Discussion : The impact of Cove Point LNG project upon Dominion’s financing strategy for the next 5 years

Problems : How to finance Cove Point LNG Project? Use “all-debt” financing strategy or “debt-and-equity” stra

Io 3,600,000,000
Tc 35%
Rb 4%
B
S
Vu
Ro
Rs

Plan 1
All-Debt
2012 2013 2014 2015 2016
EBIT
Interest
Earning Before Tax
Tax
Earninf After Tax
CF to Investor
ategy for the next 5 years
tegy or “debt-and-equity” strategy?

MV
Vu S Vu =
TcB B S=
B=

Plan 2
Debt-and-Equity
2017 2012 2013 2014 2015 2016
EBIT(I-Tc)/Ro
Interest/Rb
Dividend/Rs

2017
Exhibit 33.8
2012 2013 2014
Revenues 12,762.00 13,300.00 13,830.00
EBIT 3,562.00 3,987.00 4,229.00
Interest Expense (4% of debt) 832.00 1,010.00 1,100.00
Earning Before Tax (EBT) 2,730.00 2,977.00 3,129.00
Tax (35%) 954.00 1,042.00 1,095.00
Net Income (EAT) 1,794.00 1,908.00 2,007.00
Dividend (67.5%) 1,211.00 1,288.00 1,354.00
Earning per Share 3.05 3.33 3.50
Share Outstanding 573.90 573.90 573.90
Net Working Capital (15.8 of Rev 2,012.00 2,097.00 2,180.00
Net PPE 30,773.00 29,488.00 32,825.00
Capital Expenditure (Ex. Cove Point) 3,570.00 3,080.00
Capital Expenditure: Cove Point 1,130.00 1,120.00
Other Assets 10,925.00 10,925.00 10,925.00
Total Net Assets 43,720.00 47,210.00 50,310.00

Existing Debt - Principal Paymen 21,486.00 18,868.00 17,771.00

New Debt (balancing figure) 6,375.00 9,740.00
Other Liabilities 10,465.00 10,465.00 10,465.00
Net worth 10,882.00 11,502.00 12,154.00
New Equity (assumed) 0.00 0.00
Total L+E 42,833.00 47,210.00 50,130.00
2015 2016 2017 Tax 35%
14,420.00 14,667.00 15,107.00 Dividend 67.50%
4,460.00 4,683.00 5,097.00 Net Working Capit 15.80%
1,150.00 1,195.00 1,234.00 Interest Expense 4%
3,310.00 3,488.00 3,863.00
1,159.00 1,221.00 1,352.00
2,125.00 2,240.00 2,484.00
1,434.00 1,512.00 1,677.00
3.70 3.90 4.33
573.90 573.90 573.90
2,245.00 2,312.00 2,382.00
35,588.00 37,379.00 39,094.00
2,450.00 2,900.00 3,200.00
850.00 400.00 100.00
10,925.00 10,925.00 10,925.00
52,058.00 53,916.00 55,701.00

16,582.00 14,716.00 12,637.00

12,166.00 15,163.00 18,219.00
10,465.00 10,465.00 10,465.00
12,845.00 13,573.00 14,380.00
0.00 0.00 0.00
52,058.00 53,916.00 55,701.00
of Revenue
 Exhibit 33.9
Leverage
B/(B+S) Rs Rb Rwacc Firm Value
2012 0.0%
2013 10.0%
2014 20.0%
2015 30.0%
2016 40.0%
2017 50.0%

Exhibit 33.10 Dominion Resources Capital Expenditure

2013 2014 2015 2016
Maintenance 1,370 580 750 800
Growth (Ex. Cove Poin 2,200 2,500 1,700 2,100
Cove Point 1,130 1,120 850 400
Total 4,700 4,200 3,300 3,300
 Exhibit 33.11
2013 2014 2015 2016 2017
Total Free Cash Flo (1,130.00) (1,105.00) (819.00) (359.00) 44.00

Capital Expenditure
2017 2013-2017
1,000 4,500
2,200 10,700
100 3,600
3,300 18,800
 Exhibit 33.8 1 2
2012 2013 2014
Revenues 12,762.00 13,300.00 13,830.00
EBIT 3,562.00 3,987.00 4,229.00
Interest Expense (4% of debt) 832.00 1,010.00 1,100.00
Earning Before Tax (EBT) 2,730.00 2,977.00 3,129.00
Tax (35%) 954.00 1,042.00 1,095.00
Net Income (EAT) 1,794.00 1,908.00 2,007.00

Dividend (67.5%) 1,211.00 1,288.00 1,354.00

Earning per Share 3.05 3.33 3.50
Share Outstanding 573.90 573.90 573.90

Net Working Capital (15.8 of Rev 2,012.00 2,097.00 2,180.00

Net PPE 30,773.00 29,488.00 32,825.00
Capital Expenditure (Ex. Cove Point) 3,570.00 3,080.00
Capital Expenditure: Cove Point 1,130.00 1,120.00
Other Assets 10,925.00 10,925.00 10,925.00
Total Net Assets 43,720.00 47,210.00 50,130.00

Existing Debt - Principal Paymen 21,486.00 18,868.00 17,771.00

New Debt (balancing figure) 6,375.00 9,740.00
Other Liabilities 10,465.00 10,465.00 10,465.00
Net worth (Shareholder's Equity) 10,882.00 11,502.00 12,154.00
New Equity (assumed) 0.00 0.00
Total L+E 42,833.00 47,210.00 50,130.00

Exhibit 33.9
Leverage
B/(B+S) Rs Rb Rwacc
2012 66.40% ? ?
2013 68.70% ? ?
2014 69.40% ? ?
2015 69.10% ? ?
2016 68.80% ? ?
2017 68.20% ? ?
 Exhibit 33.11
2013 2014 2015
Liquefaction Capex (Cap. Exp. Cove P (1,130.00) (1,120.00) (850.00)

Plan 1
All-Debt
2012 2013 2014
EBIT 3,562.00 3,987.00 4,229.00
Interest Expense (4% of debt) 832.00 1,010.00 1,100.00
Earning Before Tax (EBT) 2,730.00 2,977.00 3,129.00
Tax (35%) 954.00 1,042.00 1,095.00
Net Income (EAT) 1,794.00 1,908.00 2,007.00
 3 4 5
2015 2016 2017 Tax 35%
14,420.00 14,667.00 15,107.00 Dividend 67.50%
4,460.00 4,683.00 5,097.00 Net Working Capit 15.80%
1,150.00 1,195.00 1,234.00 Interest Expense 4%
3,310.00 3,488.00 3,863.00
1,159.00 1,221.00 1,352.00
2,125.00 2,240.00 2,484.00

1,434.00 1,512.00 1,677.00

3.70 3.90 4.33
573.90 573.90 573.90

2,245.00 2,312.00 2,382.00

35,588.00 37,379.00 39,094.00
2,450.00 2,900.00 3,200.00
850.00 400.00 100.00 3,600.00
10,925.00 10,925.00 10,925.00
52,058.00 53,916.00 55,701.00

16,582.00 14,716.00 12,637.00

12,166.00 15,163.00 18,219.00
10,465.00 10,465.00 10,465.00
12,845.00 13,573.00 14,380.00
0.00 0.00 0.00 Kalau proporsi B dan S berubah --> Rwacc berubah
52,058.00 53,916.00 55,701.00 Rwacc turun = Nilai perusahaan naik
Rwacc = [B/(B+S)]*Rb(1-Tc) + [S/(B+S)]*Rs

MM with tax --> itu gak ada kemungkinan bankcruptcy jad

Kalau, Domodaran --> semakin tinggi utang, Rs naik, Rb
Damodaran --> Rb gak konstan
Firm Value
Io 3,600,000,000 VL=EBIT(1-Tc)/Rwacc
Tc 35%
Rb 4%
B
Rb ?
S
Rs ?
Ro ?
 2016 2017 2018 2019 2020 2021
(400.00) (100.00)

Plan 1 Plan 2
All-Debt Debt-and-Eq
2015 2016 2017 2012 2013
4,460.00 4,683.00 5,097.00 3,562.00 3,987.00
1,150.00 1,195.00 1,234.00
3,310.00 3,488.00 3,863.00
1,159.00 1,221.00 1,352.00
2,125.00 2,240.00 2,484.00
 of Revenue

55,701.00

S berubah --> Rwacc berubah

perusahaan naik
Rb(1-Tc) + [S/(B+S)]*Rs

ak ada kemungkinan bankcruptcy jadi Rb konstan

> semakin tinggi utang, Rs naik, Rb juga naik karna ada CB

=EBIT(1-Tc)/Rwacc
 Plan 2
Debt-and-Equity
2014 2015 2016 2017
4,229.00 4,460.00 4,683.00 5,097.00
DOMINION FINANCIAL RATIOS DOMINION MARKET DATA (2/15/13)
EV/EBITDA 11.1 Stock Price 55
Price/Earnings 18 Shares (millions) 574
Dividend yield 3.80% Market Cap 31,519
Dividend Payout 69% Enterprise Value (EV) 52,757
EBITDA/Interest 5.7 Beta 0.70
Net Debt/EBITDA 4.5
Total debt/capital 67%
Market/Book 2.97%
Debt/EV 41%
Debt Rating A-

Bond Rating, Cost of Debt, Debt Ratios

2013
Percentage
EBIT
Interest
Pre-tax Int. Cov
 DOMINION Exhibit 33.6 DAMODARAN INVESTMEN VALUATION
Revenues 12,762
EBIT 3,562
EBITDA 4,745
EBITDA margin % 37.20%
Interest Expense 832
Net Income 1,749
Earning per Share 3.05
Dividend per Share 2.11
Total Assets 46,838
Cash 248
Total Debt 21,486
Book Equity 10,625

2013
4% x debt = 1010
Debt = 1010/4%
Debt = 25,250.00
Debt/Debt+Equity 68.70%
100% Debt 36,754.00
NVESTMEN VALUATION