7/30/2019 Dividends (1)

1/8

Valuation of ARIF HABIB LTD

Submitted By

Aneeka ShahzadZubash Jawad

Sadaf Noor

5/1/2013

7/30/2019 Dividends (1)

2/8

Table of Contents

Introduction01

Valuation..02

Dividends cash flow Approach02

Relative valuation and its fundamentals..

Conclusion..

Recommendation.

7/30/2019 Dividends (1)

3/8

Introduction:

Arif Habib Limited (AHL) is engaged in providing brokerage and corporate finance services to a

large number of institutional, corporate, high networth individuals and retail clients. It is a listed

company with 77.25% ownership by Arif Habib Corporation Limited, the holding company of

one of the premier financial services groups in Pakistan.

Arif Habib Group commenced brokerage services in 1970. The brokerage services are provided

by a team of professional brokers with 13 years of average individual experience and 80 years of

collective experience. They remain eager to provide realistic trading recommendations, efficient

order execution, significant capacity to execute large orders, competititve pricing, and in-depth

research reports to their valued clients.

Vision: To be the leading full service securities brokerage and corporate finance company in

Pakistan known for its unmatched client service capacity, voluntary adherence to the highest

ethical standards and insistence on global best practices at all times.

Mission: To provide the fullest range of first-rate, value additive, brokerage, investment

advisory and corporate finance services to clients, fair treatment to all stakeholders, superior

returns to the shareholders, and to make a meaningful contribution to the development and

growth of the capital markets in particular and countrys economy in general.

7/30/2019 Dividends (1)

4/8

Valuation

Discounted Cash Flow Model s- (Equity Valuation Model)

Dividends:

DPS:

Dividends% x Original price per share

=30% x Rs.10

=Rs.3/per share

Interpretation: Dividend per share (DPS) is the total dividends paid out over an entire year

(including interim dividends but not including special dividends) divided by the number of

outstanding ordinary shares issued. Here DPS is RS. 3/per share

EPS:

Profits- Dividends on preferred stock / weighted average number of common shares

=7.92

Interpretation: The portion of a company's profit allocated to each outstanding share of

common stock. Earnings per share serves as an indicator of a company's profitability. Here EPS

is 7.92

Payout Ratio:

Dividends per share/Earnings per share

= 3/7.92

=0.530

Interpretation:The amount of earnings paid out in dividends to shareholders. Investors can use

the payout ratio to determine what companies are doing with their earnings. In this case payoutratio is 0.530

7/30/2019 Dividends (1)

5/8

Retention Ratio:

Net incomeDividends/ Net income

=656119009-3/656119009

=0.9639

Interpretation: Retention ratio is 0.9639 which isthe percent of earnings credited to retained

earnings. In other words, the proportion of net income that is not paid out as dividends.

ROE:

Net Income/ shareholders equity

= 656119009/1356699821

=0.4836

Interpretation: The amount of net income returned as a percentage of shareholders equity.

Return on equity measures a corporation's profitability by revealing how much profit a company

generates with the money shareholders have invested. Arif habib Ltd has he ROE of 0.4836 or

48.36%

G: (Growth rate)

(Opening priceclosing price + dividends)/ opening price

= 36.2335.88 + 3)/ 36.24

= 0.0927 or 9.2%

Interpretation: For investors, typically represents the compounded annualized rate of growth of

a company's revenues, earnings, dividends and even macro concepts - such as the economy as a

whole. Here company has a good growth rate of 9.2%

7/30/2019 Dividends (1)

6/8

Expected Growth rate:

Retention Ratio x ROE

= 0.9639 x 0.483

= 0.4656

Terminal Value:

EPS x payout ratio/ rg

=

=

Interpretation: The value of a bond at maturity, or of an asset at a specified, future valuation

date, taking into account factors such as interest rates and the current value of the asset, and

assuming a stable growth rate.

CAPM: (Cost of Equity)

Rf + Beta x Market premium

= 14% + 0.85 x 6%

= 19.10%

Here 14% Rf is on 10 years PIB

Interpretation: A firm's cost of equity represents the compensation that the market demands in

exchange for owning the asset and bearing the risk of ownership. Here CAPM is 19.10%

Value of Equity per Share:

7/30/2019 Dividends (1)

7/8

Relative Valuation and Fundamentals

Value of stock:

DPS 1/keg

=

Price to Earnings Ratio:

PE= payout Ratio (1+ g)/(r-g)

= 0.530 (1 + 0.0927)/ 0.120.0927)

= 4.21

Interpretation: Here 4.21 is a valuation ratio of a company's current share price compared to its

per-share earnings.

Price Earning growth Ratio:

PEG = Payout Ratio (1+ g)/g (r-g)

= 5.34

Interpretation: The price/earnings to growth (PEG) ratio is used to determine a stock's value

while taking the company's earnings growth into account, and is considered to provide a more

complete picture than the P/E ratio.

7/30/2019 Dividends (1)

8/8

Price to Book Value ratio:

PBV = ROE (payout Ratio) (1+ g)/ (rg)

= 0.4836 (0.530) (1 +0.0927)/ (0.120.0927)

= 0.32

Interpretation: A ratio used to compare a stock's market value to its book value. Here ratio is

0.30

PS:

PS = Net Margin (payout ratio) (1 +g)/(rg)

Net margin = Net profit/ Revenues

= 656119009/125903884

=5.211

= 5.211 (0.530) (1 + 0.0927)/ (0.120.0927)

= 21. 93

Interpretation:

Firm Multiplies

Conclusion

Reccomendation