Adjusted EBITDA, EV Bridge and a Misleading Sell-Side Multiple
Rheinwerk GmbH is a Frankfurt-listed industrial company. Its shares trade at €46.20. There are 64 million shares, and the company reports the following for FY2024: reported EBITDA €312 million, including a €28 million gain from an insurance settlement and a €12 million restructuring credit; lease liabilities €180 million; gross debt €640 million; cash €210 million; pension deficit €95 million (pre-tax; tax rate 27%); non-controlling interests €55 million. Reported net income is €128 million, including the after-tax effect of the two one-offs above. Depreciation and amortisation excluding right-of-use assets is €90 million; interest expense is €34 million. The company has no preferred shares. Peer median EV/EBITDA is 8.5x and peer median P/E is 14.0x. A sell-side note values Rheinwerk at 9.0x EV/EBITDA using 'adjusted EBITDA' of €340 million and net debt of €430 million, and concludes the stock is cheap.
1. Calculate adjusted EBITDA, enterprise value, EV/EBITDA and adjusted P/E on a consistent basis.
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Adjusted EBITDA. Reported €312m includes a €28m insurance gain and a €12m restructuring credit. Both are non-recurring, so adjusted EBITDA = 312 − 28 − 12 = €272m. Do not add back the lease charge separately if the €272m is already post-IFRS 16 EBITDA.
EV. Market cap = 64m × €46.20 = €2,956.8m. Net debt = gross debt €640m − cash €210m = €430m. Add lease liabilities €180m = €610m. Pension deficit after tax = €95m × (1 − 0.27) = €69.35m. Add non-controlling interests €55m. EV = 2,956.8 + 610 + 69.35 + 55 = €3,691.15m. EV/EBITDA = 3,691.15 / 272 = 13.57x.
P/E. Adjusted net income = €128m − €28m × 0.73 − €12m × 0.73 = €128m − €20.44m − €8.76m = €98.8m. P/E = 2,956.8 / 98.8 = 29.93x. Against peer medians of 8.5x and 14.0x, the stock is not cheap on a consistent basis.
2. Explain why the sell-side note's 9.0x multiple is not comparable with the peer median, identifying each inconsistency.
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The note's 9.0x is not comparable. First, its €340m EBITDA is higher than the €312m reported figure even though the reported figure already includes credits; adding back more without a clear schedule overstates the denominator. Second, its €430m net debt excludes €180m of lease liabilities, the €69.35m after-tax pension deficit and €55m of minorities, understating EV by about €304m. Third, even on its own inputs, EV = 2,956.8 + 430 = €3,386.8m and 3,386.8 / 340 = 9.96x, not 9.0x, so the arithmetic is not reproducible. Fourth, the peer median may use different lease, pension and minority treatment. A like-for-like comparison requires the same EBITDA definition and the same EV bridge.
3. The CIO asks whether the stock is cheap. Give a recommendation and the three most important checks before acting.
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Recommendation: do not call the stock cheap; on consistent figures it trades at 13.6x EV/EBITDA and 29.9x adjusted P/E versus 8.5x and 14.0x. Before acting, check: (1) the sustainability of the €272m EBITDA - whether the insurance gain and restructuring credit are truly non-recurring and whether there are other add-backs; (2) the EV bridge - lease terms, pension discount rate and funding assumptions, and minority buy-out obligations; (3) peer comparability and the company's cash conversion, capital expenditure and leverage. If the checks confirm the adjusted figures, the stock is expensive relative to peers, not cheap.