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.
[...] 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 Equity price share Value 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 [...]
[...] - 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. - A big amount of cash providing a big financial flexibility - Expansion of Internet and catalogue sales, - Production flexibility, stores are refreshed daily with new fashion items, - The company also has a privileged collaboration with super stars like the Australian singer Kylie Minogue and notorious designers like Roberto Cavalli. [...]
[...] Valuation Methodology Valuation methodology Citi's fair value per share is 474 Swedish Kronor while our DCF method based calculation let us obtain a fair value of 412 Swedish Kronor per share. This discrepancy is mainly due to some differences in the way we calculate our fair value. Actually, we choose to use a higher WACC of than that of Citi's (computed using a 1.0 beta and a 5.0 market risk premium). Considering the forecasts, Citi used a long term growth after 14 years of estimated growth (from 2008 to 2021), in contrast, we computed our fair value using a 10 years forecast including a cash flow fade so that the growth will drop off steadily until it reaches in 2017 and then calculated a normative cash flow at long term growth rate which is the European GDP. [...]
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