Franoise Delacour, a portfolio manager of a US-based diversified global equity portfolio, is researching the valuation of

Françoise Delacour, a portfolio manager of a US-based diversified global equity portfolio, is researching the valuation of Vinci SA (NYSE Euronext: DG). Vinci is the world’s largest construction company, operating chiefly in France (approximately two-thirds of revenue) and the rest of Europe (approximately one-quarter of revenue). Through 2003, DG paid a single regular cash dividend per fiscal year. Since 2004 it has paid two dividends per (fiscal) year, an interim dividend in December and a final dividend in May.

Although during the past five years total annual dividends grew at less than 3 percent per year, Delacour foresees faster future growth.
Having decided to compute the H-model value estimate for DG, Delacour gathers the following facts and forecasts:
• The share price as of mid-August 2013 was €41.70.
• The current dividend is €1.77.
• The initial dividend growth rate is 7 percent, declining linearly during a 10-year period to a final and perpetual growth rate of 4 percent.
• Delacour estimates DG’s required rate of return on equity as 9.5 percent.

i. Using the H-model and the information given, estimate the per-share value of DG.

ii. Estimate the value of DG shares if its normal growth period began immediately.

iii. Evaluate whether DG shares appear to be fairly valued, overvalued, or undervalued.