Ruskin Felix Consulting LLC partnered with Black Orchard Farming to prepare a comprehensive valuation report. The report highlights the financial viability of the project by laying emphasis on the business risk, credit risk, competition risk while also analyzing the projections. The infrastructure outlay forms a significant part of the report. To understand how financially viable the project is, we have highlighted the revenue segmentation, projected revenue, operational expenses and revenue expenses. The financial metrics further helps to understand the NPV and IRR, payback period and the capital that is required to be raised.
Some of the key risks associated with this type of business are as follows:
- Scalability of farms and cost of acquisition
- Yield maximization practices
- Distribution Network – Self or franchise Model
There will be a credit risk that the company will be exposed to as well if some parts of the operations are funded through debt. In such a case the assumed WACC of 10% may also change.
Even with higher demand and opportunity in the market. Businesses that have focus on food products run the risk of depreciation or obsoletion of output produced in case of long-term storage. This increases the cost of warehousing as well as the need for assured demand for the output. With various players in the field, the sudden increase in competition might affect the long-term view of the business as product differentiation and distribution will be key to the operational success.
The overall valuation of the company is based on 3 valuation methods and is computed based on the
weighted average of the valuation methods. The overall valuation of the company is $16.67 Million on a 5 Year forwards basis. The methods used to compute the value of the company are:
- PE multiple of FCFF cash flows
- Overall Project NPV Valuation – DCF Valuation
- Terminal Value Method
The range of valuation for the business is computed at: $14.1 Million to $19.2 Million
It is to be noted that this value is based on the projections and assumptions made for the valuation and may significantly differ during real operations due to the overall business and industry risk.
For an investment of $800,000, the investor should get 4.17% – 5.6% of the overall company at the above-mentioned valuation range.
The company is a viable investment due to its assured structured cash flows and growth potential at a valuation of $16.67 Million and the investor should invest $800,000 at a Share value of 4-6% Equity in the company.