Ruskin Felix Consulting LLC partnered with Shareef Corner 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 projected turnover and projected 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 and cost of acquisition
- Revenue maximization practices
- Distribution Network – Selection and Operation
- High reliance on specific distribution KDRs
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 (Post Money) is SAR 2.167 billion on a 5 Year forward 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: SAR 1.95 billion to SAR 2.38 billion.
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. The Pre-money Valuation of the business is SAR 452 million based on 2021 Earnings Multiple basis at a 42X PE Ratio.
For an investment of SAR 30 million, the investor should get 6.64% of the overall company at the above-mentioned valuation range – Pre money and should look to gain an IRR of 225% on investment.
The company is a viable investment due to its assured structured cash flows and growth potential at a valuation of SAR 2.167 billion with a healthy business and asset flow with existing distribution contracts.