Question:
Discuss about the Stock of Apollo Tourism and Leisure Ltd.
Apollo Tourism and Leisure Ltd is used for this question. Apollo is the Australian based company and since 1985, the company has come into operations but in November 2016 the company has become listed in ASX (ASX: ATL). The main business activities of the company are to do producing, wholesaling, leasing, retailing and issuing the wide varieties of leisure activities such as motorhomes management, campervans and caravans. The other business locations of Apollo around the world are US, Canada, North America and New Zealand. The central agenda of Apollo is to fulfil the potentials of the clients (Prospectus, 2017).
Debts are the outstanding’s in order to fulfil the financial necessities. Debts have 2 types of nature: Short-term and Long-term. Short-term Debt are the money owed and the duration of repayment is < 1 year and it is shown under the “Current Liabilities” in the balance sheet. For this case, Trade payables and borrowings – current are taken as Short-term Debt. Long-term Debt are the money owed and the duration of repayment is > 1 year and it is shown under the “Non-Current Liabilities” in the balance sheet. For this case, borrowings – non-current are taken as Long-term Debt (MorningStar, 2017).
|
Particulars |
2017 |
2016 |
Change in % |
|
SHORT-TERM DEBT |
|||
|
Trade Payables |
$ 110,64,000.00 |
$ 72,03,000.00 |
53.60% |
|
Borrowings – Current |
$ 1118,94,000.00 |
$ 422,81,000.00 |
164.64% |
|
TOTAL |
$ 1229,58,000.00 |
$ 494,84,000.00 |
148.48% |
|
LONG-TERM DEBT |
|||
|
Borrowings – Non-Current |
$ 567,87,000.00 |
$ 606,99,000.00 |
-6.44% |
|
TOTAL |
$ 567,87,000.00 |
$ 606,99,000.00 |
-6.44% |
(Source: Annual Report, 2017).
|
Particulars |
2017 |
2016 |
|
Equity |
$ 1014,16,000.00 |
$ 315,50,000.00 |
|
Total debt |
$ 1797,45,000.00 |
$ 1101,83,000.00 |
|
Debt/Equity |
1.77 |
3.49 |
|
Industry Average |
1.66 |
1.66 |
(Source: Annual Report, 2017).
Consider the above slab, it has been observed that Apollo Tourism and Leisure Ltd performance is regular with the industry ratio in 2017. Industry average is 1.66 in both years whereas the Apollo’s figure is 1.77 in 2017 and 3.49 in 2016 (Investing. com, 2017).
|
Particulars |
2017 |
2016 |
Change in % |
Industry % |
|
Short-term Debt |
$ 1229,58,000.00 |
$ 494,84,000.00 |
148.48% |
166.33% |
|
Long-term Debt |
$ 567,87,000.00 |
$ 606,99,000.00 |
-6.44% |
55.99% |
|
Total Debt |
$ 1797,45,000.00 |
$ 1101,83,000.00 |
Consider the above slab, it has been observed that long-term and short-term debt of the Apollo Tourism and Leisure Ltd is not aligned with the industry figure. Therefore, the short-term debt shown is 148.48% while the average of industry is 166.33% which indicates the negative influence for the company. For long-term debt, there is also the negative influence because the Apollo average is -6.44% while the average of industry is 55.99% (Investing. com, 2017).
|
Particulars |
2017 |
2016 |
|
Interest Expenses |
$ 77,53,000.00 |
$ 72,92,000.00 |
|
Total Debt |
$ 1797,45,000.00 |
$ 1101,83,000.00 |
|
Cost of Debt [Interest expenses/Total Debt] |
4.31% |
6.62% |
(Source: Annual Report, 2017).
|
Particulars |
2017 |
2016 |
|
Retained Earnings |
$ 388,38,000.00 |
$ 309,18,000.00 |
|
Net income |
$ 86,46,000.00 |
$ 48,34,000.00 |
|
Dividend Payout ratio [100-retained earnings/Net income] |
95.5 |
93.6 |
|
Total Equity |
$ 1014,16,000.00 |
$ 315,50,000.00 |
|
ROE [Net income/Total Equity] |
8.53% |
15.32% |
|
Growth Rate [(1-payout ratio)*Return on Equity |
0.38% |
0.98% |
|
Dividend per share |
2 |
0 |
|
Current share price |
1.62 |
0 |
|
Cost of Equity |
1.61% |
0.98% |
|
Particulars |
2017 |
2016 |
|
Comparable Approaches |
||
|
Price to free cash flow |
||
|
Share price |
$ 1.62 |
$ – |
|
Free cash flow |
||
|
Operating cash flow |
$ 661,57,000.00 |
$ 372,81,000.00 |
|
Capital expenditures |
$ 110,16,000.00 |
$ 21,21,000.00 |
|
Free cash flow |
$ 551,41,000.00 |
$ 351,60,000.00 |
|
Price to free cash flow |
2.93792E-08 |
0 |
|
Enterprise value to sales |
||
|
Enterprise value |
||
|
Market capitalization |
$ 1014,16,000.00 |
$ 315,50,000.00 |
|
Debt |
$ 1797,45,000.00 |
$ 1101,83,000.00 |
|
cash and cash equivalent |
$ 485,99,000.00 |
$ 55,35,000.00 |
|
Enterprise value |
$ 2325,62,000.00 |
$ 1361,98,000.00 |
|
Annual sales |
$ 1770,01,000.00 |
$ 979,29,000.00 |
|
Enterprise value to sales |
1.31 |
1.39 |
|
Enterprise Multiple |
||
|
Enterprise Value |
$ 2325,62,000.00 |
$ 1361,98,000.00 |
|
EBITDA |
$ 157,58,000.00 |
$ 135,56,000.00 |
|
Enterprise Multiple |
14.76 |
10.05 |
(Source: Annual Report, 2017).
Stock of Apollo Tourism and Leisure Ltd is given AUD $ 1.62 in 2017 which says that the performance of the company is sound because the net income of the Apollo has increased tremendously in 2017 from 2016 by 78.86% which signifies that the graph is upward sloping which is a positive sign for the company.
In this case, the company is listed in November 2016, thus the share price of the company in 2017 is AUD $ 1.62 and there is no share price in 2016. The share price of the company might get rise in future because the company has issued share capital of $ 75679000 in 2017 after it get listed in ASX and also the company has earned good amount of profits in 2017 in comparison to year 2016.
Rate of interest also helps in assessing the performance of the entity by taken into consideration all the factors which helps in improving the enactment of the company. An organisation needs to control the interest rates which directly exaggerated the consumer base of the industry in the wide environment.
In computation of weighted average cost of capital, tax rate plays the key role of Apollo Tourism and Leisure Ltd. The effect of tax rate is shown in the preparation of statement of income and the statutory rate of tax is 30% which ultimately reduces the net income which are distributed to the shareholders of the entity. Due to tax rate, WACC ultimately gets reduces.
|
Cost of Equity |
Cost of Debt |
|
1. Interest are not paid in Cost of Equity. |
1. Cost of debt simply means the interest paid by the company on its borrowings. |
|
2. Cost of Equity is calculated as: Rf + Beta(Rm-Rf). |
2. It is calculated as: Interest/total debt * (1 – tax rate) |
|
3. It is the return for the shareholders. |
3. It is the return for the bondholders. |
Inclusion of Current liabilities in capital calculation and its pros and cons.
Short-term debts are included in current liabilities and its exclusion will make the overall debt structure incomplete because the total debts of the entity is the combination of both Short-term debt and long-term debt and thus the current liabilities automatically included in the capital formation.
Benefits
Limitations
After the completion of overall evaluation of both the costs of capital that is cost of equity and cost of debt, an organisation can take significant judgements about the investments. Net present value is computed and it helps in decision making processes by seeking the project or business which has generated higher or positive returns. The project or the business is considered to be the best same as the projects which are assessed on the basis of costs incurred by the business units.
WACC indicates the capacity of an entity in paying off all of its debts in a particular time. An investor will determine the entity capability for the purpose of generating maximum profits to validate the investments by the owners of the entity.
The basic thing after the incorporation of an entity is to form the capital structure that indicates the business operations of an entity. There are vast sources of finance that are included in the firm having different weights of equity and debt. There is need to form the adequate capital structure by the entity after the external opportunities and the expectations have been analysed.
|
Particulars |
2017 |
% |
2016 |
% |
|
Short-term Debt |
$ 1229,58,000.00 |
43.73% |
$ 494,84,000.00 |
34.91% |
|
Long-term Debt |
$ 567,87,000.00 |
20.20% |
$ 606,99,000.00 |
42.83% |
|
Total Debt |
$ 1797,45,000.00 |
63.93% |
$ 1101,83,000.00 |
77.74% |
|
Total Equity |
$ 1014,16,000.00 |
36.07% |
$ 315,50,000.00 |
22.26% |
|
TOTAL |
$ 2811,61,000.00 |
100.00% |
$ 1417,33,000.00 |
100.00% |
(Source: Annual Report, 2017).
From the above table it is seen that Debt proportion of the company has increased in 2016 in comparison to 2015 whereas the Equity proportion has decreased in 2016 in 2015.
The meaning of optimal capital structure is that the equity component has more that the debt component in order to overcome the costs of finance charged on the debts. In this case, the debt proportion is higher than the equity proportion because the company has listed its shares in 2016.
After the computation of WACC, it has been observed that financial position of the Apollo Tourism and leisure Ltd is sound because the company has earned profits in the year ended June 2017 and in 2016. The hike in the profit from 2016 to 2017 was 78.86% which is tremendous and thus the financial stability of the entity is satisfactory (Annual Report, 2017).
The financial analysis of the Apollo tourism and leisure ltd is conducted and it has been said that in both the year’s company has generated profits and the owners got the maximum returns of the earnings in the form of dividend. Thus the investors must invest in the Apollo tourism and leisure ltd (Apollo, 2017).
The other important element which needs to be highlighted is that the cash flow positon of the company has increased from year 2016 which was AUD $ 66157000 to AUD $ 37281000 in the year 2017 that is 77.45% increment has taken place in the company (Annual Report, 2017).
References
Prospectus, 2017, Apollo Tourism and Leisure Ltd, viewed on 20 October 2017 from https://www.morgans.com.au/morgans-assets/PDFs/Apollo-prospectus.pdf.
Apollo, 2017, About Us, viewed on 20 October 2017 from https://apollotourism.com/about-us/.
Annual Report, 2017, Apollo Tourism and Leisure Ltd, 2017, viewed on 20 October 2017 from
https://atl.irmau.com/site/PDF/1100_0/AnnualReporttoshareholders.
Investing.com, 2017, Apollo Tourism and Leisure Ltd (ATL), viewed on 20 October 2017 from https://ca.investing.com/equities/apollo-tourism-leisure-ltd-ratios.
Financial Times, 2017, Apollo Tourism and Leisure Ltd, viewed on 20 October 2017 from https://markets.ft.com/data/equities/tearsheet/charts?s=ATL:ASX.
MorningStar, 2017, Apollo Tourism and Leisure Ltd (ATL), viewed on 20 October 2017 from https://performance.morningstar.com/stock/performancereturn.action?t=ATL®ion=aus&culture=en-US.
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