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Slide1
Chun How Beh, Kahmun Yap, Jade Vuong
Brooks Case CompetitionUnder Armour, Inc.Slide2
Introduction
Industry & Business OverviewFinancial Analysis
Turnaround Strategies
Valuation
RecommendationSlide3
Industry and Business Overview
Competitive Industry
Young Company
High barriers for new entrants
Founded in 1996
Operate in 5 continents
Retailers, distributors and direct to consumer sales channel
Apparel: 71%
Footwear 17%
Accessories: 9%Slide4
CompetitorsSlide5
Management
Director of Under Armour, Inc. since 1995.
Founder of Under Armour, Inc.
Chairman of the BOD and CEO since 1996. President of Under Armour, Inc. since August 2010.
28.95 million shares of Class C stock and 189,459 shares of Class A stock
Patrik Frisk,
President and COO since July 10, 2017.
He was CEO of The ALDO Group
Coalition President of Outdoor Americas with responsibility for The North Face®, Timberland®, JanSport®, lucy® and SmartWool® brands. Before that, Mr. Frisk was President of the Timberland® brand
Hold 522,740 shares
David E. Bergman,
Appointed as CFO of Under Armour, Inc. on November 30, 2017.
Acting CFO of Under Armour, Inc. from February 2017 to November 30, 2017.
Joined of Under Armour, Inc. in 2005 and has served in various Finance and Accounting leadership roles
Hold
130,374 shares* Slide6
Common Size and % ChangeSlide7
Common Size and % ChangeSlide8
Common Size and % ChangeSlide9
Common Size and % ChangeSlide10
Financial Ratio ComparisonSlide11
Financial Ratio ComparisonSlide12
Common Size and % ChangeSlide13
Profitability
4.74% behind industry leader
Source: Team Estimates and Mergent OnlineSlide14
Source: Team EstimatesSlide15
Source: Team EstimatesSlide16
Debt Analysis
Source: Team Estimates & Mergent OnlineSlide17
Turnaround Strategies
Restructuring plan (layoff creates uncertainty)
Upgradation of their ERP systems with SAP (causes missed orders)
The increase of its focus on footwear relative to athletic apparelSlide18
Alternative Courses
Recruit a new shoe designer
Increase advertising expense in 2021Slide19
Valuation: Discounted Cash Flow
Intrinsic Value: $11.21Slide20
DCF Assumptions - WACCSlide21
Business Risks
Consumer spending behaviorCurrency headwinds
Commodity Prices
Cost of sponsorship and designation
AcquisitionSlide22
Under Armour’s Outlook
ROIC decreased over time Company's days sales in inventory has increased show the decrease in asset efficiency
Poor investment plan
How to improve?
Better supply chain management system
Efficient in distribution system
Women Friendly product
More transparent and inclusive cultureSlide23
Recommendation
In light of the factors that contributed to our bearish outlook for Under Armor, the following alternatives can be considered by the company to turn things around. They need to establish a better relationship with their suppliers to create a better supply chain management system. Also, they have to come out with a more efficient supply chain distribution system. Besides that, Under Armour have to step up their game in capturing the increasing popularity in the athleisure. Also, they need to create a more women friendly product line in order to win a larger market shares. Besides that, Under Armor’s management also need to establish a more transparent and inclusive company culture, as a countermeasure to its high executive turnover ratio and foster better communication between top executive and employees to avoid knowledge gap and inefficient implementation of new company updates. Another possible course UA can take is to increase their budget in advertising when most of their debt will be mature in 2021. In 2012 and 2016, the company spent 205 million and 477.5 million, respectively on marketing expense. The amount double in just 4 years but the expense is small compared to how much Nike spends in advertising. Nike spends over $3 Billion in advertising in 2016 while UA did 3.96 billion in sales in the same year.Slide24
Conclusion
Cyclical companyIntrinsic value is $11.21 -> Overvalued
New management
Restructuring Plan
Poor Financial Performance
We do not see positive outlook for Under Armour base on its current performance and anticipated company directionSlide25
Appendices: Summary of Financial Ratios
Source: Team EstimatesSlide26
Sensitivity Analysis
Source: Team EstimatesSlide27
Comparison
Source: Mergent ReportSlide28
EV/EBITDA Comparison
Source: YchartsSlide29
Price to Book Value Comparison
Source: Ycharts