Prologis Company

 

The Company’s Strategy

Prologis Inc. is a global firm that focuses on operating as well as development of real estates. The organization operates in Asia, America, and Europe. The key strategy for the organization is to extend the organization sales and market share in investment management segment as well as real estate operations. The organization is thus focusing on market penetration. This study focuses on financial analyses of the organization, assessing whether it is a viable investment destination

SWOT Analysis: Strengths Weaknesses; Opportunities; Threats

Prologis inc. has internal as well as external factors that affect its operations and viability in the industry. In terms of strengths, the organization expects to grow its revenues by 7.3% in 2015 accompanied by a rise of its revenues by 4.1% in 2016 (       Prologis Inc 37). This has the potential of significantly enhancing the organizations returns as well as market share in the industry.

In terms of internal weaknesses, the organization reports that there is expected delay in the manner in which it expects to execute its laid out projects. This will delay the attainment of the organization goals and objectives. The organization further lacks capital for future acquisitions reducing its ability to ability to expand

 

In terms of opportunities, the organization will expand its operations to new markets, increasing its ability to create a strong portfolio of industrial products around the world.

In its annual reports, the organization identifies rise in interest rates as one of the key threats facing it. Rise in interest rates increases the cost of doing business by the organization. Sharp decline in demand of rental rates is also expected to reduce growth in sales volume in 2016.

• The Company’s Organizational Structure

The company is headed by a chief executive officer who is assisted by regional and department heads. This enables it to diversify its operations. The organization has divided its operations to investment management segments as well as real estate development segment.

• The Company’s Culture, Peers, and Industry

The peers of Prologis Inc. tend to have moderate quality ranking between B and B-. They thus do not maintain the highest degree of quality in service delivery. Nevertheless, they have differing level of market capitalization with Prologis Inc having $21.628 million in market capitalization as compared to WPT industrial REIT which has $ 326 million in market capitalization.

1.3 Market share

The players’ market share in the industry indicates the level of control that they have on industry forces. This is as indicated below

 

The above indicated companies are the key competitors in the industry. In terms of comparative advantage, Prologis Inc. has wider global market coverage exposing to wider market as compared to the rest of the players in the industry whose market share is largely limited (Fridson, and Fernando 33).

• Products and Services

The organization focus is investment management as well as real estate development. The real estate industry is a capital extensive. This indicates that Prologis Inc. with the highest level of capitalization in the market is in a better position to exploit opportunities in the market as compared to competing firms.

 

 

Financial Conditions and Ratio Analysis

As at 2014 financial year, the organization grew its net profit margin by 41.99% as compared to 11.96%. At the same time, return on equity was higher than that of the industry at 4.52% as compared to 2.63%. Debt to equity ratio is equally very low at 0.67 as compared to 1.75 reported by the industry. This indicates the high level of risk of insolvency that is facing other players in the industry as compared to the organization.

Financial ratio analysis

1. Debt-to-Equity = Total Liabilities / Shareholders Equity

Between 2006 and 2014, the organization has recorded sharp decline in debt to equity from 1.77 to 0.68. This indicates the reducing risk of insolvency that the organization is exposed.

1. Debt-to-Total Market Capitalization= Total Debt/ (Number of shares outstanding * Current market price of the stock)

Total debt to market capitalization reduced from 0.66 to 0.68. This indicates the reducing level of exposure to the risk of insolvency.

1. Interest Coverage Ratio = EBIT / Interest Expense

Interest coverage ratio reduced in 2014

 

 

 

 

1. Cash Flow to Debt Ratio = Operating Cash Flow / Total Debt

Amount in $ Millions		2010		2013
		Amount	Ratio	Amount	Ratio
Free cash flow to debt ratio	operating cash flow/total debt	241/6506	0.03704273	485/9011	0.05382311

Source: Prologis Inc 1

1. Return on Equity= Net Income / Shareholder’s Equity

 

The ratio increased from -26.3% in 2010 to 4.5% in 2014. This indicates the increasing ability of the entity to reward those providing equity financing (Lee John and Cheng 48).

1. Return on Assets = Net Income / Total Assets

Return on total assets increased from -11.9% in 2010 to 2.5% in 2014. This indicates a rise in the ability of the organization to generate sales from every dollar invested in both equity and debt investors in the organization

1. Net Profit Margin = Net Profit / Net Sales

Since 2010, net profit margin has increased from -146.5% to 35.3% in 2014 indicating the organization’s ability to genete profits from every dollar made in sales

1. EPS = (Net Income – Dividends on Preferred Stock) / Average Outstanding Shares

Earnings per share increased from -0.08 in 2010 to 1.24 in 2014 indicating increasing ability of the organization to reward share holders with profits.

1. P/E Ratio= Stock Price per Share / EPS

 

Price earnings ratio went up from -400 in 2010 to 34.7 in 2014 indicating the increasing confidence among shareholders that the organization will report profits in the future

1. Dividend Payout Ratio = Dividends per Common Share / Earnings per Share

		2010		2014
		Amount	Ratio	Amount	Ratio
Dividends per common share/earnings per share		1.12/-0.08	-14	1.32/1.24	1.06451613

 

The above indicates that dividend per share over earnings per share significantly increased between 2010 and 2014 indicating increased payout of dividends by the organization

 

1. Dividend Yield = Annual Dividend per Share / Stock Price per Share

Dividend yield percentage reduced from 3.5 in 2010 to 3.1 in 2015 indicating the sharp rise in stock price

1. EBITDA Multiple= Enterprise Value / EBITDA

EBITDA amounted $ 19.2 million in 2014 while enterprise value amounted to $ 45809 million. This implies that the EBITDA multiple amounted to 2386 times. This indicates that the organization is generating very low level of EBITDA considering its high value

1. Enterprise Value= Company’s Debt+ Minority Interest + Preferred Stock+ Market Capitalization

 

For year 2013, enterprise value amounted to 23187+0+0+13611+9011 = $45809 millions

1. Total Invested Capital (TIC)= Total Book Equity+ Total LT Debt – Excess Cash ,

The above value amounted to $13976+$10861- 312 = $ 24,525 million in 2014

1. Return on Invested Capital= Net Income/ TIC

Between 2010 and 2013, the ratio increased indicating the ability of the organization to generate profits from invested capital as indicated below

Amount in $ Millions		2010		2013
		Amount	Ratio	Amount	Ratio
Return on invested capital (	net income/total invested capital	(-1582/14026)	-0.11	(622/23187)	0.03

Sources: Prologis Inc 1

1. DuPont analysis:

 

ROE = (Sales / Average Assets) x (Net Profits / Sales) x (Average Assets / Average Equity)

 

		2010	2014
Ratio	Formula	Ratio	Ratio
asset turnover	sales/average assets	-11.9	2.5
Net profit margin	net profits/sales	-145.6	35.3
Return on equity	average assets/average equity	-26.3	4.5
Du Pont Roe	(Sales / Average Assets) x (Net Profits / Sales) x (Average	-45568.432	397.125

The above table indicates high growth in return on equity indicating increase in the entity’s profitability

1. Financial Analysis

Revenue earnings are projected to grow by 0.6 next year and 10.2% in 10 years time. earnings will grow by 35.3% next year and 14.2% in 10 years time while free cash flows are expected to grow in 10 years and EBITDA will grow by 10% over the same period.

Financial forecast

 

Projected income statement Amount in $ millions
Projected balance sheet
Projected income statement
	2014	2015	2016	2017	2018	2019
Revenue	1760.787	1771.351722	1781.979832	1792.671711	1803.427742	1814.2483
Cost of sales	430.787	432.079361	433.3755991	434.6757259	435.9797531	437.28769
Gross profit	1330	1339.272361	1348.604233	1357.995985	1367.447989	1376.9606
Operating expenses	1010.192	1013.222576	1016.262244	1019.31103	1022.368964	1025.4361
Operating income	319.808	326.049785	332.3419895	338.684955	345.079025	351.52455
Other income and taxes	419.476	420.734428	421.9966313	423.2626212	424.532409	425.80601
Net income	739.284	746.784213	754.3386208	761.9475762	769.611434	777.33055
Sales grow at 0.6% p. a
Costs grow by 0.3% p a
Projected  balance sheet
Current assets	454.137	476.84385	500.6860425	525.7203446	552.0063619	579.60668
Noncurrent assets	25364.086	26632.2903	27963.90482	29362.10006	30830.20506	32371.715
Total assets	25818.223	27109.13415	28464.59086	29887.8204	31382.21142	32951.322
Current liabilities	627.999	659.39895	692.3688975	726.9873424	763.3367095	801.50354
Noncurrent liabilities	11214.715	11775.45075	12364.22329	12982.43445	13631.55617	14313.134
Total liabilities	11842.714	12434.8497	13056.59219	13709.42179	14394.89288	15114.638
Equity	13975.509	14674.28445	15407.99867	16178.39861	16987.31854	17836.684
Total liabilities + equity	25818.223	27109.13415	28464.59086	29887.8204	31382.21142	32951.322
Financial position grows at 5% per annum
projected cash flow	2014	2015	2016	2017	2018	2019
Opening cash491129	491.129	515.68545	541.4697225	568.5432086	596.9703691	626.81889
Cash from operations	704.531	739.75755	776.7454275	815.5826989	856.3618338	899.17993
Cash from investing activities	-488.309	-512.72445	-538.360673	-565.278706	-593.542641	-623.21977
Cash from financing activities	-337.817	-354.70785	-372.443243	-391.065405	-410.618675	-431.14961
Exchange rate effect-18.842	-18.8423	-19.784415	-20.7736358	-21.8123175	-22.9029334	-24.04808
Closing balance	369.534	388.0107	407.411235	427.7817968	449.1708866	471.62943
cash will grow by 5%

Source: Prologis Inc 1

The above forecast indicates that both financial position and financial performance will improve in the next five years

2. Stock Valuation Methods
   1. Perpetuity Method

PV=C₁/ (1+r) ¹ +C₂/ (1+r) ²+……+C _{in f} / (1+r) ^{in f}

PV ={C× (1+g) ¹ / (1+i) ¹}+{C×(1+g)² / (1+i) ²} + … + {C×(1+g) ^{I n f} / (1+i)^{I n f}}

Where,

D=dividends

R: discount rate

g: growth rate

I: required rate of return

In f: infinite time period

Value per share= PV/No. of shares outstanding

P=c(1+r)^n(1+g)^n
(1+0.045)	(1+0.179)
C1/R-G
Where C is dividend, r return rate and g growth
	1.32(1.033)/(0.045-0.033)
	113.63

 

1. Gordon Growth Model

Stock Price = D (1+g) / (r-g)

Where,

 

D = Expected dividend per share one year from now

Can also use earnings, free cash flow

k = required rate of return for equity investor

G/g = projected dividend growth rate

 

r = the investor’s required rate of return

 

 

 

 

 

	PO = d1/KS-g
	1.32*(1.033)/0.045-0.033
	113.63

 

 

• Multiples approach- Industry/Peer
  • Equity price based multiple

Where

P/E ratio= Share price / Earnings per share (EPS)

Price / cash earnings= Share price / earnings per share plus depreciation amortization and changes in non-cash provisions

Price / book ratio= Share price / book value per share

Dividend yield= Dividend per share / share price

Price / Sales= Share price / sales per share

		2014
	P/E ratio	34.7
	Price/cash earnings	31
	Price to book ratio	1.6
	dividend yield	3.1
	price/sales	12.4

 

The above indicates high return through dividend yield, price to book and price to sales. Price earnings ratio indicates high consumer confidence on the organization

• Enterprise value based multiple

EV/Sales= Enterprise value / net sales = 200

EV/EBIT and EV/EBITA= Enterprise value / Earnings before interest and taxes (and Amortization) = 131

EV/op. FCF= Enterprise value / Operating Free Cash Flow= 100

EV/ Enterprise FCF= Enterprise value / Free cash flow=71

EV/Invested Capital= Enterprise value / Invested capital = 3.1

1. Discounted Cash Flow (DCF)- Scenario/ Sensitivity Analysis
   1. Forecast and discount free cash flows to the firm (FCFF) for the horizon period.

Year 1 net cash flow	Discount at 2014 return on equity 4.5%	Column1
369.354	369.354
388.0107	371.3021053
407.41	373.0775394
427.78	374.8621613
449.17	376.6565987
471.63	395.4906865
Total	2260.743091

 

1. Forecast on terminal period.

terminal value	present value at 4.5%	Column1
$1000m	802.4510465
Amount in  $ Millions

 

1. Sum the present values of the horizon and terminal periods to yield firm value.

annual values Amount in  $ Millions	2260.743091
terminal value	802.4510465
total present value	3063.194138

 

1. Sensitivity/Scenario Analysis by changing the discount rate, growth rate (at 7 discount rate)

Year 1 Amount in  $ Millions net cash flow	Discounted at 2014 return on equity 7%	Column1
369.354	369.354
388.0107	362.6268224
407.41	401.7655952
427.78	349.1959058
449.17	342.6696424
471.63	359.8042689
Total	2185.416235

 

annual values Amount in  $ Millions	2185.416235
terminal value	712.99
total present value	2898.406235

 

1. Dividing the firm value by the number of shares outstanding yields the estimated per share stock price or Intrinsic value per share.

annual values in $ Millions	2185.416235
terminal value	712.99
total present value	2898.406235
shares $788.640 million	788.64
value per share	3.675195571

Source: Prologis Inc 1

3. Decision/Trade Recommendations: Buy, Hold, Sell

Option 3: Intrinsic value< stock price

The investors should sell stock, buy put option, and write call option. This is based on the understanding that they would make a loss when the actual stock value materializes in the stock market.

 

 

 

 

 

 

 

 

 

 

 

 

 

In its annual reports, the organization identifies rise in interest rates as one of the key threats facing it. Rise in interest rates increases the cost of doing business by the organization. Sharp decline in demand of rental rates is also expected to reduce growth in sales volume in 2016.

 

• The Company’s Organizational Structure

The company is headed by a chief executive officer who is assisted by regional and department heads. This enables it to diversify its operations. The organization has divided its operations to investment management segments as well as real estate development segment.

• The Company’s Culture, Peers, and Industry

Similarities and differences

The peers of Prologis Inc. tend to have moderate quality ranking between B and B-. They thus do not maintain the highest degree of quality in service delivery. Nevertheless, they have differing level of market capitalization with Prologis Inc having $21.628 million in market capitalization as compared to WPT industrial REIT, which has $ 326 million in market capitalization.

Market share

The players’ market share in the industry indicates the level of control that they have on industry forces. This is as indicated below

 

• Who are the main competitors?

The above indicated companies are the key competitors in the industry

• Comparative Advantages?

In terms of comparative advantage, Prologis Inc. has wider global market coverage exposing to wider market as compared to the rest of the players in the industry whose market share is largely limited (Fridson, and Fernando 33).

• Products and Services

• What products and services does the company offer?

The organization focus is investment management as well as real estate development.

• Comparative Advantages?

The real estate industry is a capital extensive. This indicates that Prologis Inc. with the highest level of capitalization in the market is in a better position to exploit opportunities in the market as compared to competing firms.

4. Financial Conditions and Ratio Analysis

• Financial conditions compared to peers and industry

As at 2014 financial year, the organization grew its net profit margin by 41.99% as compared to 11.96%. At the same time, return on equity was higher than that of the industry at 4.52% as compared to 2.63%. Debt to equity ratio is equally very low at 0.67 as compared to 1.75 reported by the industry. This indicates the high level of risk of insolvency that is facing other players in the industry as compared to the organization.

• Financial ratio analysis

1. Debt-to-Equity = Total Liabilities / Shareholders Equity

Between 2006 and 2014, the organization has recorded sharp decline in debt to equity from 1.77 to 0.68. This indicates the reducing risk of insolvency that the organization is exposed.

1. Debt-to-Total Market Capitalization= Total Debt/ (Number of shares outstanding * Current market price of the stock)

Total debt to market capitalization reduced from 0.66 to 0.68. This indicates the reducing level of exposure to the risk of insolvency.

1. Interest Coverage Ratio = EBIT / Interest Expense

Interest coverage ratio reduced in 201

1. Cash Flow to Debt Ratio = Operating Cash Flow / Total Debt

Amount in $ Millions		2010		2013
		Amount	Ratio	Amount	Ratio
Free cash flow to debt ratio	operating cash flow/total debt	241/6506	0.03704273	485/9011	0.05382311

Source: Prologis Inc 1

1. Return on Equity= Net Income / Shareholder’s Equity

 

The ratio increased from -26.3% in 2010 to 4.5% in 2014. This indicates the increasing ability of the entity to reward those providing equity financing (Lee John and Cheng 48).

1. Return on Assets = Net Income / Total Assets

Return on total assets increased from -11.9% in 2010 to 2.5% in 2014. This indicates a rise in the ability of the organization to generate sales from every dollar invested in both equity and debt investors in the organization

1. Net Profit Margin = Net Profit / Net Sales

Since 2010, net profit margin has increased from -146.5% to 35.3% in 2014 indicating the organization’s ability to genete profits from every dollar made in sales

1. EPS = (Net Income – Dividends on Preferred Stock) / Average Outstanding Shares

Earnings per share increased from -0.08 in 2010 to 1.24 in 2014 indicating increasing ability of the organization to reward shareholders with profits. This is depicted in the graph below

1. P/E Ratio= Stock Price per Share / EPS

 

Price earnings ratio went up from -400 in 2010 to 34.7 in 2014 indicating the increasing confidence among shareholders that the organization will report profits in the future

1. Dividend Payout Ratio = Dividends per Common Share / Earnings per Share

		2010		2014
		Amount	Ratio	Amount	Ratio
Dividends per common share/earnings per share		1.12/-0.08	-14	1.32/1.24	1.06451613

 

The above indicates that dividend per share over earnings per share significantly increased between the years 2010 and 2014 indicating increased payout of dividends by the organization

1. Dividend Yield = Annual Dividend per Share or Stock Price per Share

Dividend yield percentage reduced from 3.5 in 2010 to 3.1 in 2015 indicating the sharp rise in stock price

 

1. EBITDA Multiple= Enterprise Value / EBITDA

EBITDA amounted $ 19.2 million in 2014 while enterprise value amounted to $ 45809 million. This implies that the EBITDA multiple amounted to 2386 times. This indicates that the organization is generating very low level of EBITDA considering its high value

1. Enterprise Value= Company’s Debt+ Minority Interest + Preferred Stock+ Market Capitalization

 

For year 2013, enterprise value amounted to 23187+0+0+13611+9011 = $45809 millions

1. Total Invested Capital (TIC)= Total Book Equity+ Total LT Debt – Excess Cash

In the year 2014, this amounted to $13976+$10861- 312 = $ 24,525 million.

1. Return on Invested Capital= Net Income/ TIC

Between 2010 and 2013, the ratio increased indicating the ability of the organization to generate profits from invested capital as indicated below

Amount in $ Millions		2010		2013
		Amount	Ratio	Amount	Ratio
return on invested capital (	net income/total invested capital	(-1582/14026)	-0.11	(622/23187)	0.03

Sources: Prologis Inc 1

• DuPont analysis:

 

ROE = (Sales / Average Assets) x (Net Profits / Sales) x (Average Assets / Average Equity)

 

		2010	2014
Ratio	Formula	Ratio	Ratio
asset turnover	sales/average assets	-11.9	2.5
net profit margin	net profits/sales	-145.6	35.3
return on equity	average assets/average equity	-26.3	4.5
Du Pont Roe	(Sales / Average Assets) x (Net Profits / Sales) x (Average	-45568.432	397.125

The above table indicates high growth in return on equity indicating increase in the entity’s profitability

5. Financial Analysis

• Revenues, Earnings, EBITDA, FCFs, Potential Growth Rates, WACC.

Revenue earnings are projected to grow by 0.6 next year and 10.2% in 10 years time. earnings will grow by 35.3% next year and 14.2% in 10 years time while free cash flows are expected to grow in 10 years and EBITDA will grow by 10% over the same period.

Financial forecast

projected income statement
Projected balance sheet
Projected income statement
	2014	2015	2016	2017	2018	2019
Revenue	1760.787	1771.351722	1781.979832	1792.671711	1803.427742	1814.2483
cost of sales	430.787	432.079361	433.3755991	434.6757259	435.9797531	437.28769
gross profit	1330	1339.272361	1348.604233	1357.995985	1367.447989	1376.9606
operating expenses	1010.192	1013.222576	1016.262244	1019.31103	1022.368964	1025.4361
operating income	319.808	326.049785	332.3419895	338.684955	345.079025	351.52455
other income and taxes	419.476	420.734428	421.9966313	423.2626212	424.532409	425.80601
net income	739.284	746.784213	754.3386208	761.9475762	769.611434	777.33055
sales grow at 0.6% p. a
costs grow by 0.3% p a
Projected  balance sheet
current assets	454.137	476.84385	500.6860425	525.7203446	552.0063619	579.60668
noncurrent assets	25364.086	26632.2903	27963.90482	29362.10006	30830.20506	32371.715
Total assets	25818.223	27109.13415	28464.59086	29887.8204	31382.21142	32951.322
current liabilities	627.999	659.39895	692.3688975	726.9873424	763.3367095	801.50354
noncurrent liabilities	11214.715	11775.45075	12364.22329	12982.43445	13631.55617	14313.134
Total liabilities	11842.714	12434.8497	13056.59219	13709.42179	14394.89288	15114.638
Equity	13975.509	14674.28445	15407.99867	16178.39861	16987.31854	17836.684
total liabilities + equity	25818.223	27109.13415	28464.59086	29887.8204	31382.21142	32951.322
Financial position grows at 5% per annum
projected cash flow	2014	2015	2016	2017	2018	2019
Opening cash491129	491.129	515.68545	541.4697225	568.5432086	596.9703691	626.81889
cash from operations	704.531	739.75755	776.7454275	815.5826989	856.3618338	899.17993
cash from investing activities	-488.309	-512.72445	-538.360673	-565.278706	-593.542641	-623.21977
cash from financing activities	-337.817	-354.70785	-372.443243	-391.065405	-410.618675	-431.14961
Exchange rate effect-18.842	-18.8423	-19.784415	-20.7736358	-21.8123175	-22.9029334	-24.04808
closing balance	369.534	388.0107	407.411235	427.7817968	449.1708866	471.62943
cash will grow by 5%

Source: Prologis Inc 1

The above forecast indicates that both financial position and financial performance will improve in the next five years

6. Stock Valuation Methods
   1. Perpetuity Method

PV=C₁/(1+r)¹ +C₂/(1+r)²+………..+C_inf/(1+r)^inf

PV ={C×(1+g)¹ / (1+i)¹}+{C×(1+g)² / (1+i) ²} + … + {C×(1+g) ^inf / (1+i)^inf}

where,

C: cash flow/dividends/ earnings per share/ free cash flow

r: discount rate

g: growth rate

i: required rate of return

inf: infinite time period

Value per share= PV/No. of shares outstanding

 

P=c(1+r)^n(1+g)^n
(1+0.045)	(1+0.179)
C1/R-G
Where C is dividend, r return rate and g growth
	1.32(1.033)/(0.045-0.033)
	113.63

 

1. Gordon Growth Model

Stock Price = D (1+g) / (r-g)

Where,

 

D = Expected dividend per share one year from now

Can also use earnings, free cash flow

k = required rate of return for equity investor

G/g = projected dividend growth rate

 

r = the investor’s required rate of return

	PO = d1/ks-g
	1.32*(1.033)/0.045-0.033
	113.63

 

 

1. Multiples approach- Industry/Peer
   • Equity price based multiple

Where

P/E ratio= Share price / Earnings per share (EPS)

Price / cash earnings= Share price / earnings per share plus depreciation amortization and changes in non-cash provisions

Price / book ratio= Share price / book value per share

Dividend yield= Dividend per share / share price

Price / Sales= Share price / sales per share

		2014
	P/E ratio	34.7
	Price/cash earnings	31
	Price to book ratio	1.6
	dividend yield	3.1
	price/sales	12.4

The above indicates high return through dividend yield, price to book and price to sales. Price earnings ratio indicates high consumer confidence on the organization

• Enterprise value based multiple

EV/Sales= Enterprise value / net sales = 200

EV/EBIT and EV/EBITA= Enterprise value / Earnings before interest and taxes (and Amortization)= 131

EV/op. FCF= Enterprise value / Operating Free Cash Flow= 100

EV/ Enterprise FCF= Enterprise value / Free cash flow=71

EV/Invested Capital= Enterprise value / Invested capital = 3.1

 

• Discounted Cash Flow (DCF)- Scenario/ Sensitivity Analysis

1. Forecast and discount free cash flows to the firm (FCFF) for the horizon period.

 

Year 1 net cash flow	Discount at 2014 return on equity 4.5%	Column1
369.354	369.354
388.0107	371.3021053
407.41	373.0775394
427.78	374.8621613
449.17	376.6565987
471.63	395.4906865
Total	2260.743091

 

• Forecast and discount FCFF for the post-horizon period, called the terminal period.

terminal value	present value at 4.5%	Column1
1000	802.4510465

 

1. Sum the present values of the horizon and terminal periods to yield firm value.

annual values	2260.743091
terminal value	802.4510465
total present value	3063.194138

 

• Sensitivity/Scenario Analysis by changing the discount rate, growth rate (at 7 discount rate)

Year 1 net cash flow	Discounte at 2014 return on equity 7%	Column1
369.354	369.354
388.0107	362.6268224
407.41	401.7655952
427.78	349.1959058
449.17	342.6696424
471.63	359.8042689
Total	2185.416235

 

annual values	2185.416235
terminal value	712.99
total present value	2898.406235

 

 

• Dividing the firm value by the number of shares outstanding yields the estimated per share stock price or Intrinsic value per share.

annual values	2185.416235
terminal value	712.99
total present value	2898.406235
shares 788.640 milion	788.64
value per share	3.675195571

Source: Prologis Inc 1

7. Decision/Trade Recommendations: Buy, Hold, Sell

Option 3: Intrinsic value< stock price

Recommendation: The investors should sell stock, buy put option, and write call option. This is based on the understanding that they would make a loss when the actual stock value materializes in the stock market.