VALUATION OF SOFTWARE AGENCY FOR PRE IPO USING DCF AND RELATIVE VALUATION METHOD (STUDY CASE: PT XYZ)

• Main Author: Sina Wardy, Ibnu
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/75564
• Institution: Institut Teknologi Bandung

An Initial Public Offering (IPO) is a pivotal moment in a company's life cycle. It's a process where a private company offers its shares to the public in the capital market to raise funds. The move from private to public affects the company to prepare for many changes, including increased supervision and the responsibility of delivering value to shareholders. However, before stepping on this significant IPO step, the company needs a clear understanding of various factors, which include macroeconomic conditions, the dynamics of the market it operates, and the company's internal conditions. This research provides a comprehensive analysis focused on finding the fair share price for PT XYZ when it goes public. The company, PT XYZ, specializes in creating software solutions, a sector that is currently needed by a lot of companies due to the digitalization era. This research, therefore, begins by evaluating the macroeconomic environment, which significantly influences PT XYZ's business operations. In addition to understanding the macroeconomic condition, Porter's Five Forces framework is described to assess the competitive aspect of the market and potential opportunities. This model helps identify the competitive landscape in which PT XYZ operates. It involves examining the bargaining power of buyers and suppliers, the threat of new entrants and substitutes, and the intensity of competitive rivalry. After analysing the external factors, this research also focuses on in-depth company analysis. This involved a SWOT analysis by identifying PT XYZ's Strengths, Weaknesses, Opportunities, and Threats, and an evaluation of the company's financial health. For the financial analysis, this is applied by looking at the audited balance sheets and income statements, providing a robust picture of the company's financial standing. The business solution proceeded to the valuation stage, using the Discounted Cash Flow (DCF) method with Free Cash Flow to Equity (FCFE). This process involved making growth projections for the next decade. It is essential to note that these predictions were quite dynamic, considering the shifting macroeconomic landscape, which includes elements like the upcoming presidential elections in Indonesia and rapid advancements in Artificial Intelligence that could potentially disrupt the software development business. It anticipates that the company's growth rate would eventually align with Indonesia's Gross Domestic Product (GDP), serving as the long-term growth rate. To ensure a holistic evaluation, this research also used a complementary valuation method, Relative Valuation. Three similar companies in the software sector were picked and their Enterprise Value / Earnings Before Interest, Taxes, Depreciation, and Amortization (EV/EBITDA) was used as a multiplier ratio. The two separate valuation methodologies led to two distinct results: IDR 639 per share using DCF and IDR 360 per share using Relative Valuation. Thus the average of these two methods resulted in a proposed share price of IDR 500. The key recommendation for PT XYZ is to consider these valuation results carefully. Overvalued or undervalued share pricing can significantly affect investor decisions and the amount of funds raised from the IPO. This research's findings can serve as a guiding resource for PT XYZ as a reference for an IPO plan in 2024. The calculated share price should be used as a reference point, enabling PT XYZ to make strategic decisions for its successful transition to becoming a publicly-traded company.