Question

Stillwater Energy, a privately held energy company, is going public. You have been hired to recommend...

Stillwater Energy, a privately held energy company, is going public. You have been hired to recommend an IPO price per share for the company. Use the following three companies that operate in the same industry, answer the questions below. Assuming the company’s EBITDA is $150.00 million, use the table below to estimate their enterprise value, and answer all questions. SHOW ALL WORK TO RECEIVE FULL CREDIT FOR CORRECT ANSWERS.

                                         Enterprise Value (millions)                                       EBITDA (millions)                                                        EBITDA Multiple

Swift Energy                                        900.12                                                               442.31

Clayton Williams Energy                       1000.29                                                             114.71

Rosetta Resources                              950.68                                                                303.81    

a. Compute the EBIT multiple for all 3 comparison firms and show above in the table. What is the average multiple? List here ________________

b. What enterprise value do you calculate for Stillwater Energy? List here and show work below _________________.

c. If cash and equivalents for Stillwater Energy is $150.95 million and interest bearing debt is $75.00 million, what is the total equity value of the company? __________________

d. Assuming after the IPO, Stillwater Energy has 100 million shares outstanding, what price per share do you calculate for the company?

e. If Stillwater Energy’s current stock price is $4.98 per share, do you think the stock price in the market place is over or undervalued compared to your answer? Circle the correct answer:

OVERVALUED (i.e., stock is trading for a higher price than you calculate)   

UNDERVALUED (i.e., stock is trading for a lower price than you calculate)

  

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Homework Answers

Answer #1

a]

EBITDA multiple = EV / EBITDA

Average EBITDA multiple = 4.63

b]

EV of Stillwater Energy = EBITDA of Stillwater Energy * average industry EBITDA multiple

EV of Stillwater Energy = $150 million * 4.63 ==> $694,219,989

c]

Equity value = Enterprise Value – total debt + cash

Equity value = $694,219,989 - $75.00 million + $150.95 million ==> $770,169,989

d]

Price per share = equity value / number of shares outstanding

Price per share = $770,169,989 / 100 million ==> $7.71

e]

If Stillwater Energy’s current stock price is $4.98 per share, then it is undervalued as the value per share calculated based on equity value is $7.71

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