Executive Summary 2
Question 1: Tottenham’s Current Value 4
Question 2: Investment Options 9
Question 3: Stock Price Reaction 14
Question 4: Event Study 17
Sensitivity Analysis 19
In 2008, Daniel Levy, chairman of Tottenham Hotspurs, plc., considered making a significant investment in building a new stadium, arguing that such an investment would be crucial to long-term success. It’s larger capacity would better serve its fan base and its improved facilities would attract higher-end players, allowing for the improvement of the club. Our group has been tasked to perform an analysis based on information provided to us in a case study.
First, we estimate the club’s value given its current stadium and following their current player strategy using two types analyses: a discounted cash flows (DCF) analysis and a multiples analysis. Using a DCF analysis, we estimated the net present value of equity for Tottenham to be £89.06 million. A multiples analysis estimates the value of equity to be £139.21 million, which was lower than the industry average. Comparing its current stock price of £13.80 to the stock price estimated under the DCF analysis (£9.59) and the multiples analysis (£14.98) give mixed results. The DCF estimation indicates the current stock price is overvalued while the multiples analysis indicates it is undervalued.
Second, we use a DCF approach to evaluate what would happen to the value of the firm in three scenarios: build a new stadium, sign a new striker, and build a new stadium plus sign a new striker. The financing of the striker was relatively straightforward and resulted in a firm value of £150.06 million and an equity value of £106.98...