@MarsC
Thank you so much for your patience and willingness to spell this valuation concept out to me. I have never considered a valuation before quite in this manner - but I am updating my checklist accordingly as I think this is really helpful.
And I think I have my head around it now (it has taken some thinking!) - and I hope you will correct me if I am still incorrect.
I (think I) get now how using EV (EP being your preferred time) in this manner is an effective tool and doesn't matter at all whether or not the current market capitalisation is representative of intrinsic value or not.
That is because, as you pointed out, you are working out yield based on the EV (current market cap + debt - cash). It is the yield that gives a clue as to whether or not the business should be bought into (based on your own % criteria and, no doubt, other metrics and valuation techniques).
So my comment about "what if they borrowed a bunch of $$$ and then distributed it to shareholders right away..." literally has no bearing on this.
Let's use your initial analysis, but say Sky did just that - borrowed a bunch more money. Let's say that by doing that it doubled the EV from your calculations ($356 * 2 = $712M). But because they handed that money to shareholders as a dividend instead of investing in the business we would expect your estimated EBIT to be the same.
That would then mean that the yield of EBIT/EV would be 8%(PV6.5%) instead of 16%PV(13%).
For a company such as Sky TV which is facing disruption due to fierce competition, technology changes, escalating rights costs and other challenges...a yield of 6.5% may not be nearly enough to induce you to buy in. What % of the EV is Market Cap vs Debt doesn't really matter in this case.
The company could instead have a Market Cap of NZD$712M and $0 debt...which would give the same EV = $712M (assuming $0 cash held)... and the yield would still have a PV of 6.5% based on your assumptions. And (depending on your investment hurdles) that would be just as much a NO given the challenges of the business.
Whereas a yield of PV 13% based on your initial calculations may very well peak your interest.
Am I on the right track?
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