Page 67 - Stellar IAR2015

3. INVESTMENTS AT FAIR VALUE (Continued)The reasonability of the fair value of the Company’s investment in Tellumat has been tested by reference to a discounted cash ow model, the input ranges of which are set out below:Discounted cash ow modelWeighted average cost of capital (WACC) rate: Target debt/equity ratio:Beta:Unsystematic risk premium:Terminal growth rate:Enterprise value/EBITDA multiple valuation16.7%-18.3% 10.90%0.601%-2% 5%-7%STELLAR CAPITAL PARTNERS | 63The fair value of the investment in Tellumat represents a 9.80x enterprise value/EBITDA based on the latest reported nancial results of Tellumat. The peer group (comprising Amalgamated Electronics Corporation Ltd, Ansys Ltd, Reunert Ltd and Allied Electronics Corporation Ltd) average multiple is 7.08x at the reporting date. The peer group average multiple has not been adjusted for the risk pro le di erential between the investment being valued and that of the peer group as the multiple has been used as an objective reasonability check and not as a primary valuation input. Due to the non-annualisation of Tellumat’s EBITDA for the acquisition of Andrews Kit (Pty) Ltd and Structured Connectivity Solutions (Pty) Ltd concluded during the reporting period, the enterprise value/EBITDA multiple valuation method is not deemed by management to be a reliable valuation method a t the reporting date.Cadiz Holdings Ltd (unlisted investment)The investment in Cadiz, comprising a 45.99% shareholding in the ordinary shares of Friedshelf 1678 Ltd, the unlisted holding company of Cadiz, was increased to R129.4 million (Transaction Value) on or about 15 October 2015, from an initial acquisition value of R50.6 million.The Cadiz investment has been valued at FVTPL at R134.4 million by reference to the price of recent transactions at Transaction Value. Management are not aware of any factors or circumstances which require adjustment to the carrying value of the Cadiz investment.Price to book valuationThe valuation of Cadiz at R134.4 million represents a 29% discount to the reported net asset value of Cadiz at its last reporting date of 31 March 2015.Integrated Equipment Rentals (Pty) Ltd (unlisted investment)The investment in IE Rentals, comprising 50% of the issued ordinary shares of IE Rentals, was acquired for a nil consideration in July 2015 as this represented the rst month of trading for the company (Transaction Value). As at 30 November 2015, IE Rentals is trading materially at break -even. Assets, when fairly valued, are exceeded by liabilities in the amount of R0.1 million due to start-up costs. The EBIT of IE Rentals su ciently covers the cash ow required to service the loan from Stellar Capital. The loan to IE Rentals (refer to note 5) is considered fully recoverable from the ordinary operating cash ows of the entity.The IE Rentals investment has been valued at FVTPL at Rnil by reference to the price of recent transactions at Transaction Value. Management are not aware of any factors or circumstances which require adjustment to the carrying value of the IE Rentals investment.Praxis Financial Services (Pty) Ltd (unlisted investment)The investment in Praxis was acquired for a nominal consideration during May 2015 (Transaction Value), during which time the company was in a period of shareholder and operational restructuring. The company has returned to marginal pro tability following the period of restructuring. Assets, when fairly valued, are exceeded by liabilities in the amount of R21.7 million, mainly due to historic losses. The EBIT of Praxis su ciently covers the cash ow required to service the loan from Stellar Capital. The loan to Praxis (refer to note 5) is considered fully recoverable from the ordinary operating cash ows of the entity.The Praxis investment has been valued at FVTPL at Rnil by reference to the price of recent transactions at Transaction Value. Management are not aware of any factors or circumstances which require adjustment to the carrying value of the Praxis investment.