Presentation on theme: "Seminar Investasi dan Pasar Modal Session 6: IPO By Dr. Ir. Sugeng Purwanto MBA,FRM Jakarta, 17 March 2010 Source : BKM (2009). “INVESTMENTS”, 8 th Edition,"— Presentation transcript:
Seminar Investasi dan Pasar Modal Session 6: IPO By Dr. Ir. Sugeng Purwanto MBA,FRM Jakarta, 17 March 2010 Source : BKM (2009). “INVESTMENTS”, 8 th Edition, Chapter 1, others. 1
CAPITAL RESTRUCTURING VALUE CREATION AND RISKS PV of tax shield Zero leverage firm value Leveraged firm value PV of financial distress costs Value of firm Debt Ratio
THE ADVANTAGES OF AN IPO ACCESS TO MUCH NEEDED CAPITAL AT HIGHER MULTIPLE THAN WOULD BE IN PRIVATE TRANSACTIONS * TO REDUCE OUTSTANDING DEBT * ENHANCE PRODUCT DEVELOPMENT * COMMIT TO EXPANSION INCREASE THE COMPANY’s NET WORTH MAKING THE COMPANY MORE ATTRACTIVE TO LENDERS MEANS OF ENTRY INTO DIFFERENT CAPITAL MARKETS TO FINANCE FOR FUTURE PROJECTS GREATER LIQUIDITY OF COMPANY’s STOCK USE ITS OWN STOCK AS CURRENCY TO ACQUIRE OTHER COMPANIES STRONG ADVERTISEMENT OF A COMPANY’s STRENGTH AND FINANCIAL WELL BEING A SUCCESSFUL IPO ENHANCE REPUTATION
THE DISADVANTAGES OF AN IPO A FAILED IPO DEVASTATE TO A COMPANY’s REPUTATION A SUBSTANTIAL OUT-OF-POCKET EXPENSE THAT IS INVOLVED IN PREPARING AN IPO FOR MARKET NEW PRESSURES ON THE MANAGEMENT TEAM TIME SPEND FOR AN IPO CAN BE 4-6 MONTHS TRANSPARENCY PUBLIC SCRUTINY DILUTION OF OWNERSHIP INTEREST AND CONTROL FIDUCIARY OBLIGATIONS WITH RESPECT TO MINORITY OWNERSHIP INTEREST
PRIMARY MARKET PRE – IPO POST - IPO PRIVATE PUBLIC COMPANY SHAREHOLDER SHAREHOLDER SHAREHOLDER SHAREHOLDER INVESTING PUBLIC 80% 20% 60% 15% 25% SHARES MONEY USE OF PROCEEDS: DEBT REPAYMENT WORKING CAPITAL INVESTMENT - ACQUISITIONS INVESTMENT BANKERS INVESTORS
PRIMARY MARKET When firms need to raise capital they may choose to sell (or float) new securities. These new issues of stocks or bonds typically are marketed to the public by investment bankers in what is called Primary Market. There are two types of primary market: * Public offering * Private Placement. An issue that is sold to a wealthy or institutional investors INITIAL PUBLIC OFFERING (IPO) IPO are stocks issued by a formerly privately owned company selling stock to the public for the first time. SECONDARY MARKET Trading of already-issued securities among invstors take place in the secondary market.
7 FIRMS (“EMITEN”) STOCKS ARE TRADED IN THE SECONDARY MARKET NEW SHARES (STOCKS) UNDERWRITER STOCK TRADED IN SECONDARY MARKET OTHER LISTED STOCKS BROKERAGE HOUSE: - STOCK TRADING - STOCK ANALYSIS IPO PRIMARY MARKET Notary Valuer Public accountant Law consultant Financial consultant INVESTORS SECONDARY MARKET (BEI) 7
SECONDARY MARKET INVESTOR A INVESTOR B BROKER X BROKER Y STOCK ANALYST STOCK ANALYST SELL BUY STOCK EXCHANGE
PRESENT VALUE OF DIVIDEND STREAM ∞ Case : Abnormal dividend and then constant growth rate of dividend starting from year-3 D0D1D2D3D4D5D6D∞D0D1D2D3D4D5D6D∞ D 4 = D 3 (1 + g) D 5 = D 4 (1 + g)… Constant growth rate “g”
11 VALUATION WITH ABNORMAL GROWTH RATE Assume: Abnormal growths are expected in year 1 and year 2. Div 1 Div 2 1 Div 3 P= + + (1 + k) 1 (1 + k) 2 (1+k) 2 k – g Div 1 Abnormal dividend (effect of abnormal growth) in year 1 Div 2 Abnormal dividend (effect of abnormal growth) in year 2 Div 3 Dividend in year 3 which will have constant growth g beyond year 3 PStock (Share) Price kInvestor required rate of return gSustainable growth rate after year 3 [year 3 is taken as the beginning of normal operation year]
RELATIVE VALUATION DPR X E 0 (1+g) P = k e – g DPR (1 + g) P/E= = PER k e – g Relative Valuation P= PER x Earnings PER Price to Earnings Ratio
PER VALUATION PRICE = PER x EARNINGS PRICING METHOD: FIND AVERAGE PER IN THE MARKET FAIR VALUE OF SELECTED STOCK WILL BE EQUAL TO AVERAGE PER MULTIPLIED WITH FIRM’s BOOK VALUE 13
STOCK MARKET INDEXES PRICE-WEIGHTED AVERAGE: Dow Jones Average (DJIA) DJIA of 30 large, “blue-chip” corporations has been computed since 1896 (the average only covered 20 stocks until 1928). VALUE-WEIGHTED INDEXES: S&P 500, IHSG Value-weighted index is computed by calculating the total market value of the firms in the index and the total market value of those firms on the previous day of trading. The percentage increase in the total market value from one day to the next represents the increase in the index. EQUALLY WEIGHTED INDEXES A measurement of an equally weghted average of the returns od each stock in an index. This corresponds to an implicit portfolio strategy that places equal dollar values on each stock.
16 PRICE-WEIGHTED AVERAGE INDEX INITIAL TOTAL VALUE OF INDEX IS ($25 + $100)/2 = $62.5 FINAL TOTAL VALUE OF INDEX IS ($30 + $90)/2 = $60 DROP IN THE INDEX IS ($60 - $62.5)/$62.5 x 100% = 4%. VALUE-WEIGHTED INDEX INITIAL TOTAL VALUE OF STOCKS IS $690 MILLION WERE SET TO AN ARBITRARY CHOSEN STARTING VALUE SEUCH AS 100. THE INDEX VALUE AT YEAR END WOULD BE 100 X ($690M/$600M) = 115. THE INCREASE IN THE INDEX REFLECTS THE 15% RETURN EARNED ON A PORTFOLIO CONSISTING OF THOSE TWO STOCKS. EQUALLY WEIGHTED INDEX EQUALLY WEIGHTED INDEX DO NOT CORRESPOND TO BUY-AND-HOLD PORTFOLIO STRATEGIES. STOCK A INCREASES IN VALUE BY 20% AND STOCK B DECREASES BY 10%. PORTFOLIO IS NO LONGER EQUALLY WEIGHTED. IT IS NOW MORE HEAVILY INVESTED IN A. IT WOULD BE REBALANCED. StockInitial price Final priceSharesInitial ValueFinal Value A$25$3020milion$500 million$600 million B$100$901 million$100 million$90 million TOTAL$600 million$690 miliion
BURSA EFEK INDONESIA INDEX HARGA SAHAM BURSA EFEK INDONESIA ~ Penutupan Jumat 15 Februari 2008 SEKTORJUMLAH EMITENINDEKS HARGA SAHAM PERTANIAN143, PERTAMBANGAN153, INDUSTRI DASAR DAN KIMIA ANEKA INDUSTRI INDUSTRI BARANG KONSUMSI PROPERTI DAN REALESTAT INFRASTRUKTUR UTILITAS TRANSPORTASI KEUANGAN PERDAGANGAN JASA DAN INVESTASI LQ45 [45 saham likuid yang rata-rata aktif diperdagangkan] IHSG2,688