Airport valuation: What discount rate to use?

CFA General
#1

I am valuating the Ottawa airport, a not-for-profit public entity that is set for privatization.

Obviously, the CAPM wouldn’t work since there is no beta and finding an unlevered beta for an airport is very tough. What are my options here?

#2

look at transaction multiples… DCF is bullshit anyway.

#3

yeah I agree I’m doing that as well but I’d also like to use a DCF just to give a boost to my presentation. Any ideas?

#4

Determine the discount rate that gives you the same value as the transaction multiples, then bump it up or down just a smidge; a slight disagreement increases the verisimilitude.

As long as you’re doing this just to give a boost to your presentation, that is.

#5

Thanks for the response. I like that idea. What discount model model do you suggest to use?

Like IRR, CAPM, WACC…? This is for an Equity Valuation course so I’d like my report to be as detailed as possible. Note that the company has no equity financing and I couldn’t find a beta for airports since there are so many few publicly traded ones.

#6

#7

Can’t you use the built up method for the discount rate, since you don’t need comps for that?

also, I bet you could argue for the use of some comps - but you will have to be creative. I’m guessing that whatever private company that takes over will have to operate on a low margin stipulated by a contract. I would potentially look into managed services companies, or maybe companies like Madison Square Garden that operate public venues.

#8

Hi ,

I’m pretty convinced that you have too many variables to define a discount rate, indeed i think that first of all you have to define the EIRR then you can apply begin your quest to find a discount rate. Many elements are included in the discount rate such as :

Airport maturity Airport traffic Airport location Aeronautical revenues and non-aeronautical revenues also A valuation of the catalytic effect employment

All these elements define the discount rate, for example Honk Kong airport might be more profitable than Ottawa Airport due to a large traffic.

You need to establish a forecast of every cashflow using historical data , so i’m pretty sure that you need to obtain a sample of the forecast by contacting IATA then you can make calculation about future cashflows and the EBIDTA is necessary.

#9

IRR, CAPM, WACC are not discount models…IRR is a discount rate not model that gives you 0 npv given cash flows…not even going to finish the rest on capm and wacc

#10

rate*

#11

i am a successful stock investor in vietnam. i read many books in cfa but do not intend to take cfa cerfitiacate.

DCF or other valuation model is to give us a concept of stock value. they can not apply in fact because we do not know growth rate.

in fact, I never use DCF of any other valuation models. I analyse competitive to dicide whether this stock can growth.

I want to set up a fund in US and am looking for a partner. Anyone know how to do so, pls advise.

regards.

Thang

#12

Many funds availibile. Plz see link:

Tanks

#13

wut

#14

Check its financials to figure out debt ratio and pre-tax cost of debt. I’m assuming they are tax exempt. The rest of the capital is comprised of subsidies/grants and public monies (which can be discounted at Rf). You can get the Rf from the 20 or 30 year treasury yield (I’d use long-term). Now you have a WACC. Public agency cashflows are typically discounted at 7% (check Whitehouse OMB and USDOT recommendation). They also recommend 3% as a less conservative sensitivity. You can compare the results from your derived WACC with the results from 7% (conservative), and 3% (less conservative).