Part A)

You are analyzing the company potential for future investment where you will use the absolute valuation methodology for estimating the intrinsic value. Fatima Fertilizer posted a revenue of 58bn in 2020 and further expecting a growth in the revenue 5% for the next 5 years period. However, due to economic turmoil and lower purchasing power parity of customer fertilizer offtakes remained dull over the period of last 3-years and we have witnessed substantial decline in earnings and cashflows. In addition to that rising interest rate scenario put more downward pressure on firms capacity to pay dividends in near future. In 2021 would be a year which provide relief to Fertilizer industry as we are suffering from COVID-19 and face the economic slow-down in Pakistan. Govt. has reduced the interest rate cumulatively by 6.25% to 7% which will give positive impact on the bottom line of the company and bode well for Fertilizer sector as a whole. Currently, Fertilizer sector is trading at very cheap valuations which needs to confirm through the valuation analysis. You have gathered the following information related to fundamentals of the company which are mentioned below:-

• Last year revenue stood at 58bn and expected growth rate would be 5% for the next 5 years period.
• FATIMA is maintaining the gross margins of 60% over the period of 5 years and expected margins would be around 62% for next 5 years.
• A major focus of the management to maintain the net margins which is hovering around 19% over the period last five years and expected Net margins would be around 21%.
• Expectation for the finance cost would be 8% of the sales.
• Due to heavy machinery and utilization which impact on the economic value of the assets therefore company is expecting a depreciation 15% of the sales.
• Working capital investments for the incremental sales would be 18% over the period of 5 years.
• Planned capital expenditure for the next 5 years 15% of the next year revenue.

Exit multiple will be used for terminal value 8x while EBITDA as a percent of sales around 35% in the last year. Gordon growth model will be applied to estimate the future cashflows and value of operations of the company, however non-operating assets are worth of 12bn and debts are 7bn. Moreover, weighted average cost of capital is around 16% and expected perpetual growth rate at 5% for terminal value.

Instructions:

Write the brief valuation summary using the above information and state your stance for investment in the FATIMA whether this is a good opportunity to hunt at the current levels or not? (At least 300 words required to explain the entire process of forecasting)

Part B)

You have other clients who are trading on regular basis and want your advice for their trading portfolios. For trading perspective you are required to performance and submit the technical analysis report to them in a week time. You will use the candlesticks charts along with momentum indicators to understand the current trend and highlight entry & exit points.

In your report following are the points must be covered which help all the clients in their investment decisions:-

• Current trend of the stock / market.
• Use the Relative strength Index (RSI) to plan entry / exit.
• Use the Moving Average Convergence & Divergence (MACD) to plan entry / exit.

Write a brief report on 5 different sector companies in a very comprehensive manner to highlight above mentioned points.