APPLIED CORPORATE VALUATION USING FCFF METHOD – THE CASE OF RABA PLC. THE ONLY COMPANY FROM THE AUTOMOTIVE INDUSTRY PRESENT IN THE HUNGARIAN STOCK EXCHANGE

Bela Gal () and Andrea Rozsa ()
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Bela Gal: graduated MSc student in Accountancy at University of Debrecen
Andrea Rozsa: University of Debrecen, Faculty of Economics, Institute of Accounting and Finance

Annals of Faculty of Economics, 2017, vol. 1, issue 2, 177-189

Abstract: The article primarily seeks to analyze the corporate performance of one of the significant players of the Budapest Stock Exchange, Rába PLC (RABA) and to prepare its corporate valuation based on the free cash flow method. RABA is a premium share and one of the components of the BUX index, as well as the only company from the automotive industry present in the Hungarian Stock Exchange. Another reason for this study is that in 2011 the Hungarian State (Hungarian National Asset Management Inc.) acquired 74% ownership in the company, so the ownership structure was significantly changed compared to the previous period. We were interested in knowing how the change in the ownership structure had been valued by investors. Is the steady growth of share prices demonstrable? Has the performance of the company improved on the basis of annual financial statements and financial ratios compared to the period before the government acquired major stake? How did government influence affect profitability and capitalization? As a general background to the studies, we first reviewed the automotive industry's economic processes based on publicly available information. Second, we presented the most important financial features of the company's 10-year development trend. Third, based on the historical, fundamental data series of RABA, we conducted a trend analysis. We estimated the expected future free cash flow to firm data and the relevant weighted average cost of capital. When determining the equity component of the weighted average cost of capital, the capital asset pricing model was used and a systematic risk assessment was also performed. With a two-phase free cash flow model and scenario analysis, we defined a target exchange rate band that, according to our analyses and expectations, indicates the expected future exchange rate trend. Finally, we evaluated our results compared to the current market trading data.

Keywords: corporate valuation; free cash flow to firm; weighted average cost of capital (search for similar items in EconPapers)
JEL-codes: G30 G31 (search for similar items in EconPapers)
Date: 2017
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