E29 0.1865 1.27248 =D$12/D31 =E$12/E31 -0.306563 0.057741 0 0.125904 -0.875841 0.097414 0 0.125977 0.0608180443791013 0.0642653281133843

Leverage/Coverage Ratios Net Debt / Equity % Net Debt / Capital % EBITDA / Int. Expense

=D23/D18 =D23/D24 1.32112

=E23/E18 =E23/E24 24.93276

Comparative EV/Revenue (Fwd) EV Debt - cash Equity(EV-Debt) Shares outstanding Share Price

=K28*D27 =$D$19-$D$22 =C48-C49 =$D$17 =C50/C51

1st Qrt

median =L28*D27 =$D$19-$D$22 =D48-D49 =$D$17 =D50/D51

3rd Qrt =M28*D27 =$D$19-$D$22 =E48-E49 =$D$17 =E50/E51

EV/EBITDA (Fwd) EV Debt - cash Equity(EV-Debt) Shares outstanding Share Price

=K30*D29 =$D$19-$D$22 =C55-C56 =$D$17 =C57/C58 C57/C58

=L30*D29 =$D$19-$D$22 =D55-D56 =$D$17 =D57/D58 D57/D58

=M30*D29 =$D$19-$D$22 =E55-E56 =$D$17 =E57/E58 E57/E58

P/E (Fwd) Share Price

=K32*D31

=L32*D31

=M32*D31

Price Range EV/Rev EV/EBITDA fwd P/E Triangulated

Low

Mid

=C52 =C59 =C62 =C65*$F$65+C66*$F$66+C67*$F$67

High =D52 =E52 =D59 =E59 =D62 =E62 =D65*$F$65+D66*$F$66+D=E65*$F$65+E66*$F$66+E

Triangulated EV/Rev (Fwd) EV/EBITDA (Fwd) P/E (Fwd)

=C68 =C65 =C66 =C67

=D68-C72 =D65-C73 =D66-C74 =D67 C75 =D67-C75

=E68-D68 =E65-(C73+D73) =E66-(C74+D74) =E67 (C75+D75) =E67-(C75+D75)

ASX:MYR

SEHK:493

LSE:DXNS

NYSE:GME

TSE:9435

Myer Holdings Limited

GOME Electrical Appliances Holding Limited

Dixons Retail plc

GameStop Corp.

Hikari Tsushin, Inc.

41482 41664 3.26 41393 2.19 41437 2 58 2.58 0.791411042944785 1.17808219178082 2.13234 =F15/F17 585.65485 1510.989513 423.155 0 9.728 81.47 =SUM(F19:F21)-F22 1862.402513

41639 41639 0.21712 41603 0.08856 41450 0 18998 0.18998 0.875 2.14521228545619 47.0855 =G15/G17 16875.056 3205.92313888 396.64078 0 -86.89444 1470.39018 =SUM(G19:G21)-G22 2045.27929888

3130.61245 3130 61245 =F$25/F27 289.8461 =F$25/F29 0.20333 =F$13/F31 0.004232 -0.017239 -0.037877 0.063393 0.0925844717700525

10947 45022 10947.45022 =G$24/G27 330.2361 =G$24/G29 0.01215 =G$12/G31 0.103793 0.042113

=F23/F18 =F23/F24 10 99558 10.99558

41394 41578 0.97365 41625 0.46662 41331 0 86673 0.86673 0.890186411955015 1.85746431786036 11.81758 =H15/H17 3656.10453 3168.8554792869 577.87437 0 1.01798 650.66007 =SUM(H19:H21)-H22 3097.0877592869

41671 41671 63.96726 41592 25.87938 41337 40 4476 40.4476 0.632317219777743 1.5629277053778 3.48981 =I15/I17 115.81074 4684.266487224 0 0 0 688.01355 =SUM(I19:I21)-I22 3996.252937224

41364 41639 98.1058 41655 42.89427 41318 90 75867 90.75867 0.925110136199898 2.115869322406 0.2595 =J15/J17 47.74964 4333.6938193788 633.52261 0 118.78017 275.90603 =SUM(J19:J21)-J22 4810.0905693788

13909 98216 13909.98216 =H$24/H27 608.06909 =H$24/H29 0.05147 =H$12/H31 0.030037 -0.00115 NM -0.092575 -0.079799 0.085697 0.0301655721984183 0.043714584462127

10892 92228 10892.92228 =I$24/I27 940.37759 =I$24/I29 4.20058 =I$12/I31 0.017194 0.00525 -0.056969 -0.013608 0.0863292297354021

0 0 24.95367 24 95367

0 0 137 75 137.75

0 0 10 6039 10.6039

25%Q

Median

75%Q

=QUARTILE(D8:J8,1) =MEDIAN(E8:J8)

=QUARTILE(D8:J8,3)

=QUARTILE(D10:J10,1=MEDIAN(E10:J10)

=QUARTILE(D10:J10,3

=QUARTILE(D12:J12,1=MEDIAN(E12:J12) =QUARTILE(D12:J12 1=MEDIAN(E12:J12) =QUARTILE(D13:J13,1=MEDIAN(E13:J13) =QUARTILE(D14:J14,1=MEDIAN(E14:J14)

=QUARTILE(D12:J12 3 =QUARTILE(D12:J12,3 =QUARTILE(D13:J13,3 =QUARTILE(D14:J14,3

=MEDIAN(E16:J16) =QUARTILE(D18:J18,1=MEDIAN(E18:J18)

=QUARTILE(D18:J18,3

=QUARTILE(D24:J24,1=MEDIAN(E24:J24)

=QUARTILE(D24:J24,3

5977 25039 5977.25039 =J$24/J27 387.48908 =J$24/J29 6.23534 =J$12/J31 0.002016 0.097551 0.284216 0.018339 0.0648273126801369

=QUARTILE(D28:J28,1=MEDIAN(D28:J28) =QUARTILE(D29:J29,1=MEDIAN(D29:J29) =QUARTILE(D30:J30,1=MEDIAN(D30:J30) =QUARTILE(D31:J31,1=MEDIAN(D31:J31) =QUARTILE(D32:J32,1=MEDIAN(D32:J32) =QUARTILE(D33:J33,1=MEDIAN(D33:J33) =QUARTILE(D34:J34,1=MEDIAN(D34:J34) =QUARTILE(D35:J35,1=MEDIAN(D35:J35) =QUARTILE(D36:J36,1=MEDIAN(D36:J36) =QUARTILE(D37:J37,1=MEDIAN(D37:J37)

=QUARTILE(D28:J28,3 =QUARTILE(D29:J29,3 =QUARTILE(D30:J30,3 =QUARTILE(D31:J31,3 =QUARTILE(D32:J32,3 =QUARTILE(D33:J33,3 =QUARTILE(D34:J34,3 =QUARTILE(D35:J35,3 =QUARTILE(D36:J36,3 =QUARTILE(D37:J37,3

=J23/J18 =J23/J24 78 07235 78.07235

=QUARTILE(D40:J40,1=MEDIAN(E40:J40) =QUARTILE(D41:J41,1=MEDIAN(E41:J41) =QUARTILE(D42:J42 1=MEDIAN(E42:J42) =QUARTILE(D42:J42,1=MEDIAN(E42:J42)

=QUARTILE(D40:J40,3 =QUARTILE(D41:J41,3 =QUARTILE(D42:J42 3 =QUARTILE(D42:J42,3

Comparative Value  P/E (Fwd) EV/EBITDA (Fwd) EV/Rev (Fwd) Triangulated $0.90 Weight 0.2 0.4 0.4

$1.40

$1.90

$2.40

$2.90