H&M: Corporate valuation

Résumé du document

H&M is a leading European retailer offering « Fashion and Quality at the best Price ». It is the largest individual clothing brand in Europe, operating in 29 countries with 1,522 stores (of which only ten are franchised).

H&M went public in 1974, is listed on the Stockholm Stock exchange, is based in Sweden but has mainly been expanding internationally. As of November 2007 just 8% of its stores are domestic. The company operates stores in Many European countries and in the United States; it also offers a mail order service in Europe. H&M markets some of its clothing under the brand names Hennes, BiB, Contemporary, Conwell, L.O.G.G and Rocky.

Extraits

[...] As of November 2007 just of its stores are domestic. The company operates stores in Many European countries and in the United States; it also offers a mail order service in Europe. H&M markets some of its clothing under the brand names Hennes, BiB, Contemporary, Conwell, L.O.G.G and Rocky. H&M designs and retails men's, women's, and children's clothing, cosmetics, undergarments, hosiery, and accessories. The group is managed by a network of 15 country offices. The business is truly global, with 80% of sales now outside the Nordic region. [...]

[...] We considered therefore that online sales should provide a boost to the like for like growth of the turnover adding a percentage point to sales' growth. - A target long term store growth of 13% per year leading the sales to increase significantly. Appendix 5 show how H&M's stores number evolved over the last 7 years. In our forecasting, we considered that the company will keep growing at the same rate for the 3 forecasted years. We assumed that H&M's expansion will fade during the period 2011-2017. [...]

[...] In addition, we observed that Inditex and H&M did have an extremely contrasting gearing and as a consequence our multiples valuation won't be relevant. That's why we judged that the DCF calculation method is more accurate than the multiples valuation. Valuation Summary The chart bellow shows how close the values we obtained are to each other. Except the value computed relying on the P/E ratio, the others remain relatively distant from DCF's value. As a conclusion we can establish that among all its competitors, Hennes & Mauritz has the most favorable balance of business within Western Europe and the most sustainable growth potential. [...]

[...] This cost pressures is triggered by double digit wage inflation and an increase of raw materials' prices. Also, the company could suffer from the climate change as the collections may not correspond to the weather in the different European countries as many clothing companies suffered from. Working capital: The historical working capital represents, in average terms, nearly of the turnover. In our computations, we considered that this ratio will not change over time. Consequently, we expect a long term inventories/Sales ratio of a Receivables/Sales ratio of and Payables/Operating costs ratio of 20%. [...]

[...] A dwindle of 1 percentage point in the fixed assets/sales ratio will lead to a higher fair value of 413,88 Skr. The working capital is also negatively correlated to the target value as 1 percentage point increase in the WC/Sales ratio will make our fair value sink to 410,51 Skr. Long run taxation rate: A long run tax rate of 29% in line with 2007 WACC: To compute the WACC, we used the following figures: Source Damodaran The market risk premium we used corresponds to Europe's one where H&M generates 91% of its turnover. [...]