The valuation of Gozo Channel Company Limited for potential privatisation : an analysis

Abstract

The aim of this study was to calculate the fair market value of Gozo Channel Company Limited for potential privatisation. The discounted cash flow method and the free cash flow technique were used to value the Company. The objectives of the study were achieved by interviewing the Company's management, analysing the Company's strategic and financial position, and forecasting the Company's performance to derive the Company's future free cash flows. The predicted cash flows were discounted using the Company's weighted average cost of capital, to translate these cash flows into present value. The valuation of Gozo Channel Company Limited indicated that the Company has a fair market value of €2,931,818. Further studies revealed that the Company is improving both its revenue and its cost efficiency, and therefore, it is predicted that the Company will improve its financial results in the foreseeable future. In addition, several arguments are presented involving the political affiliation of Gozo Channel Company Limited. It has been argued that if the Company were privatized, its fair market value would substantially increase given the expected synergies experienced upon privatisation.