Company Valuation Report Case Study

Company Valuation Report

Introduction - Company Valuation Report

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In 1979, Bill and Jean Adderley set up a competitive stand in Leicester, which evolved into a comprehensive range of hypermarkets under the direction of its son, Will Adderley. Dunelm began as a single business in Leicester and has now grown into a nationwide program of chain stores. We are thrilled to be able to commemorate our 40th anniversary with such a good showing (Sobhan et al. 2021). A greater emphasis on Dunelm's well-established Customer’s 1st ideals, which include optimum result high-quality products and services at a reasonable price, as well as courteous and competent services from employees across its 172 stores, has contributed to the organization's growth. Aside from that, they are developing significant new technology infrastructure that is boosting purchases either digital or even internal stores.

The Dunelm brand is aimed at a wide spectrum of customers thanks to its enormous selection of over 50,000 primarily original items that provide exceptional value, variety, design, and excellence throughout relatively high price levels. They also carry a variety of specialized companies and trademarks and have their own UK manufacturing facility for Created to Measure curtains and roman blinds, as well. They are progressively producing items to assist our consumers in living more effectively (Stevenson and Cole, 2018). This includes the implementation of new elements and cycle design, as well as the expansion of its ecological 'The Edited Life' collections.

dunelm plc is the soft furnishing retailing as well as manufacturing company providing homewares. Established in the United Kingdom, Dunelm Group Plc is a British household goods retailer with stores around the country. The company has its facilities in the English town of Syston, and it is one of the country's leading homewares merchants by sales volume. It will have its separate curtains, blind, and accessory manufacturing in Leicester, Britain, which produces all of its products. It is publicly traded on the "London Stock Exchange and is a constituent of the FTSE 250 Index" of leading global companies. Companies such asDFS Furniture, Wayfair Inc, Asos Plc, Ocado Plc, and many others are among the most significant competitors of dunelm.com.

As countries move closer to Brexit, the business industry in the United Kingdom continues to endure significant values of volatility and uncertainty, as consumer sentiment drops significantly. Because conventional obstacles to entry are being reduced, the market situation is also constantly shifting, with several new shops joining the economy as a result of this (Eisenberg, 2019). The changing nature of consumer habits and demands has also resulted in certain well-established merchants pulling out of certain segments of the home furnishings and accessories sector at identical times. The home furnishing store in the United Kingdom is estimated to cost £13.5 billion per year. Internet adoption is increasing at a rapid pace, far outpacing the broader market.

Thus, according to projections, growth will be 14.8 percent in 2019 (compared to 14.0 percent in 2018), and it will reach 17.2 percent by 2023. The development of online shopping has, nevertheless, been aided by the presence of physical storefronts where shoppers can search, explore and even be influenced online while also touching and feeling the objects in person.

Valuation of Dunelm Group Plc

Valuation of Dunelm using Book Value Model & Price Earnings Ratios Model
Companies	Market Price	Total assets	Total liabilities	Shares outstanding	EPS	Book value of equity	Book value per share
Dunelm.com	£ 1,137.00	£ 7,66,700.00	£ 4,85,500.00	£ 2,026.00	0.97	£ 2,81,200.00	£ 138.80
DFS Furniture	£ 213.00	£ 11,04,800.00	£ 8,20,300.00	£ 2,583.00	34.2	£ 2,84,500.00	£ 110.14
Valuation	Price-to-book	Price-to-earnings	Condition
"Fair Ratio"	1.94	14.72	Price / Book value per share		(Fair P/B x Book value per share)
Dunelm.com	£ 269.22	£ 14.28	(Overvalued)	Price / Earnings per share		(Fair P/E x Book value per share)
DFS Furniture	£ 213.65	£ 503.45	(Undervalued)
Comparables	Market Price	Total assets	Total liabilities	Shares outstanding	EPS	Book value of equity	Book value per share	Price-to-book	Price-to-earnings
J Sainsbury Plc	£ 260.50	£ 2,51,62,000.00	£ 1,85,58,000.00	£ 22,335.00	12.6	£ 66,04,000.00	£ 295.68	0.88	20.67
Wayfair Inc	£ 119.00	£ 45,70,000.00	£ 61,89,000.00	£ 1,048.00	21	-£ 16,19,000.00	-£ 1,544.85	-0.08	5.67
Asos Plc	£ 1,724.00	£ 28,84,500.00	£ 18,50,500.00	£ 998.00	125.5	£ 10,34,000.00	£ 1,036.07	1.66	13.74
Ocado Plc	£ 1,203.50	£ 43,83,600.00	£ 26,74,400.00	£ 7,514.00	64	£ 17,09,200.00	£ 227.47	5.29	18.80

As per the above two models of price earnings ratio and the book value, the valuation of Dunelm Group Plc has been made. For this valuation of the firm, the market price of Dunelm has been determined as £ 1,137, while the value of its total assets along with its total liabilities is analyzed as £ 7,66,700 and £ 4,85,500 respectively. The number of shares which are outstanding for Dunelm is determined as Dunelm £ 2,026 and its EPS is 0.97. For this valuation one of its competitors, DFS Furniture, has chosen which market price of share is £ 213 and the value of its total assets along with total liabilities has been determined as £ 11,04,800 and £ 8,20,300 respectively. The EPS and outstanding number of its share is determined as 34.2 and £ 2,583 respectively (Occhino and Maté, 2018). For this valuation of the company, comparable companies such as Ocado Plc, J Sainsbury, Wayfair Inc and Asos Plc have also been chosen. The book value for each share for the company Dunelm and its competitor DFS has been calculated as £ 138.80 and £ 110.14 respectively. While this book value for each share for the other comparable companies such as Sainsbury, Wayfair, Asos and Ocado Plc has been computed as £ 295.68, £ -1,544.85, £ 1,036 and £ 227.47 respectively. The average PB ratio of comparable companies has been evaluated as 1.94 while the average PE ratio of comparable companies has been analyzed as 14.72. This fair ratio has been used as criteria for the two competitors, Dunelm Plc and DFS furniture where the PB ratio of Dunelm is computed as £ 269.22 and its PE ratio is analyzed and calculated as £ 14.28. This lower PE and PB ratio of Dunelm Plc shows that the value of its market price is higher than the ratio. However, on the other side, the PB and the PE ratio of DFS Furniture is calculated as £ 213.65 and £ 503.45 and as this ratio is higher than its market price, the share of DFS is considered as undervalued and more profitable.

Valuation of Dunelm using Dividend Discount Model (DDM)
Company		Dunelm Group Plc
TTM Dividends	2 Yrs. Dividends	3 Yrs. Dividends	4 Yrs. Dividends	5 Yrs. Dividends	6 Yrs. Dividends
£ 0.14	£ 0.12	£ 0.08	£ 0.07	£ 0.06	£ 0.25
£ 0.37	£ 0.08	£ 0.20	£ 0.19	£ 0.15	£ 0.05
£ 0.23	£ 0.21	£ 0.07	£ 0.32	£ 0.05	£ 0.10
£ 0.65	£ 0.32	£ 0.20	£ 0.16	£ 0.12	£ 0.04
£ 1.39	£ 0.73	£ 0.54	£ 0.73	£ 0.37	£ 0.44

Yoy Growth	Yoy Growth	Yoy Growth	Yoy Growth	Yoy Growth
91.72%	35.51%	-26.81%	97.57%	-14.94%

Average Growth	36.61%
WACC	9.01%
Numerator	£ 1.90
Denominator	35.82%
BUY/SELL	Upside
Intrinsic Value	£ 5.30	SELL	-99.53%
Current Price	£ 1,137.00

The above DDM is used for the valuation of Dunelm Group Plc along with its dividend payment in the last few years. The TTM dividends of Dunelm Plc have been determined as £ 0.14, £ 0.37, £ 0.23 and £ 0.65, through which the sum of TTM dividends is calculated as £ 1.39. In the same way, 2 years dividends have been analysed as £ 0.12, £ 0.08, £ 0.21 and £ 0.32 which gives the sum of 2 years of dividend as £ 0.73. The 3 years dividends of Dunelm Plc have been determined as £ 0.08, £ 0.20, £ 0.7 and £ 0.20, through which the sum of 3 years dividends is calculated as £ 0.54. 4 years dividends have been analysed as £ 0.07, £ 0.19, £ 0.32 and £ 0.16 which gives the sum of 4 years of dividend as £ 0.73 (Cohen and Neubert, 2019). The 5 years dividends of Dunelm Plc have been determined as £ 0.06, £ 0.15, £ 0.05 and £ 0.12, through which the sum of 5 years dividends is calculated as £ 0.37. Last 6 years dividends have been analysed as £ 0.25, £ 0.05, £ 0.10 and £ 0.04 which gives the sum of 6 years of dividend as £ 0.44. The growth of Dunelm Group Plc for the last 6-year dividends is determined as 91.72%, 35.51%, -26.81%, 97.57% and -14.94% using which the average growth of the firm is calculated as 36.61%. The current WACC and the current market price for each share of Dunelm Group Plc is determined as 9.01% and £ 1,137 respectively. Through using the dividend discount model, the intrinsic value of Dunelm Group Plc is evaluated as £ 5.30 and as it is lower than the market price of its share of £ 1,137 the indicator shows it should be sold. 

Discussion of the chosen methodologies

in order to make the valuation, 3 methodologies have chosen which were relevant to the associated company Dunelm Group plc. These 3 methodologies are Book value method, Price Earning Ration model and the DDM.

Book value method

This method of book value us very essential for the valuation of those companies where assets are more involved in their business and in case of Dunelm Plc, the company is associated with various assets such as inventories, properties and equipment. For this reason, the valuation of Dunelm Plc has been made using this book value method and it generated successful outcomes. Also, in last few years it has been experienced that the firm has earned a low margin of profit and due to this reason also this book value of approach has been chosen for the valuation (Wildt, 2019). The book value is generally deducting the value of total liabilities of a firm from the value of its total assets in the business. The book an incentive for each offer for the organization Dunelm and its rival DFS has been determined as £ 138.80 and £ 110.14 separately. While this book an incentive for each offer for the other similar organizations, for example, Sainsbury, Wayfair, Asos and Ocado Plc has been figured as £ 295.68, £ - 1,544.85, £ 1,036 and £ 227.47 separately. This technique for book esteem us exceptionally fundamental for the valuation of those organizations where resources are more associated with their business and if there should arise an occurrence of Dunelm Plc, the organization is related with different resources like inventories, properties and gear. Hence, the valuation of Dunelm Plc has been made utilizing this book esteem strategy and it created fruitful results (Himawan, 2020). Additionally, in most recent couple of years it has been capable that the firm has acquired a low edge of benefit and because of this reason likewise this book worth of approach has been decided for the valuation.

Advantages

The major advantage of this Book Value method is that it gives a detail analysis of the overall financial performance of the association. As this method do the analysis of company’s assets separately, that analysis gives a clear view that exactly which area of this business is highly profitable and where the performance of it lacks. By viewing the performance of the assets along with the firm’s liabilities, the managers and owners of the business can control their financial activities and enhance the business performance through it. This valuation approach gives a detail examination of the generally monetary exhibition of the affiliation (Lidia, 2018). Also, this approach does the investigation of organization's resources independently and its examination gives a reasonable view that precisely which region of this business is exceptionally beneficial and where its presentation needs.

Disadvantages

Together with numerous benefits this book value technique has some disadvantages too where in order to crate the valuation process of a company some high skilled analysts are required. Therefore, to get the high skilled analysts they have to pay huge for the valuation analysis of the firm which is major disadvantages of this approach. Also, this valuation requires higher time as compared to the other techniques of valuation and it is very time consuming. One another major limitations of this approach is that in association the analysts have not the access to view some essential assets value due to which the valuation process goes incomplete and does not provide detailed information’s.

Approach of price earnings ratio

This approach of PE ratio is one of the best valuation methods for stocks analysis using which numerous investors determine the exact value of the stocks. This valuation method is generally used to determine if the price of an association’s stock is undervalued or it is overvalued. The overvalued signifies that the stock is not profitable where the price of it is overvalued and not relevant to buy (Saeterboe, 2019). While on the other hand, the undervalued shoes that the price of stock is under the circumstance and profitable enough to buy and invest. This method is useful for the company Dunelm as its historical price kept changing in last few years and this is the reason why this approach has been chosen for the valuation of this firm. This valuation technique is for the most part used to decide whether the cost of an affiliation's stock is underestimated or it is exaggerated. The exaggerated connotes that the stock isn't productive where its cost is exaggerated and not applicable to purchase. While then again, the underestimated shoes that the cost of stock is under the situation and sufficiently productive to purchase and contribute. In the above valuation it is determined that this lower PE and PB proportion of Dunelm Plc shows that the worth of its market cost is higher than the proportion. Notwithstanding, on the opposite side, the PB and the PE proportion of DFS Furniture is determined as £ 213.65 and £ 503.45 and as this proportion is higher than its market value, the portion of DFS is thought of as underestimated and more beneficial.

Advantages

There are various advantages of this valuation approach of PE ratio which is used generally in the stock market by number of investors for determining the stocks valuation. Also, this ratio can be computed very easily without any major issues where the investors only require price of a share along with the EPS. Also, this valuation approach finds out and analyzes the growing capability and growth of a firm in the business (Miciu?a, et al. 2020). Using this valuation approach both the owners and the investors can forecast the future performance of the association where the past along with the existing performance the association are being chosen.

Disadvantages

Along with some advantages, this approach has some serious disadvantages as well and one of those is that this approach ignores the financial areas and structure of debt of an association while the valuation of it. Policies of accounting are other limitations of this approach where different policies are being used in order to compare the PE of one association with another and sometimes it creates major issues while the valuation of those association. Furthermore, the nature of stocks is very volatile due to which major issues and problems originates at the time of valuation.

Dividend Discount Model (DDM)

The DDM is one useful approach of company’s valuation which analyses the stock value by summarizing all the dividends it paid in the past and forecasting the expected value of dividend in the future. This valuation method is generally used to conclude whether the expense of an association's stock is underrated or it is misrepresented. The misrepresented suggests that the stock isn't useful where its expense is overstated and not appropriate to buy. While of course, the underrated shoes that the expense of stock is under the circumstance and adequately useful to buy and contribute (SHIMKO, 2021). This valuation approach is chosen for the company Dunelm because there is a regular changes of dividend paid value has been made in the last 6 years and through using this DDM, the valuation of the association has been made appropriately. Therefore, it can be said that it is one helpful methodology of organization's valuation which examinations the stock worth by summing up every one of the profits it paid previously and determining the normal worth of profit from now on. This valuation technique is by and large used to close whether the cost of an affiliation's stock is misjudged or it is distorted. In this model, basically the historical dividend payments have been used for the last 5-6 years through which the average growth of dividend has are analyzed. After the average growth. The WACC of the firm are determined and computed in order to find the intrinsic value of the stock price of the firm. Once the intrinsic value is being determined, the decision of buying or selling are being made where if the intrinsic value is less than the market price of that share there should be a sell and if the opposite happens there should be a buy.

Advantages

As this valuation approach is mostly utilized for determining and computing the share price, it very easy to go through and understand. Furthermore, by using this approach the comparison of one association with another are made easily as it only uses dividend and share price. This valuation approach gives a detail assessment of the by and large money related display of the connection (Kh, 2021). Likewise, this approach does the examination of association's assets autonomously and its assessment gives a sensible view that unequivocally what area of this business is especially valuable and where its show needs. A strong decision of buying or selling can be made using this effective valuation approach which is ne of its biggest benefits.

Disadvantages

The DDM has many advantages but it has some downside as well which makes the investors to think critically before using it for the valuation. One major limitation of using DDM is that it ignores the factors which are not related to the dividend of the company such as retentions of consumers, brand loyalty and any assets ownership which are essential for the growth of the association. Also, this approach is basically depending upon the expected assumptions which are made for the growth of the association.

Recommendation

As per the above valuation it has been determined that the market price of Dunelm’s share is higher than the fair ratio determined which makes it overvalued. While the DFS Furniture’s share is undervalued and more profitable for the investors to invest on it. Dunelm Group Pls is recommended to increase its EPS and undertake essential amount of assets and liabilities in the business which may create a balanced book value of its stock (Boutouria, et al. 2021). The company is required to fir the management activities under the business which may impact the performance of the firm in means terms for enhancing its financial performance. The number of outstanding shares should decrease as it is higher for the company and impacts the performance of the company. Also, as the book value are associated with the assets of the firm, Dunelm Plc is recommended to sell the old equipment’s assets of the business which can save the storehouse cost of those assets and also increase the revenue of the association. The firm is prescribed to build its resources and attempt fundamental measure of resources and liabilities in the business which might make a decent book worth of its stock. The organization is expected to fir the administration exercises under the business which might affect the presentation of the firm in implies terms for upgrading its monetary exhibition. According to the above valuation, the normal PB ratio of comparable firms has been assessed as 1.94 while the normal PE proportion of practically comparable firms has been examined as 14.72. This fair ratio has been utilized as models for the two contenders, Dunelm Plc and DFS furniture where the PB ratio of Dunelm is registered as £ 269.22 and its PE ratio is investigated and determined as £ 14.28. in most recent couple of years, it has been capable that the firm has acquired a low edge of benefit and because of this reason additionally this book worth of approach has been decided for the valuation. The book esteem is for the most part deducting the worth of all out liabilities of a firm from the worth of its all-out resources in the business (Azahra and Siauwijaya, 2022). Therefore, it has been noticed that the price to earning of Dunelm Plc is not very high and lower than its market price. Therefore, the company is recommended to increase the number of its shares for higher earning in the market and compete with its contenders. In this way, the financial performance of Dunelm Plc can be enhanced and the activities of it can be improved for successful growth. It is also analyzed through the above valuation, that the average dividend growth of Dunelm Plc is higher than its current WACC. Even though the decision of selling has been made the company is recommend to pay a certain amount of dividend each year with so that its performance in the market can become stable and profitable. This may also attract the potential investors to invest on the company by going through its past dividend performance.

Maximizing the value of the business

The value of the business can be maximized through various ways such as applying management of value based, various acquisitions and mergers, effective growth and the sale. Using the management of value based primary focus can be given on the company’s value. Dunelm Plc is required to apply this approach for creating their future value and maintain healthy resources in their business workplace (Rachmale, 2020). This approach does the examination of association's assets freely and its assessment gives a sensible view that definitively what locale of this business is especially useful and where its show needs. It is to be said that by utilizing this valued management the examination of one relationship with another are made effectively as it just purposes profit and offer cost. By analyzing the growth and sale of the firm both the proprietors and the financial backers can figure the future presentation of the affiliation where the past alongside the current exhibition the affiliation is being picked. This valuation approach gives a detail evaluation of the all-around cash related show of the association (Chen, 2021). In like manner, this approach does the assessment of affiliation's resources independently and its appraisal gives a reasonable view that unequivocally what region of this business is particularly significant and where its show needs. Also, mergers and acquisition are essential for Dunelm plc where it can merge with one another company for the business and add more value to its business and the company. This strategy is also very beneficial through which the firms can share a mutual future value and perform effectively to increase that value of the business.

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