13.   As a securities analyst you have been asked to review a valuation of a closely held business, Wigwam Autoparts Heaven, Inc. (WAH), prepared by the Red Rocks Group (RRG). You are to give an opinion on the valuation and to support your opinion by analyzing each part of the valuation. WAH’s sole business is automotive parts retailing. The RRG valuation includes a section called “Analysis of the

industry data

 

	2005	2004	2003	2002	2001	2000	1999	1998	1997	1996
Population 18–29 years old (percentage  change)	-1.8%	-2.0%	-2.1%	-1.4%	-0.8%	-0.9%	-1.1%	-0.9%	-0.7%	-0.3%
Number of households with	6.0%	4.0%	8.0%	4.5%	2.7%	3.1%	1.6%	3.6%	4.2%	2.2%
income more than $35,000
(percentage  change)
Number of households with	3.0%	-1.0%	4.9%	2.3%	-1.4%	2.5%	1.4%	-1.3%	0.6%	0.1%
income less than $35,000 (percentage  change)

 

Number of cars 5–15 years old (percentage  change)

Automotive aftermarket industry retail sales (percentage  change)

Consumer expenditures on automotive parts and accessories (percentage change)

Sales growth of retail auto parts companies with 100 or more stores

Market share of retail auto parts companies with 100 or more stores

 

0.9%   -1.3%   -6.0%        1.9%       3.3%       2.4%   -2.3%   -2.2%   -8.0%       1.6%

 

5.7%       1.9%       3.1%       3.7%       4.3%       2.6%       1.3%       0.2%       3.7%      2.4%

 

 

2.4%       1.8%       2.1%       6.5%       3.6%       9.2%       1.3%       6.2%       6.7%      6.5%

 

 

 

17.0%     16.0%     16.5%     14.0%     15.5%     16.8%     12.0%     15.7%     19.0%   16.0%

 

 

19.0%     18.5%     18.3%     18.1%     17.0%     17.2%     17.0%     16.9%     15.0%   14.0%

 

 

 

Average operating margin of	12.0%	11.8%	11.2%	11.5%	10.6%	10.6%	10.0%	10.4%	9.8%	9.0%
retail auto parts companies
with 100 or more stores
Average operating margin of all	5.5%	5.7%	5.6%	5.8%	6.0%	6.5%	7.0%	7.2%	7.1%	7.2%
retail auto parts companies

 

Retail Auto Parts Industry,” based completely on the data in Table 13A and the following additional information:

•    WAH and its principal competitors each operated more than 150 stores at year-end 2005.

•    The average number of stores operated per company engaged in the retail auto parts industry is 5.3.

•    The major customer base for auto parts sold in retail stores consists of young owners of old vehicles. These owners do their own automotive maintenance out of economic necessity.

a.   One of RRG’s conclusions is that the retail auto parts industry as a whole is in the maturity stage of the industry life cycle. Discuss three relevant items of data from Table 13A that support this conclusion.

b.   Another RRG conclusion is that WAH and its principal competitors are in the consoli- dation stage of their life cycle. Cite three items from Table 13A that suggest this conclu- sion. How can WAH be in a consolidation stage while its industry is in a maturity stage?