2. “Team members
Nafisa Akkas (B1304106 )
Sabiha Zaman Khan (B1304113 )
Neha Agarwal (B1304117 )
(Bangladesh University of professionals)
(BUP-BBA 4)
3. Introduction
Valuation methods typically fall into two main categories:
absolute and relative valuation models.
Absolute valuation models attempt to find the intrinsic or
"true" value of an investment based only on
fundamentals.
Relative valuation models operate by comparing the
company to other similar companies
4. Objectives
Broad Objectives:
To analyze the stock valuation of GlaxoSmithKline Bangladesh Ltd. by
using different approaches of discounted cash flow technique.
Specific Objectives:
To learn the application of the procedures of stock valuation in order to
make decisions for investment for any stock.
To understand the stock valuation properly.
To calculate the intrinsic value and compare it with the market.
To predict the future growth and return on equity for future analysis of
the stock.
6. Sources of data
Website of the GlaxoSmithKline Bangladesh Ltd.
Different procedure manual published by GlaxoSmithKline
Bangladesh Ltd.
Annual reports of GlaxoSmithKline Bangladesh Ltd.
7. Limitations
Some of the information from secondary sources were not arranged
consistently and the data were fluctuating.
In some cases information provided in websites does not match with the
information provided in annual reports
The available information is up-to 2015. So all things we have forecasted
for the beginning of the year 2016.
As we are doing the stock valuation first time so there might be some
misunderstanding or mistakes done by us.
8. About the company
GlaxoSmithKline (GSK) is one of the leading multinational
companies in the world and the sector it covers is mainly the
pharmaceutical industry, besides this it also concentrates on
consumer health care products.
GSK supplies products to 140 global markets and has over
100,000 employees worldwide. GSK has 180 manufacturing
site in 41 countries.
9. 1,422,25
0
1,485,56
0
1,851,11
2
2,253,98
5
2,603,80
4
2011 2012 2013 2014 2015
Share holder's Fund
Key performance indicators of gsk Bangladesh limited:
Earnings per share (EPS) Taka
2011 2012 2013 2014 2015
23.41
20.25
45.35
68.63 68.99
EPS per share
Shareholder’s Fund-taka in 000
10. Return on Shareholder’s Equity
19.83
16.42
29.91
36.68
31.92
2011 2012 2013 2014 2015
Return on shareholder's Equity
Net Asset per share
–taka
118 123
154
187
216
0
2011 2012 2013 2014 2015
Net Asset per share
11. Strength
One of the largest pharmaceutical companies
Strong financial position
maintain high profitability
Weakness
High price Because they focus on value
rather than price
Ineffective online presence.
Not regularly updated information
Low level of flexibility due to the large size
of the company
Opportunity
Possible partnerships & mergers with
the pharmaceutical company would
increase its capability
Threat
Price War of competitor.
A new competitor have superior access to
channel of distribution
SWOT
Analysis
12. Political
Growing political focus and
pressure on health care
Possible changes in
international trade regulation
and competitive regulation
Economical
Economic growth and increase
in individual disposable income
Increase in average growth rate
of Bangladesh Pharmaceutical
Market from 8% to 11% in 2014
Social
Changes in customer life style
Shift in consumer attitude and
opinion
Consumers are becoming more
health conscious
Ecological
Impact to the environment of
GSK activities
Reaction of stakeholders to
this impact
Legal
Rules and regulations directly
and indirectly related to GSK
operation such as employment
law
Technological
Breakthroughs in
pharmaceutical industry with
advanced technology
Issues associated with
licensing and patenting drug
manufacturing technology
PESTEL Analysis of GlaxoSmithKline Bangladesh
17. Interpretation of DDM
The intrinsic value per share we calculated is
Tk.1318.95.
But the present market price per share is Tk. 1773
So from this valuation model, we can say that the
share is overvalued.
Major assumption in DDM:
At future the dividend for the shareholder will grow at a
constant rate, and the rate is 5%.
18. Valuation of stocks using Free Cash Flow to Equity (FCFE)
model
Formula for Free Cash Flow to Equity (FCFE) =
Net Income
Less: Capital Expenditures
Add: Depreciation
Less:(Change in Non-cash Working Capital)
Add: (New Debt Issued - Debt Repayments)
19. Assumptions for FCFE model
Major assumption:
The FCFE of this company will grow at a constant rate after five
years and the rate is assumed to be 4%. We have assumed 4%
constant growth rate because of the decreasing pattern of the growth
rate.
Other assumptions:
We have assumed that in income statement, most of the
components will be changed based on the volume of sales.
We have forecasted the Capital expenditure (CapEx), change in
working capital and change in debt assuming that, they will
change in the long term based on the average growth rate of
each of them.
22. Value per share using FCFE model: Tk. 1587.38
Market price per share: Tk.1773
So according to this approach,
At present the share is trading at a price above its
intrinsic value.
So from this valuation model, we can say that the
share is overvalued.
23. Valuation of stocks using Free Cash Flow to Firm (FCFF)
model
Formula for FCFF
FCFF =
EBIT(1-T)
Add: depreciation
Less: CAPEX
Less: Change in working capital
24. Assumptions for FCFF
Major assumption:
The FCFF of this company will grow at a constant rate after five years and
the rate is assumed to be 3.364%. We have assumed this constant growth
rate based on the arithmetic mean of FCFF growth rate from year 2016 to
2020.
Other assumptions:
We have assumed that in income statement, most of the components will
be changed based on the volume of sales (percentage of sales method)
We have forecasted the Capital expenditure (CapEx), change in working
capital assuming that, they will change in the long term based on the
average growth rate of each of them.
We also assumed that for forecasting the depreciation rate will be the
average depreciation rate of previous five years.
28. Valuation of stocks using Free Cash Flow to Firm (FCFF)
model
Value per share using FCFF model: Tk. 1407.69
Market price per share: Tk. 1773
At present the share is trading at a price above its
intrinsic value.
So from this valuation model, we can again say that
the share is overvalued.
29. Summary of the three model of valuation
Valuation Model Intrinsic value per
share (Tk)
Current market
price per share
(Tk)
Deviation from
the current
market price
Comment
DDM 1318.95 1773 454.05 Overvalued
FCFE 1587.38 1773 185.62 Overvalued
FCFF 1407.69 1773 365.31 Overvalued
30. Findings
The growth of the company is very
fluctuating over the years.
The shares are overvalued according to the
discounted cash flow technique.
The forecasted trend of free cash flow to
equity is increasing from 2016 to 2020 at a
decreasing rate.
The forecasted trend of free cash flow to firm is
increasing from 2016 to 2019 in a decreasing
rate and at year 2020 it declined slightly.
All good companies are not good
investments.
31. Recommendations
In the past five years GlaxoSmithKline Bangladesh Ltd had very fluctuating
trend in the sales and profit figures. But with the time, it is declining which
might affect the image of the company.
Till 2011,they used to include Worker’s Profit Participation Fund in income
statement but after 2011 they didn’t include WPPF in the income
statement. This might discourage the employees and overall the
performance of the company might fall.
There is an upward trend in debt to equity ratio, again it is pointing out that
debts are increasing. Although higher debts can give financial leverage but
there is also a risk of meeting up the debt obligations. So, GSK should
realize that higher debts can lead it to higher risk.
32. Recommendations
It maintains a vertical organogram whereas now a day’s horizontal
organogram is more used because it is more helpful in the process of
communication and passing all the information to the heads. Moreover, it
gives everyone chance to take any decisions together.
As the stocks of GlaxoSmithKline Bangladesh Ltd is overvalued so price
might fall. That’s why, , it should either increase the dividend or should
take initiatives which decrease their share price and bring it on the security
market line.
In 2011 the sales growth was much higher than other years, this trend was
maintained. Although it’s a very positive indication but GSK should not
forget that it can increase the market share more. So, in this regard it
should increase the promotional activities to capture the consumer mind
more.
33. Conclusion
GlaxoSmithKline is one of the most prominent multinational Pharmaceuticals
Company in Bangladesh was established to provides a good and sound health
protection medicine to our people.
Because of its firm attitude toward quality, its production cost is increased and hence it
is becoming in competitive in the market for some products. It can regain its market
share if it can procure raw materials at lower cost.
Discounted Cash Flow Techniques are more famous than Relative Valuation
Techniques.
Overall performance of GlaxoSmithKline Bangladesh Ltd is good but its stocks are
overvalued by using these three methods which discourages the investors to invest in
it.
