ACCT201: Corporate Reporting & Financial Analysis

Section: G4Group: 2

Company: 800 Super Holdings Ltd.Submission Date: March 2015

Instructor: Professor ZANG Yoonseok

Team Members:

Chua Qi Neng (S9130526G)

Kashminder Singh Mohan (S9005870C)

S. Raveen Krisan (S9102237J)

Yim Hui Yu Daphne (S9302984D)

800 Super Holdings Ltd.

Source: Yahoo! Finance, retrieved on 18/3/15

Rating Buy

Target Price (SGD$) 0.55

Upside (%) 25.14

Date 20/3/2015

Investment Thesis

Stock Information

Stock Chart

Financial Year End 30th June

Industry Environmental Services

Stock Ticker 5TG.SI

Share Price (SGD$) 0.44

Share outstanding (millions) 178.8

Market Capitalisation (SGD$m) 78.672

EPS (SGD$) 0.0633

52-week Range (SGD$) 0.24 - 0.57

Key Information

Stock Information

Source: Bloomberg, as of 20/3/15

Our analysis of 800 Super Holdings (800 Super or the Group) has prompted us to recommend a BUY on the stock, attributing this to the Groups competitive advantage over competitors, strong financials & stable cashflows, and favourable fundamentals. Using a cost of equity of 5.38%, and a conservative terminal growth rate of 0.5%, we arrived at our target price of SGD$0.55 with an upside of 25.14% using the Residual Income Model. This represents a forward P/E of 8.64x compared to TTM P/E of 6.27x. Compared to 800 Supers closest competitor, Colexs P/E of 8x also signals potential undervaluation of 800 Supers stock.

Super services, Superb buy

Competitive Advantage First we have to recognise that 800 Supers core businesses operates in an monopolistic competition market with high barriers to entry. By providing both waste management and public cleaning services, 800 Super is able to package themselves as a one-stop environmental service provider who can cater to both aspects. The eventual shift towards recycling also brightens the outlook for 800 Super, as the firm prepares for the recycling boom by investing in Material Recovery Facilities that are essential in the recycling process.

Stable Cashflow With the uniformed fee in placed by the National Environmental Agency, 800 Supers ability to increase prices through service dierentiation may be limited, but it also prevents an overly price-competitive market. We also acknowledge the fact that environmental services is resistant to seasonality and market factors, and is essentially recession-proof. This ensures stable cashflows that are resistant to price competition.

boosted the Groups business and strengthened their position as an environmental service provider. Currently, the Group only operates in Singapore and is seeking for opportunities to expand in the region.

Company Overview

Year 2012 2013 2014 2015F 2016F 2017F 2018F 2019F

Revenue ($000) 89,455 97,881 115,419 145,313 148,219 150,442 151,946 1522,707

EBITDA 10,385 10,782 16,392 20,638 20,324 19,130 17,808 17,897

Net Income 5,960 5,641 9,051 11,394 10,598 8,825 7,267 6,601P/E 12.8x 13.4x 8.6x 8.64x 9.28x 11.14x 13.53x 14.90x

P/BV 2.5x 2.2x 1.9x 1.94x 1.66x 1.48x 1.37x 1.29xEBITDA Interest

Coverage 17.1 11.6 12.3 12.55 10.01 7.54 6.40 6.03

ROE 19.62% 16.39% 21.78% 22.48% 17.90% 13.32% 10.13% 8.63%

Key Financial Ratios

Services

Strong FinancialsDespite 800 Supers FY2014 revenue not capturing the full value of the new contracts awarded, revenue growth surged by approximately 18% y-o-y as compared to FY2013. As part of our revenue forecast, we have taken this into account and expect revenue growth to increase further to 26% in FY2015 (Refer to Appendix 2 for our revenue forecast). 800 Super has also maintained a gross profit margin and net profit margin that surpasses both the industry average and Colex, who is 800 Supers closest competitor.

Favourable FundamentalsCompared to Colex, 800 Supers fundamentals may seem less than desirable, but it is still performing well compared to the industry average. The high debt level is attributed to expansion plans to accommodate the increase in market share, and the firm is financially capable to meet its financial liabilities (A Z-score of 2.57). Overall, we believe that the industry as a whole is being undervalued due to the unglamorous nature of the operations. Refer to Appendix 3 for financial ratios.

800 Super provides integrated environmental services such as solid waste management, horticultural services, and cleaning services to clientele in both private and public sectors, giving it the one stop shop brand that the firm prides itself in. While waste management remains as the Groups core revenue driver, strategic ventures and acquisitions in the recent years has

Waste Management and Recycling 800 Super is one of the four licensed public waste management companies appointed by the National Environmental Agency (NEA). Services are provided to public housing estates, shop houses, trade premises, landed residential premises, as well as private apartments and condominiums in the sector. Apart from public projects, 800 Super also takes up projects from industrial and commercial sights, including shopping complexes, hotels, factories and shipyards.

Cleaning & Conservancy 800 Super also provides cleaning services and is responsible for the cleansing of public areas in the North-East district of Singapore. These includes public roads and pavements, and Pasir Ris and Punggol beaches.

Horticultural

More recently, 800 Super diversified into horticultural services such as grass-cutting, planning, and maintenance of landscape. They also provide aboricultural services such as planting and pruning of trees and plants.

Environmental services: 3 Main Growth Drivers 1. Population Growth Assuming waste generated per pax remains

constant, a growing population will increase total waste.

2. Economic Growth Economic growth is often accompanied with

higher levels of consumption due to increased disposable income from higher wages. The increase in consumption will fuel waste generation and increase the need for waste management.

3. Environmental Initiatives As more emphasis is placed on environmental

awareness, campaigns promoting a green Singapore are gaining popularity. Recycling initiatives are encouraging households to recycle more and thus increase demand for recycling collection.

While 800 Super deals with various environmental services, the sub-sector that drives the Groups revenue is waste management and recycling. This sub-sector is dominated by the four main players licensed by NEA to provide public waste collection. Of the four players, only Sembcorp, Colex, and 800 Super are listed.

Source: National Environmental Agency

Industry Analysis

Breakdown of Public Waste Management Operations

Since 1970, Singapores growing population and booming economy have contributed to a 6-fold increase in the amount of solid waste disposed from

Total Waste Generated (mn tonnes)

Waste Treatment (mn tonnes)

Waste Treatment by Percentage

Source: Ministry of Environment and Water Resources, PhillipCapital

1,260 tonnes a day in 1970 to a peak of 8,289 tonnes a day in 2013. Waste management has become an integral part of Singapores planning and is constantly provided with the Governments support. As part of the Governments eort to improve the industry, Singapore was consolidated from 9 to 6 sectors to reduce duplication of services and encourage greater cost savings from economies of scale.

A uniformed fee has also been implemented to ensure a consistent fee structure across sectors. This reduces the eects of product dierentiation and forces the players to engage in cost reduction activities to increase margins. Public waste management contracts are awarded by the National Environmental Agency on a tender basis and usually lasts for 7 years. Apart from public waste management, NEA also awards contracts for integrated public cleaning (IPC) of which 800 Super was awarded IPC contracts for the South West and North West regions of Singapore.

The Ministry of Environment & Water Resources also initiated the Sustainable Singapore Blueprint in 2009, to promote the use of green practices and to give Singapore an environmental facelift. The table above shows the amount of green space which has risen by 12% in half a decade since the initiation of the program. As a result of these initiatives, the Ministry of Trade and Industry (MTI) recently highlighted that the horticulture and landscaping services cluster would be seeing steeper annual growths with demands rising in both residential areas as well as public and tourist spots.

Given the rapidly rising domestic demand for waste management systems and infrastructure, there is a myriad of opportunities for Singapore-based waste management companies to pioneer new waste recovery techniques in order to remain competitive and sustainable. This provides a conducive business environment that will support 800 Supers operations in Singapore and would go a long way to ensure continued growth at a healthy rate in the coming years.

Porters 5 Forces

Buyer Power: Moderate Customers are mostly large statutory boards or corporates that are financially strong. However, the customer pool is still big as compared to the 4 major incumbents in the industry. As such, the loss of a customer would have a moderate eect on revenues.

Supplier Power: High Suppliers include foreign technology firms producing automated machines and equipment for cleaning and landscaping purposes. The number of firms that focus on production of such equipment are very minimal, especially in Asia, which means that most suppliers are based in Europe or North America.

Threats of New Entrants: Moderate As this is an asset-reliant industry, the high initial capital together with the uniformed pricing act as high barriers to entry. The time taken for new entrants companies to establish themselves would take a considerably long time.

Threats of Substitutes: Weak Threats of substitutes is weak. The rapid pace of technology change means that newer equipment continually replaces older products, and oers incumbent companies an added advantage.

Degree of Rivalry: High

The market is highly competitive and characterised by rapid technological change. Competitors range from small companies that compete with a single product in a single region to global and diversified companies with a range of products.

Year 2009 2013

Amt of skyrise greenery (ha) 10 61

Amt of green space (ha) 3602 4040

Length of park connectors (km) 110 216

Source: Sustainable Singapore Blueprint

Looking into the details, we noticed that recycled waste has been increasing at a rapid speed, overtaking incinerated trash in 2004 as the most utilised form of waste treatment. As recycling starts to play an increasing importance in our lives, the demand for recycled trash collection and sorting will definitely surge in the future. The Inter-Ministerial Committee on Sustainable Development projected that the domestic recycling rate will hit 65% by 2020 and 70% by 2030 respectively. Moreover, IE Singapore has also expressed its intentions to develop the waste management industry and position Singapore as a centre for waste management technology in the region.

We believe that its current value chain capabilities, especially its integrated services, cannot be easily imitated and substituted and thus is able to oer a sustainable competitive advantage. As a result, the combination of integrated services and innovative operations is able to oer scope for dierentiation and cost advantage for its value chain.

In terms of positioning, 800 Super currently owns 2 Material Recovery Facilities (MRF) where collected recycled waste is delivered to be sorted and shipped to re-processing plants, and a 3rd MFR is currently in the pipe-line. The Group is also able to provide horticultural services through its subsidiary. This puts the Group in a very advantageous position to capitalise on the potential boom in the recycling and horticultural industry, as it is considered an incumbent in a monopolistic competitive market with high barriers to entry.

Value Chain Analysis

Integrated Services 800 Super has been successful in diversifying its business scope by specialising in complementary services such as landscape maintenance and contract cleaning in addition to its core business, waste management. This has enabled the company to share resources and expertise across the dierent services and develop its capabilities as a one-stop shop for its customers. The integration of its services has aided the company to maximise productivity, thus, creating more value for its shareholders and customers.

Innovative Operations 800 Super has attempted to automate its operations to cater to the unique needs of its diversified customer base. Its innovative business and operational processes play a vital role in its value chain by allowing it to diversify across industries, thus enabling greater volume and stream of revenue, maximising services as well as equipment utilisation.

SWOT ANALYSIS

Integrated and diversified services for environmental solutions and management, which gives 800 Super a strong competitive position.

Major player in waste management and landscaping services in the domestic scene.

Has strong commercial relationship with governmental bodies and public organisations.

Possess highly automated systems in its operations, which has developed its eciency.

It is relatively less established as compared to its major rivals, Sembcorp and Colex Holdings, which possess a first mover advantage.

Lack of foreign exposure in terms of its business operations.

Strengths

Weaknesses

Value Chain Analysis Framework

Taking a closer look to evaluate its value chain capabilities, we believe that its integrated services play a paramount role in the firms recent growth. The ability to complement services that fit its clients various needs helps to build client relationship and thus justifies its investment into diversifying its business scope.

The Group experienced a remarkable 17.9% growth in total revenue from 2013 to 2014, with gross profit margin increasing from 20.5% to 23.5%. Net income margin for 2014 also outperformed that in 2013, recording a net income margin of 7.8%. All in all, 2014 has proved to be a stellar year for the Group and this is expected to continue into 2015.

Since their appointment in 2006, 800 Super has been providing waste collection services to the Ang Mo Kio-Toa Payoh sector. The contract, worth SGD$160.6m was recently renewed by NEA for the period of 1st January 2014 to 30th September 2021. In addition, NEA also awarded 800 Super with a 7-year SGD$204.9m contract to provide integrated public cleaning services for the South-west region of Singapore and a 6-year SGD$97.3m contract for public cleaning services in the North-west region.

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2010! 2011! 2012! 2013! 2014! 2014!LTM!

800#Super#Holdings#Financials#

Revenue!

Gross!Prot!

Net!Income!

Source: 800 Super Annual Reports

Financial Performance

More recently on 16th February 2015, 800 Super announced that they were awarded contracts worth SGD$39m by the Ministry of Home Aairs to provide cleaning and horticultural services for the east and west regions of Singapore. The contracts span three years, starting from 1 April 2015 and ending on 31 March 2018. 800 Supers close working relationship with large public institutions and the long-term contracts ensures stable cashflows for at least the next seven years. At the same time, 800 Super is able to take on more projects within the private sector to boost revenues further.

For the past 3 years, 800 Supers revenue has been experiencing growth of at least 10% y-o-y, and other profitability margins are improving as well. This is a good indicator of 800 Supers investments in cost-reduction technology, as well as reaping economies of scale from the consolidation of sectors. We can expect the trend to continue in the coming years, but with growth tapering to lower levels. This is mainly due to the implementation of the uniformed fee for public projects and diminishing cost savings from investing in cost-saving technology. Despite that, 800 Supers establishment in the industry will give it some form of market retention so long as it continues to provide ecient and quality service.

With the diversification into horticultural services and the increased emphasis on waste recycling, we can expect high growth potential in these two sub-sectors which will add onto 800 Supers already stable cashflow.

Potential cost reduction through improved process automation new advancements in technology in the waste management industry promises improved process automation.

Organisations like IE Singapore and SPRING Singapore are oering platforms for local waste management companies to expand overseas and develop their expertise.

Rising demand for waste management and landscaping services especially in Singapore, with the NEA initiating several nation-wide programs.

Intensifying competition in industry Diversity of competitors from large major players to smaller firms that oer various forms of specialisation may erode 800 Supers profitability and market share.

Rising cost of operations in Singapore, especially since 800 Supers operations largely involve the utilisation of its equipment and labour for its diversified services.

Opportunities

Threats

Adjustments

Adjustments for Non-recurring Items Removal of components in Other Losses which includes losses and gains on disposal of property, plant and equipment. This makes up a very small component of the Group's total revenue, amounting to only 0.08% in 2014. There were no other non-recurring items.

Adjustments for Operating Leases Adjustments for operating leases were made from 2011 to 2014 by capitalising operating leases and including them as part of total debt. For the year of 2014, total debt increased 15.7% from $34,827,000 to $40,278,000 after capitalising the lease. Total debt to equity ratio increased from 0.84 to 0.97.

There were no further adjustments required.

Favourable Fundamentals

*Refer to Appendix 3 for Financial Ratios

Profitability Ratios Our group selected three ratios to discuss the profitability of 800 Super as an entity. EBITDA margin ratio is used as the basis to compute the profitability index of 800 Super. From Appendix 3, it can be seen that the industry average for EBITDA margin is eectively much higher at 25.0% while 800 Super and its closest competitor, Colex are very similar in terms of the EBITDA margin at approximately 13.6%. The justification is that the industrial average constitutes of other firms that provide more services beyond just waste management that includes trucking and waste treatment to name a few. We attribute this to the waste management industrys high reliance on labour, resulting in extremely high levels of sta costs. 800 Supers sta cost reached an astounding level of 47% of revenue in 2014, bringing its EBITDA margin down significantly. Overall, 800 Super outperforms the industry and Colex in net profit margin and our group believes that this is due to the relatively lesser reliance on high depreciation equipments as compared to other environment services (e.g. water treatment).

Return on Capital Return on Equity The return on shareholders equity from its invested capital for 800 Super stands at 23.5% compared to Colexs at 18%. 800 Super has been providing consistent dividends as well as capital gains since it was able to utilise its retained earnings to bring back value through investing in its landscaping businesses and private contracts.

Return on Assets Apart from its dip in 2013, 800 Super has recently been showing ecient management in using its assets to generate earnings at close to 10%. However, Colex being an industry veteran in waste management uses much more mechanised equipment such that it is able to bring back a higher value in generating earnings at 11.9%.

Short-term Liquidity Ratios Current Ratio 800 Supers ability to service its short-term debt has been fairly decreasing over the years from 2012 to 2014. This is mainly due to short term debt obligations for warehouses that 800 Super acquired in the Pasir Ris region as part of its expansion plan to facilitate operations in the east. This however, is of no cause of concern as it is still at a relatively liquidated position with a liquidity ratio of 2 which is very similar to Colex.

Long-term Solvency Ratios EBITDA Interest Coverage Ratio As 800 Super is an asset intensive firm, we believe that using EBITDA as our numerator for the interest coverage ratio would better reflect 800 Supers economic reality. From the ratio analysis, 800 Supers interest coverage ratio of 12x is way above the industrial average of approximately 5x. While this pales in comparison to Colexs coverage ratio of 62x, we believe the Colex is an exception due to its low levels of debt. Colex has been a 100% equity firm until recently in 2013. We believe that Colex was initially funded by equity injection from its biggest shareholder, Goldvein Pte. Ltd., which is in turn owned by Bonvest Holdings. This made Colexs fundamentals look extremely favourable due to low levels of debt but may not necessarily be sustainable.

Using comparable companies analysis, we have identified the high, low and median stock prices for companies in the similar industry. We use this as a second line of check for our stock price, as we believe this is a good representation of the range in which the Groups stock price should fall in. Using the mean equity value across all multiples, we arrive at a range of SGD$5.8 - SGD$0.31, with a median price of SGD$0.88. While our target price of SGD$0.55 falls into this range, we feel that the use of P/BV will provide us with a better representation of reality as 800 Super is an asset intensive firm that depends on assets to generate revenue. Using the P/BV multiple, the median stock price of our relative valuation gives us a value of SGD$0.53 which is in line with our target price.

Valuation: Comparables

Source: CapitalIQ

Main Forecast Assumptions

Revenue We forecasted 2015 revenue using a bottom-up approach by taking into account contracts awarded and expired. For the subsequent years, we believe revenue growth will reduce due to the long term nature of the contracts awarded. Starting at 2% in 2016 revenue growth is tapered down to our terminal growth rate of 0.5% by the end of year 5. Refer to Appendix 2 for our 2015 revenue forecast calculations.

Balance Sheet Items For 800 Supers projected revenue growth to be sustainable, we believe that it will be accompanied by a similar growth in their operations. As such, we forecast that the operating balance sheet components of 800 Super including its assets and liabilities as a constant fraction of 2014s ratio.

Interest Rate Given 800 Supers relatively fixed interest rate of about 2.5% over the last 5 years, we believe that it is reasonable to assume that 800 Supers interest rate will increase slightly higher due to the improving economic conditions. Thus, we compute the interest rate by taking the average of the yearly interest rates across the last 5 years and at the same time considering the potential rate increase, a conservative increase consistently to 3.5% over the next 5 years.

Tax Rate 800 Supers tax over the years has been fairly consistent ranging in the band of 12%-14% over the decade. Our group estimated the tax rate by computing the total tax expenses divided by the total net income over the last ten years. As of now it is computed at a 13.68% eective rate.

Valuation: RESIDUAL INCOME

Valuation: FOOTBALL FIELD ANALYSIS

Our residual income model has returned a intrinsic value of $0.55 per share for the Group. Our choice of a conservative 0.5% terminal growth rate comes as we acknowledge the fact that in the long run, revenue growth will be limited by the uniformed fee and high competitive nature of the industry. Revenue growth will be driven mainly by population growth and will definitely be less than proportionate. To discount our abnormal earnings, we used a cost of equity of 5.38%, as retrieved from Bloomberg. Currently, the stock is trading above its net asset value of $0.23 and we believe that there is more potential for growth, with an upside of 25.14%. This will imply a forward P/E of 8.64x, which is similar to Colexs current P/E of 8x. From our sensitivity analysis, our bull case scenario will return us a price of $0.62 while a bear case will give us a price of $0.50, which is still higher than our current stock price of $0.40.

To support our valuation, we utilised various conventional valuation methods such as Discounted Cash Flow (Free Cash Flow to Firm), Dividends Discount Model (DDM), and Comparable Companies Analysis. We have consolidated the price range acquired from each valuation method through our sensitivity analysis into a football field analysis for comparison. From the analysis, we see the 800 Supers stock price falls largely in the lower bound of most valuation methods, indicating that there is high upside potential for the firm. For more details on other valuation methods, refer to Appendix.

Risks to our recommendation

Needless to say, our buy call for 800 Super comes with a certain degree of scope. There are a number of factors involved which could eectively change our recommendation and these factors can actually pan out in the long run.

Possibility of Losing Market Share As mentioned earlier, 800 Supers main revenue income comes from its waste management and recycling operations. This business is eectively based on a contract basis and currently is being dominated by four players including 800 Super. As much as geographical extent is concerned, 800 Super has the smallest being the contractor only for the Ang Mo Kio-Toa Payoh sector. As such, the need to diversify their businesses into landscaping for example would allow them to stay relevant and competitive in the market. While 800 Super does have an competitive edge by providing integrated environmental services, we acknowledge that competitors will follow suit in the long run and erode this competitive advantage. The basis of our buy call is bent on the case that 800 Super continues excessive R&D into cost-reduction technologies and diversifying into other business, so as to capture markets and provide an alternative avenue for investors ROI.

Beyond Government Tenders 800 Supers ability to truly reflect its market valuation would only be a possibility by going beyond tendering government contracts. These contracts are eectively mid-range contracts that last from a range of 3 to 7 years. Though these contracts are more preferred as a source of steady cash flows, it is important to note that dependence on just these contracts would make it dormant. More so, since waste management companies depend on tendering by grassroots constituencies, and with every election, there is a possibility that they may not get a tender. Thus the need to expand to other countries may allow them to find other avenues. This can be done through joint-ventures or joint-alliances as this sector is highly asset intensive and the asset turnover is quite high as well. This arrangement would allow them to share their expertise overseas without the need to invest a huge capital outlay.

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Long%Term%Debt/Equity%

800"Super"

Colex"

Industry"Average"

0.00%$

2.00%$

4.00%$

6.00%$

8.00%$

10.00%$

12.00%$

14.00%$

2012$ 2013$ 2014$

Return'on'Assets''

800$Super$

Colex$

0.00%$

5.00%$

10.00%$

15.00%$

20.00%$

25.00%$

2012$ 2013$ 2014$

Return'on'Equity'

800$Super$

Colex$

Appendix 3: Financial Ratios

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1.5"2"

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2012" 2013" 2014"

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800"Super"

Colex"

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0.2"

0.4"

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2012" 2013" 2014"

Total&Debt/Equity&

800"Super"

Colex"

Industry"Average"

0.00%$

10.00%$

20.00%$

30.00%$

40.00%$

50.00%$

60.00%$

70.00%$

80.00%$

2012$ 2013$ 2014$

Gross%Margin%

800$Super$

Colex$

Industry$Average$

0.00%$

5.00%$

10.00%$

15.00%$

20.00%$

25.00%$

30.00%$

2012$ 2013$ 2014$

EBITDA'Margin''

800$Super$

Colex$

Industry$Average$

0.00%$

1.00%$

2.00%$

3.00%$

4.00%$

5.00%$

6.00%$

7.00%$

8.00%$

9.00%$

2012$ 2013$ 2014$

Net$Prot$Margin$$

800$Super$

Colex$

Industry$Average$

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EBITDA'Interest'Coverage'Ra3o''

800"Super"

Colex"

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Appendix 4: DDM

Appendix 5: DCF

Key Assumptions Two key assumptions made in the valuation analysis. First, the expected market return is assumed to be 9.68%. In arriving at this figure, we considered the following:

1. Although the 10-year annualised return for the STI Index through 2013 is about 2.92%, its annualised return between 1978 and 2014 (after adjusting for inflation) is 9.2%.

2. The 10-year annualised return for the ST Index through 2014 is 9.78%, while the 5-year annualised return is 8.9%.

3. Taking the market-cap weighted values of the STI between the prior and post the financial crisis, we get an expected market return of 9.68%.

Second, the risk-free rate is assumed to be 2.75%. This is the yield of the 10-year Singapore Treasury bonds as of 20th March 2015. The Cost of equity is estimated based on CAPM model through a regression of 800 supers weekly stock return against that of the Straits Times Index. With an applied beta for EQRP of 0.38, the return on equity for 800 Super is estimated at 5.38%. With regards to the cost of debt, as mentioned above, it is calculated through taking the average of the interest rates as well as lease obligations which is a big share of its debt portfolio to account for its debt obligations over the last decade. As for the weighted-average cost of capital (WACC), it is calculated using the weighted average cost of equity and cost of debt, based on a tax rate of 13.68%, and market capitalisation of $78,672 (In 000s) assuming the last close share price of $0.44.

However, we noted that the firm has a small market capitalisation with a 30-day average trading volume that is very little in comparison to its competitors. It has also been giving consistent dividends over the past 5 years and the group believes future dividends would surpass that of 2014. It has also seen an 84.56% increase in the stock price in the past one year. However, prior to that, 800 Super has been fairly weak in its capital returns in the last decade. We have also noted a market risk premium of 6.93% however, this might only be due to recent shift in prices.

Using the DCF model with a WACC of 4.75% and terminal growth rate of 0.5%, the estimated stock price is $0.60, which also lends support to the residual income model that the stock is currently undervalued. Given the current estimate GDP growth is said to exceed expectations, the group predicts that 800 Super would be able to provide good returns for its investors in the end of the coming fiscal year.

Sensitivity Analysis For valuing the stock using the discounted cash flow model, we used the above terminal growth rate and WACC figures. We calculated the FCFF using these values as well as the EBIT and accounting for any change on capital expenditure as well as net working capital. This gave us our free cash flows inclusive of the terminal value, which was then discounted by the WACC to give us present value of the company. Using these parameters we derived a share price of $0.59, which is higher than the current price of $0.44. We also ran a sensitivity analysis on the eects of dierent WACC and Terminal Growth Rates on share price. The volatility of share price is very high at low rates of WACC and high terminal growth rates, and vice versa at the other end of the spectrum. The volatility of the share price of 800 Super is more apparent at the same growth rates with varying WACCs ranging from $0.97 at a WACC of 3.25% and growth rate of 0.5% and reduced by more than half at $0.40 when the WACC is at 6.25%. This provides sucient analysis to derive that the share price is very volatile and would only bring accurate results depending on the forecast periods.