financial modelling - papa jones

$ In 000' 27-Dec-09 26-Dec-10 25-Dec-11REVENUERevenue from Operation 1,074,446 1,166,970Other Sales 51,951 50,912Total Sale 1,126,397 1,217,882 EXPENSESCost of Sale ( Company-owned restaurant) 111,010 126,887Cost of Sale ( commissary) 382,150 426,955Total Cost of Sale 493,160 553,842Cost of Sale% of Revenue from Operation 45.9% 47.5%Salaries and benefits ( Company-owned restaurant) 137,840 142,093Salaries and benefits ( commissary) 34,063 35,141Total Salaries and Benefits 171,903 177,234Salary% of Revenue from Operation 16.0% 15.2%Occupancy costs 32,343 32,278International Operating Expenses 29,429 35,674COGS 726,835 799,028Gross Profit 347,611 367,942Gross Profit Margin 32.4% 31.5%Other operating expenses ( Company-owned Resturant) 72,997 75,558Other operating expenses ( Commissary) 46,890 53,188Total Other Operating Expenses 119,887 128,746EBITDA 227,724 239,196EBITDA Margin 21.2% 20.5%Advertising and related costs 47,174 49,035General and administrative expenses 109,954 111,608Other general expenses 9,030 9,767Total SG&A 166,158 170,410Depreciation and amortization 32,407 32,681Operating Income 29,159 36,105 Operating Profit Margin 2.7% 3.1%Investment Income 875 755EBIT 81,985 87,772 EBIT% 7.3% 7.2%Interest expense 4,309 2,981Interest expense% of EBIT 5.3% 3.4%EBT 77,676 84,791 EBT% 7.2% 7.3%Income tax expense 27,247 26,324Net Profit 50,429 58,467 Net Profit Margin% 4.7% 5.0%Less: Minority Interest 3,485 3,732Net Profit After Minority Interest 46,944 54,735

EPS 2 2.19Out Standing Share

30-Dec-12 29-Dec-13 26-Dec-14 27-Dec-15

1,291,430 1,448,767 1,668,224 1,966,579 51,223 54,566 59,495 66,202

1,342,653 1,503,333 1,727,720 2,032,781

137,378 157,197 171,827 200,591 454,108 509,966 587,215 692,236 591,486 667,163 759,042 892,827

45.8% 46.1% 45.5% 45.4%163,260 185,428 214,679 254,850

38,083 42,014 48,379 57,031 201,343 227,443 263,057 311,881

15.6% 15.7% 15.8% 15.9%34,734 38,279 44,317 52,610 44,853 44,763 51,715 60,964

872,416 977,647 1,118,131 1,318,281 419,014 471,120 550,094 648,297

32.4% 32.5% 33.0% 33.0%85,847 96,179 108,435 125,861 57,298 64,512 74,778 87,658

143,145 160,691 183,213 213,519275,869 310,429 366,881 434,778

21.4% 21.4% 22.0% 22.1%54,583 60,848 68,397 78,663

131,591 147,774 166,822 192,725 8,313 11,209 13,346 15,733

194,487 219,832 248,565 287,120 32,798 35,035 40,558 43,932

48,584 55,562.04 77,757 103,725 3.8% 3.8% 4.7% 5.3%

750 0 0 0 100,557 110,128 137,253 169,928

7.5% 7.3% 7.9% 8.4%2,162 3,648 3,648 3,648 2.2% 0.0% 0.0% 0.0%

98,395 106,480 133,604 166,280 7.6% 7.3% 8.0% 8.5%

32,393 34,074 42,753 53,209 66,002 72,406 90,851 113,070

5.1% 5.0% 5.4% 5.7%4,342 0 0 0

61,660 72,406 90,851 113,070

2.63 3.09 3.88 4.82 23,445

$ in 000' 27-Dec-09 26-Dec-10 25-Dec-11 30-Dec-12Asset:Current Assets:Cash and cash equivalents 28,219 46,225 18942 16,396Net Account Receivable 21,496 24,733 27,487 43,585Accounts receivable - affiliates 648 624 682 1,062Notes receivable 0 4,735 4,221 4,577Inventories 15,767 17,402 20,091 22,178Deferred income taxes 8,408 9,647 7,636 10,279Prepaid expenses 9,113 10,009 10,210 12,782Other current assets 3,748 3,732 5,555 7,767Total Current Assets: 87,399 117,107 94,824 118,626

Non-Current Assets:Net property and equipment 194,242 186,594 181,910 196,661Notes receivable, less current portion 8,643 12,619 11,502 12,536Goodwill 76,475 74,697 75,085 78,958Investment 1,382 1,604 0 0Other Assets 28,954 23,320 27,061 31,627Total Non-Current Assets 309,696 298,834 295,558 319,782Total Assetss: 397,095 415,941 390,382 438,408

Shareholders Equity:Common stock 358 361 367 371Additional paid-in capital 231,720 245,380 262,456 280,905Accumulated other comprehensive income -1,084 849 1,849 1,824Retained earnings 187,488 243,152 294,801 356,461Treasury stock -245,337 -291,048 -353,826 -458,047Net Worth 173,145 198,694 205,647 181,514 Redeemable noncontrolling interests 8,168 8,506 3,965 6,380Liability:Current LiabilityAccounts payable 28,675 31,569 32,966 32,624Income and other taxes payable 5,854 1,789 3,969 10,429Accrued expenses and other current liabilities 54,241 42,825 44,198 60,528Total Current Liability 88,770 76,183 81,133 103,581Non-Current LiabilityDeferred revenue 5,668 6,596 4,780 7,329Long-term debt 99,050 99,017 51,489 88,258Deferred income taxes 0 341 6,692 10,672Other long-term liabilities 18,570 26,604 36,676 40,674Total Non-Current Liability 123,288 132,558 99,637 146,933Total Liability 212,058 208,741 180,770 250,514Total Liabilities and stockholders’ equity 393,371 415,941 390,382 438,408

E15

Girija: since we don’t have any additional information on DTA, it can be assumed as constant.

E16

Girija: Since we don’t have any additional information on Prepaid Expenses, it can be assumed as constant.

Check -3,724 - - - Working Capital ScheduleCurrent Asset ( Excluding Cash) 59,180 70,882 75,882 102,230Current Liability 88,770 76,183 81,133 103,581

B58

Girija: Unadjusted as per annula report

29-Dec-13 26-Dec-14 27-Dec-15

84,307 174,354 282,042 48,895 56,302 66,371 1,191 1,371 1,616 5,160 5,942 7,004 25,006 28,794 33,944

10,279 10,279 10,27912,782 12,782 12,782

8,713 10,033 11,828 196,333 299,856 425,865

198,412 200,918 208,61512,536 12,536 12,53678,958 78,958 78,958

0 0 031,627 31,627 31,627

321,533 324,039 331,736517,866 623,895 757,601

371 371 371 280,905 280,905 280,905

1,824 1,824 1,824428,867 519,718 632,788

-458,047 -458,047 -458,047 253,920 344,771 457,841

6,380 6,380 6,380

40,031 46,095 54,338 10,429 10,429 10,429 60,173 69,287 81,679

110,632 125,811 146,447

7,329 7,329 7,329 128,932 128,932 128,932

10,672 10,672 10,6720 0 0

146,933 146,933 146,933257,565 272,744 293,380

517,866 623,895 757,601

F23

Girija:Assumed no new acquisition and no impairment loss

F43

Girija: Not enough information available. Also projecting this will not have any effect on DCF valuation as accrued expense will increase net profit and decrease operating CF by same amount.

F49

Girija: Long-Term Debt + Other Long Term Liabilities

- - -

112,026 125,503 143,824110,632 125,811 146,447

4/17/2023DFC Valuation$ in 000' 12/29/2013 12/26/2014 12/27/2015CFO 104,697 133,111 159,317 Interest(1-Tax) 2,371 2,371 2,371 Less:Capex 36,786 43,064 51,629 FCFF 70,282 92,419 110,059 FCFF growth 31% 19%PV of Explicit CFs 137,454 168,275 186,419 Number of Days left -3,396 -3,034 -2,668 Year Left -9.30 -8.31 -7.31

Terminal Growth Rate 2.0%Terminal Year Cash Flow 192,114 Terminal Year Value 3,578,662 PV of Explicit CFs 1,939,547 PV of Terminal Value 3,655,100 Cash Balances 16,396 Total Equity Value 5,611,043.39 Number of shares 21,790 Per Share Value 257.51

2nd stage12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022

127,765 144,487 159,062 170,336 177,299 182,618 188,096 16% 13% 10% 7% 4% 3% 3%

201,158 211,662 216,806 216,024 209,173 200,462 192,114 -2,298 -1,933 -1,568 -1,203 -837 -472 -107

-6.30 -5.30 -4.30 -3.30 -2.29 -1.29 -0.29

4/17/2023$ in 000' FY12 12/29/2013 12/26/2014CFONet Profit 72,406 90,851 Add: Non Cash Charges 35,035 40,558 Less: Increase in CA (Excluding Cash) 9,796 13,476 Add: Increase in CL 7,051 15,179 Total CFO 104,697 133,111 CFICapex 36,786 43,064 Total CFI 36,786 43,064 CFFDeferred revenue 0.00 0.00Long-term debt 0.00 0.00Deferred income taxes 0.00 0.00Total CFF 0.00 0.00Total Cash Flow 67,911 90,047 Beginning Cash Flow 16,396 84,307 Ending Cash Flow 84,307 174,354

12/27/2015

113,070 43,932 18,321 20,636 159,317

51,629 51,629

0.000.000.000.00

107,688 174,354 282,042

$ In 000' 2009 2010 2011REVENUE ASSUMPTIONSOperation Store DataEnd of period North America Company-owned: 588 591 598YoY% Growth in NA Company-Owned 0.5% 1.2%End of period International Company-owned: 26 21 30YoY% Growth in International Company-Owned -19% 43%Total Company Owned 614 612 628YoY% Growth in Total Company Owned -0.3% 2.6%End of period North America franchised: 2,193 2,346 2,463YoY% Growth in North America franchised 7.0% 5.0%End of period International franchised: 662 688 792YoY% Growth in International franchised 3.9% 15.1%Total Franchised 2,855 3,034 3,255Total Owned & Franchised 3,469 3,646 3,883Revenue #VALUE! 0.02134815 0.08611322Total Company Owned Sale 977,213 990,940 1,076,227Total Franchised Sale 74,775 83,506 90,743 Total Sales ( Company Owned & Franchised) 1,051,988 1,074,446 1,166,970 Other Sales 54,045 51,951 50,912% Other sales/ Total Sales 4.8% 4.4%Reported Sales 1,106,033 1,126,397 1,217,882 Average Revenue per Units & FranchiesAverage Revenue: Company OwnedNorth America 1,614 1,621 1,729 Average % grwoth in North America 0.4% 6.7%International 1,086 1,579 1,408 Average % grwoth in International 45.5% -10.9%Total Average Revenue Company Owned 1,592 1,619 1,714 Average % growth Total 1.7% 5.8%

Average Revenue: FranchisedNorth America 28 30 30 % grwoth in North America 6.7% 0.9%International 20 19 21 % grwoth in International -3.6% 6.9%Total Average Revenue Franchised 26 28 28 % growth Total 5.1% 1.3%COST ASSUMPTIONS

Cost of Sale ( Company-owned restaurant) 111,010 126,887% of Sale 10.3% 10.9%Cost of Sale ( commissary) 382,150 426,955% of Sale 36% 37%

Salaries and benefits ( Company-owned restaurant) 137,840 142,093

Cost of employee / store 225 226% growth in employee cost/store 0.5%Salaries and benefits ( commissary) 34,063 35,141% of Sale 3.2% 3.0%Occupancy costs 32,343 32,278Ocuupancy cost/ store 53 51% increase in occupancy cost/ store -2.7%International Operating Expenses 29,429 35,674% of Sale 2.7% 3.1%Other operating expenses ( Company-owned Resturant) 72,997 75,558% of Sale 6.8% 6.5%Other operating expenses ( Commissary) 46,890 53,188% of Sale 4.4% 4.6%Advertising and related costs 47,174 49,035% of Sale 4.4% 4.2%General and administrative expenses 109,954 111,608% of Sale 10.2% 9.6%Other general expenses 9,030 9,767% of Sale 0.8% 0.8%Income tax expense 27,247 26,324Tax % of EBT 35.1% 31.0%Deferred Tax 4,944 9,818Actual Tax Paid 22,303 16,506Actual Tax % of EBT 28.7% 19.5%

DEPRECIATION SCHEDULEGross property and equipment 426,140 445,715accumulated depreciation and amortization 239,546 263,805Net property and equipment 186,594 181,910CAPEX 42,268 29,319CAPEX/ Company Owned 69 47Increase in CAPEX / Company Owned store added -32%Average life of the asset 13.15 13.64

Depreciation 32,407 32,681

DEBT SCHEDULETotal Interest Bearing Debt (start) 117,620 125,621Debt RepaymentFresh BorrowingEnding Debt

Interest expense 4,309 2,981 % of Interest Expenses 4% 2%

BALANCE SHEET ASSUMPTIONS

Current Liability ( Day's)

Accounts payable 10.7 10.3Accrued expenses and other current liabilities 14.5 13.8

Current Assets ( Day's)Net Account Receivable 8 9 Accounts receivable - affiliates 0.21 0.21 Notes receivable 1.6 1.3 Inventories 5.9 6.3 Prepaid expenses 3.4 3.2 Other current assets 1.3 1.7

Shareholder EquityCommon stock 358 361 367%Sale 0.034% 0.031%Additional paid-in capital 231,720 245,380 262,456Accumulated other comprehensive income -1,084 849 1,849Retained earnings 191,212 243,152 294,801Treasury stock -245,337 -291,048 -353,826% increase YoY 19% 22%

2012 2013 2014 2015

648 705 771 846 8.4% 8.8% 9.3% 9.8%

48 78 126 20860% 61.5% 63.0% 64.6%696 783 897 1055

10.8% 12.5% 14.6% 17.5%2,556 2,620 2,672 2,7123.8% 2.5% 2.0% 1.5%

911 1,052 1,220 1,422 15.0% 15.5% 15.9% 16.6%3,467 3,672 3,892 4,1344,163 4,455 4,789 5,189

0.10665227 0.1218315757 0.1514788 0.1788452821,191,176 1,337,581 1,544,140 1,827,399

100,254 111,186 124,084 139,179 1,291,430 1,448,767 1,668,224 1,966,579

51,223 54,566 59,495 66,2024.0% 3.8% 3.6% 3.4%

1,342,653 1,503,333 1,727,720 2,032,781

1,756 1,791 1,854 1,928 1.6% 2.0% 3.5% 4.0%

1,105 958 910 938-21.5% -13.3% -5% 3.1%

1,711 1,709 1,721 1,733 -0.1%

31 33 35 38 4.1% 5.7% 6.5% 7.0%

22 23 24 26 5.9% 5.1% 5.5% 6.0%

29 3.7%

137,378 157,197 171,827 200,591 10.6% 10.9% 10.3% 10.2%

454,108 509,966 587,215 692,236 35.2% 35% 35% 35%

163,260 185,428 214,679 254,850

F13

Girija: As we can observe from past 3 years company is trying to open its own instade of going for franchaise, and its being a principal sources of revenue it is more trying to have its own setups. So appx we can expect a sustainable grwoth rate of additions, own units for next two year as ~4.5%

F21

Girija: To reduce the lease or rental cost, operating cost company is setting its own units in International as well, as per the past growth rate we can assume that company is strategically strong and trying to capture global market with its own unit, it is more focusing on populated countries where it can have many consumer like China and India, therefore an optimistic assumption can be made that It will continuously increase the own setup and reduce to franchise, It can be expected that an approx. of ~4% keeping in mind about barrier to trade, local law, traditions etc.

F31

Girija: NA Franchised are increaseing in decreaseing order, They are quite increaseing there own unit instead of Franchise, and through Franchise they are capturing local market as well as international, it can be assume a slow growth ~2% in Franchise and high growth in own units,

F40

Girija: I can see company is trying capture International Market in this stage to create a good customer awareness and branding, so they might increase the Franchies in International Market, and they are more focous in China where as they are trying to jump into emergin countries as well, so I can assume ~3% for next two years and 4% in 3rd Year.

F54

Girija: Assuming This sales which is software and online ordering fee will decline as a proportion of sales and stabilise at around 3% of other sales

F59

Girija: Considering average inflation with +1 to 2% and as per Q1 report revenue up by 1.6%, I expect management is strongly focusing on domestic sale in North America, because it generate principal revenue from its domestic sales, in-fact the ratio of addition and closing of store is comparatively low YoY therefore on an average ~2.3% growth in North American sale we can expect at the end of this fiscal year.

F61

Girija: As per Q1 releases, International revenue has been increased by 8.2% which reflects that organisation is slowly and steadily focusing on more franchise to open, more advertising, branding to remove the slowdown from international operation, I am optimistic towards it and assume it gives boost to international revenue in near future. Not suddenly but at a long run, therefore we can be little conservative on ~8.2% growth rate.

F67

Girija: Most of the revenue generates from domestic sales either its Company-owned or Franchise, it seems they are capturing the domestic market very well, and as per the past trend in Revenue grwoth in domestic franchise, they are more concern about logistic, cost advantage by getting into partnership, therefore we can expect an increment in revenue, although there is probability of price up of commodity in comming couple of month, but it doesnt have a great impact on Franchise revenue. so we can expect ballpark of 1.5% grwoth

F69

Girija: As per Q1 releases, Total International revenue has been increased by 8.2% which reflects that organisation is slowly and steadily focusing on more franchise to open, more advertising, branding to remove the slowdown from international operation, As per historical trend we can see in 2011 it was an increase in revenue and again it fall down by ~1% and internationally they have planned to add 1100 units which will work out by next 6yrs. I can expect for next 2 years they are going to more focus on Company-owned sales rather franchise in internationally, we can expect a steady growth after 2 years not before that,

F80

Girija: Girija: Cost of Sale has increased due to price hike in commodity in 2011 basically for Cheese, Wheat and Meat, and CoS is decrease due to price decrease in raw materials, as per survey again the price of commodity is going to increase, currently Cheese is selling at $1.72/ Pound, and expected it will go up by $1.95, and primary raw materials such as Wheat, Meat etc. are comparatively low. So we can expect keeping view on Cheese inflation rate in US as +1 to 2.8, there is a small increase in raw materials, on an average I am expecting a ~2% of increase in Cost of Sale for next year. And it will remain stable in 10.5% to 11%.

235 237 239 242 3.7% 1.0% 1.0% 1.0%

38,083 42,014 48,379 57,031 2.9% 2.9% 2.9% 2.9%

34,734 38,279 44,317 52,610 50 49 49 50

-2.9% -2.0% 1.0% 1.0%44,853 44,763 51,715 60,964

3.5% 3.1% 3.1% 3.1%85,847 96,179 108,435 125,861

6.6% 6.6% 6.5% 6.4%57,298 64,512 74,778 87,658

4.4% 4.5% 4.5% 4.5%54,583 60,848 68,397 78,663

4.2% 4.2% 4.1% 4.0%131,591 147,774 166,822 192,725

10.2% 10% 10% 10%8,313 11,209 13,346 15,733 0.6% 0.8% 0.8% 0.8%

32,39332.9%2,035

30,35830.9% 32% 32% 32%

487,964 524,750 567,814 619,443291,303 326,338 366,896 410,828196,661 198,412 200,918 208,615

31,125 36,786 43,064 51,629 45 47 48 49

-4% 0% 1% 2% 14.88 15.0 14.0 14.1

32,798 35,035 40,558 43,932

88,165 128,932 128,932 128,932 3,836 - - - 44,603 - - - 128,932 128,932 128,932 128,932

2,162 3,648 3,648 3,648 2% 3% 3% 3%

F101

Girija: as no of stores increase economies of scale will kick in. so there could be decline in this ratio

F103

Girija: s no of stores increase economies of scale will kick in. so there could be decline in this ratio

F116

Girija: Keeping revenue growth and cost advantage it can be assumed that EBIT will increase for next few years compare to the past trend, so the average tax rate will be in control with corporate tax rate ( 35% ) from 30 to 35%, and it can be assumed the tax rate will be 32% for next 3 years.

F126

Girija: Property prices in US are again raising

F128

Girija: As per Accounting polcies equipments have 5-10 years life and buildings have 15-20 years life. As more buildings get added the number is moving towards 15, assuming average life will stabilze at around 16 years

G128


H128


9.2 10.1 10.1 10.117.1 15.2 15.2 15.2

12.32 12.32 12.32 12.32 0.30 0.30 0.30 0.30 1.3 1.30 1.30 1.30 6.3 6.30 6.30 6.30 3.6 2.2 2.20 2.20 2.20

3710.029%

280,905 280,905 280,905 280,905 1,824

356,461-458,047 -458,047 -458,047 -458,047

29% 23% 23% 23%

2010 2011 2012 2013LIQUIDITY RATIOCurrent Ratio 1.54 1.17 1.15 1.77Quick Ratio 1.00 0.63 0.63 1.26Cash Ratio 0.61 0.23 0.16 0.76

LEVERAGE RATIODebt Ratio 0.50 0.46 0.57 0.50Debt-Equity Ratio 1.05 0.88 1.38 1.01Interest Coverage Ratio 52.85 80.24 127.60 85.09

PROFITABILITY RATIOGross Profit Margin 0.32 0.32 0.32 0.33Net Profit Margin 0.05 0.05 0.05 0.05Operating Profit Margin 0.03 0.03 0.04 0.04ROE 29.1% 29.4% 32.1% 39.9%

VALUATION RATIOEPS 2.00 2.19 2.63 3.09P/E 33.70 30.78 25.63 21.82EV/EBIT 1.44 1.35 1.18 1.07EV/EBITDA 1.44 1.35 1.18 1.07EV/Sales 0.11 0.10 0.09 0.08

2014 2015

2.38 2.911.89 2.441.39 1.93

0.44 0.390.79 0.64

100.56 119.18

0.33 0.330.05 0.060.05 0.05

35.8% 32.8%

3.88 4.8217.39 13.98

0.86 0.700.86 0.700.07 0.06

Terminal Growth Rate Assumption Year EPS2003 1.872004 1.352005 1.372006 1.962007 1.102008 1.312009 2.072010 1.972011 2.192012 2.63

Long Term GDP Growth Rate 2.0%

COST OF CAPITAL

Cost of EquityRisk Free Rate 0.03Beta 0.56Expected Return ( Market) 12%CAPM 0.07864

Cost of Debt170bps + LIBOR 0.05After Tax Cost of Debt 0.03055

Capital Structure Market Value WeightageDebt 129 0.08074841Equity 1,472 0.91925159Total 1601.27 1

WACC 7.5%

Enterprise Value

Market Cap ( Equity) 1,469 Market Cap (Debt ) 128,932

C29

Girija: Expected Market Return 4% + inflation rate 2% = 6%

C48

Girija: It seems Papa John's debt schedule is only based on revolving line of credit. So we are taking the Book Value of debt as market cap of debt

Minority Interest 4,342Cash & Cash Equivalence 16,396EV 118,347

Sensitivity Analysis - Cost of Equity Vs Terminal Growth Rate

258 1.00% 1.50%5.48% 283 310 6.48% 251 269 7.48% 230 243 8.48% 216 225 9.48% 206 214

2.00% 2.50% 3.00% 344 389 452 290 317 351 257 275 297 236 249 264 222 231 242

Risk Free RateBetaUS Expected Market Return

Commodity Price Hike US

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

http://www.nasdaq.com/article/global-market-valuations-and-expected-returns-june-7-2013-cm251734http://www.statisticbrain.com/pizza-statistics/http://usatoday30.usatoday.com/news/nation/story/2012-07-18/milk-dairy-prices-rise/56321228/1


http://www.nasdaq.com/article/global-market-valuations-and-expected-returns-june-7-2013-cm251734

http://www.statisticbrain.com/pizza-statistics/

http://usatoday30.usatoday.com/news/nation/story/2012-07-18/milk-dairy-prices-rise/56321228/1

financial modelling - papa jones

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