Quick and Efficient Gas Business Plan — Investment Analysis
The project and equity returns, the exit assumption behind them, and what the numbers do and do not support.
Investment Analysis
Jump to section
- Overview & contents
- i. Important Notice and Basis of Preparation
- 1. Executive Summary
- 2. The Business and the Regulated Price
- 3. Licensing, Safety and Compliance
- 4. Market and Customers
- 5. SWOT and Competitive Position
- 6. Operations
- 7. Financial Plan
- 8. Break-Even and Debt Service
- 9. Investment Analysis
- 10. Sensitivity and Scenario Analysis
- 11. The Margin Squeeze
- 12. Risk Analysis
- 13. Implementation Roadmap
- 14. Key Performance Indicators
- 15. Key Assumptions
- 16. Conclusion and Recommendation
- A. Appendix A: Consolidated Financial Summary
- B. Appendix B: Volume, Price and Cost Schedules
- C. Appendix C: Funding, Debt and Working Capital Schedules
- D. Appendix D: Risk Register
- E. Appendix E: Glossary
- 9.1 Returns
- 9.2 What the return depends on
9.1 Returns
|
Measure |
Base case |
Comment |
|---|---|---|
|
Total capital deployed |
R4 041 000 |
Capital expenditure plus working capital and pre-opening costs |
|
Owner equity |
R2 100 000 |
52.0% of the funding requirement |
|
Term loan |
R1 941 000 |
Five years at 13.75% with a three-month capital moratorium |
|
Project internal rate of return |
20.3% |
Unlevered, five years plus a terminal value at 3.5x EBITDA |
|
Return to equity |
22.9% |
After debt service |
|
Net present value at 15% |
R898 912 |
Positive |
|
Net present value at 18% |
R363 422 |
Positive |
|
Net present value at 22% |
(R241 983) |
Negative |
|
Payback period |
5.1 years |
On unlevered project cash flow |
|
Terminal value |
R5 378 674 |
3.5x Year 5 EBITDA |
|
Cumulative profit after tax, Years 1 to 5 |
R1 432 495 |
The Year 1 loss is recovered during Year 4 |
A project return of 20.3 per cent and an equity return of 22.9 per cent are respectable for an owner-operated retail business with a hard asset base and durable demand. They are not spectacular, and they depend on reaching maturity volumes. The payback of 5.1 years reflects a business that consumes cash in its first year and repays slowly thereafter.
9.2 What the return depends on
|
Exit multiple of Year 5 EBITDA |
Terminal value (R) |
Project IRR |
Equity IRR |
|---|---|---|---|
|
2.5x |
3 841 910 |
15.9% |
16.6% |
|
3.0x |
4 610 292 |
18.2% |
19.9% |
|
3.5x |
5 378 674 |
20.3% |
22.9% |
|
4.0x |
6 147 056 |
22.3% |
25.6% |
|
4.5x |
6 915 438 |
24.1% |
28.1% |
The exit assumption matters less here than in most plans, because the business generates real cash from Year 3. At a 2.5 times exit the project still returns 15.7 per cent; at 4.5 times it returns 24.4 per cent. What the return genuinely depends on is the two variables the shop least controls: the wholesale buying price and the volume it can attract to the site.
|
Lever |
Effect on Year 5 EBITDA |
Assessment |
|---|---|---|
|
Buying price 8% better |
+R780 635 |
The largest single lever, and it is negotiated once a year |
|
Regulated price 4% higher |
+R518 688 |
Outside the shop’s control entirely; gazetted monthly |
|
Volume 15% higher |
+R596 035 |
Site quality and trading hours; largely fixed at lease signature |
|
Operating costs 10% lower |
+R294 576 |
Achievable but modest |
|
Accessory margin 25% higher |
+R318 465 |
Real and controllable; the most winnable improvement |
|
Fill loss 1.5 points lower |
+R146 810 |
Calibration and discipline; small but free |
|
Selling above the cap |
Not available |
Unlawful. There is no price lever in this business |