Barewitness,Yep, you're right the 35% discount refers to the...

Barewitness,

Yep, you're right the 35% discount refers to the percentage upside between the current EV and my assessment of fair value EV.

Bear in mind that to the extent that EV approximates the marekt capitalisation (i.e., where the capital structure is constituted by negligible net debt or net cash) the EV % upside will be the same as the upside in the share price.

But where the EV differs markedly from the market cap, the relationship between share price upside differs to EV upside.

At the risk of teaching you to suck eggs, it's simply a matter of basic arithmetic.

Insofar as the theory of the Terminal Value equation goes (I think that was what you were asking after), I simply know it as an investment axiom which I encountered as an investment analyst many years ago. I have seen its algebraic derivation but I couldn't replicate the proofing of the theorem for you today if my life depended on it.

Instead, here follows a web link which shows some worked examples for you to follow should you want to understand more.

http://www.openlearningworld.com/olw/courses/books/Mergers%20&%20Acquisitions/Chapter%205/Terminal%20Values.html

As for APN (and I'm asuming you're asking about APN in general investment terms and not in the context of a discounted cash flow valuation...APN is unsuited to DCF analysis as it's far too cyclical a business for the discounting of future cash flows to have any reliability, in my view), I like the business. I have it in my list of 100-odd investment grade companies.

Only trouble is, I think it remains overvalued today, despite the dismal share price performance over the past few years.

APN's valuation metrics, on my modelling, are as follows:

FCF/EV = 8.7%
FCF/Mkt Cap = 13.8%
EV/EBITDA = 7.3x
DY = 5.8%
P/E = 11.5x

For the record, my entry price would be $1.60.

As for APN's debt, yes prima facie it is a bit too high for my liking, with NIBD/EBITDA>3x and EBITDA/NI<5x. However, this is a highly cash-generative business (which is why I am drawn to it) with OCF covering capex over 8x (anything over 5 is good, in my books). This means the balance sheet will be able to repair itself relatively quickly without the need for recourse to shareholders. On my modelling, NIBD/EBITDA falls to 2.3x and EBITDA/NI to 6.5x by Dec 2011 (and that's even assuming 70% dividend payout ratios).

So while the company might opportunistically seek to tap the market for capital at some stage, in my opinion there is no pressing need to do so, especially in an advertising environment that looks to be improving. And the more that time passes, the less the need to do so, in my view.

Hope this helps.

Cam