Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

John Hult, CFA is a financial analyst who works for Arqam Capital. He was asked by the Chief Investment Officer to determine if the stock

John Hult, CFA is a financial analyst who works for Arqam Capital. He was asked by the Chief Investment Officer to determine if the stock of HSBC Holdings plc is fairly valued. Accordingly, John decided to use the dividend discounting model for the valuation of HSBC Holdings plc. Using the Bloomberg terminal, John was able to extract the following figures in addition to the latest information of the firms last filing.

Weekly Data

FTSE 100 Data

HSBC Data

Date

Open

High

Low

Adjusted Close*

Open

High

Low

Adjusted Close*

2/8/2018

4,949.03

4,989.50

4,900.05

4,900.39

18.03

18.69

18.01

17.35

2/15/2018

4,950.53

4,988.63

4,939.87

4,981.51

18.05

18.71

18.09

18.35

2/22/2018

4,994.00

5,022.10

4,990.15

4,993.32

18.02

19.32

17.94

20.28

3/1/2018

4,997.88

5,013.08

4,986.06

4,999.60

18.22

18.51

18.01

19.48

3/8/2018

5,006.05

5,006.05

4,958.88

4,974.26

19.53

19.92

19.38

19.5

3/15/2018

4,980.05

4,989.30

4,966.05

4,985.48

19.33

19.46

19.18

19.41

3/22/2018

4,969.11

5,005.06

4,953.57

4,984.70

18.41

18.63

18.17

22.57

*The adjusted close values are adjusted for dividends and stock splits.

Upon a recent study conducted by several analysts, there was a consensus that HSBC Holdings plc is considered in the maturity phase. Moreover, the firm is anticipated to maintain a stable payout in the near future regardless of the discretionary maintenance investments that usually align with any maturity phase.

HSBC Holdings plc

Year

DPS

2008

2.10

2009

2.10

2010

2.20

2011

2.35

2012

2.05

2013

2.40

2014

2.55

2015

2.65

2016

2.70

2017

2.80

HSBC Holdings plc has just reported for 2017 a(n) revenue per share of 18.60, earnings per share of 4.67, and a cash flow per share of 3.11. The yield on the 20-year U.K treasury bonds and the 20-year average return on FTSE 100 are 3.3 percent and 12.5 percent respectively.

a) Is the stock of HSBC Holdings plc fairly valued? (Prove your answer numerically showing all your computations.)

b) Is the dividend discounting model the right valuation method for HSBC Holdings plc? Explain.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

ISE Analysis For Financial Management

Authors: Robert C. Higgins Professor, Jennifer Koski

13th International Edition

1265042632, 9781265042639

More Books

Students also viewed these Finance questions

Question

What is the content of SOX Section 104(b)? 105(c)(4)?

Answered: 1 week ago