Assume that the only significant items in FY2017 were as follows: – transaction fees and implementation costs of $22.4 million pre-tax ($15.7 million post tax) associated with the acquisition of The Good Guys

Assume that the only significant items in FY2017 were as follows: – transaction fees and implementation costs of $22.4 million pre-tax ($15.7 million post tax) associated with the acquisition of The Good Guys
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BACKGROUND INFORMATION

Assume that the only significant items in FY2017 were as follows:

–    transaction fees and implementation costs of $22.4 million pre-tax ($15.7 million post tax) associated with the acquisition of The Good Guys

–    goodwill and fixed asset impairment charges relating to JBH New Zealand of $15.8 million pre-tax ($11.1 million post-tax).

  • Assume that the current market price (CMP) for JBH at 30 June 2017 is $23.37.
  • Assume that the FY 2017 price/earnings ratio for the ASX Consumer Discretionary sector is 12.8 times (x), while the FY2017 dividend yield for this sector is 4.1%.
  • When calculating earnings per share (EPS), cash flow per share and net tangible assets (NTA) per share, assume the following in relation to JBH share capital movements during the financial year:

 DateDetailsNumber of shares issued/ (bought back)Application price

$

Last market price cum issue

$

 1 July 2016Starting number of shares98,947,309  
131 August 2016Employee option exercise277,86326.0530.07
226 September 2016Institutional entitlement offer9,891,25826.2030.81
311 October 2016Retail entitlement offer5,246,06625.2029.55
428 February 2016Employee option exercise58,90724.9926.82
 30 June 2017Ending number of shares114,421,403  

 

Question 2      Earnings per share and price/earnings ratio (12 marks | Word limit: 300 words)

(a)      Calculate JBH’s 2017 earnings per share (cents) to one (1) decimal place. Exissue prices must be calculated to two (2) decimal places and dilution factors must be calculated to four (4) decimal places. Show all your workings for the calculation of ex-issue prices and dilution factors.

Note: Refer to the ‘Background information’ for additional information. (8 marks) – 200 words.

 

Inputs

The following table shows the inputs used in calculating the EPS.

 

Item2017 (m)2016 (m)
NPAT*199.2*152.2
Non-controlling interest
Quasi-equity distributions
Weighted Average number of ordinary shares (for basic EPS)111.7 

100.2

Weighted average number of ordinary shares (for diluted EPS)112.7 

101.3

 

Notes

  • NPAT: Please use the above stated NPAT figures.
  • Non-controlling interest: there is no non controlling interest.
  • Quasi-equtiy distributions: there is no quasi equity distributions.

 

 

  1. Calculate JBH’s 2017 price/earnings ratio (PER) at the current market price (provided in the ‘Background information’) to one (1) decimal place. (1 mark) – 25 words.

 

 

Price / earnings ratio = $23.37/1.8025= 12.97 = 13.0x

Criteria-based marking guide for Question 2(a)–(c)

Excellent (Mark range: 10–12 marks)Satisfactory (Mark range: 6–9 marks)Unsatisfactory (Mark range: 0–5 marks)
•  accurately calculates all aspects of earnings per share and PER (with minor errors)

•  provides a clear explanation of how the PER can be used to value JBH

•  accurately calculates most aspects of the earnings per share and PER (with several key errors)

•  provides an explanation of how the PER can be used to value JBH, covering some (but not all) key aspects

•  makes little or no attempt to calculate JBH’s earnings per share and PER

•  makes little or no attempt to explain how the PER can be used to value JBH, or the explanation provided is inaccurate

 

Assume that the only significant items in FY2017 were as follows: – transaction fees and implementation costs of $22.4 million pre-tax ($15.7 million post tax) associated with the acquisition of The Good Guys
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