QUESTION 3 STOCK VALUATION: (20 Marks) Use the spreadsheet Q2-Stock-FLT.xlsx" on Blackboard to complete this question. The spreadsheet contains information output from Bloomberg Terminal. All financial statement numbers are in millions of dollars unless otherwise indicated. Assume today is 30th June 2017 and you have just been paid a dividend and that the next dividend will be received in exactly one year (assume dividend is paid annually). The stock price as at 30th June 2017 was $38.30. a) You expect Flight Centre Ltd. to maintain the same dividend payout ratio as at 30th June 2017 for the next three years. After three years, the company will increase the dividend payout ratio to 70%. Assume company's return on new investment is 16.6% and the required rate of return is 10%. Using the dividend discount model, calculate the intrinsic value for stock today. (5 marks) b) Based on your answer in Part (a), would you recommend to buy, sell or hold the stock? Give the recommendation and briefly discuss the difference between the intrinsic value and stock price. (no more than 200 words) (3 marks) c) Calculate the following ratios for financial year ending at 30th June 2017 - Forward Price-Earnings Ratio and Trailing Price-Earnings Ratio. Briefly discuss the difference between these two ratios. - If the stock was fairly priced according to the dividend discount model, what would be its Price- Earnings ratio (both Forward and Trailing)? - The P/E ratio of the S&P/ASX 200 Consumer Discretionary Sector GICS Level 1 Index is 25.07 as at the end of financial year of 2017, use this number as the average industry P/E ratio for Flight Centre. Comparing your estimate of P/E ratio for Flight Centre with the industry average P/E ratio, what conclusion could you make? (6 marks) Now assume you bought this share two years ago: d) If you bought share in the company on the 1st July 2015 at $34 and the share price exactly one year ago was $31, what is your capital gain per share today? (2 mark) e) Use the information in part (d), if you reinvested the dividends you received in more FLT shares, what is your wealth on 30th June 2017 on a per share basis? Assume that you have bought 1000 shares. (4 marks) 3 A C D E F G H J K 1 2 Flight Centre Travel Group Ltd (FLT AU) - Dividend Summary FY 2010 06/30/2010 0.7 FY 2011 06/30/2011 0.84 FY 2012 06/30/2012 1.12 FY 2013 06/30/2013 1.37 1.5634 49.9374 2.0025 3 4 In Millions of AUD except Per Share 5 12 Months Ending 6 Dividends per Share 7 Dividends per Share - 5 Yr Geo Growth 8 Dividend Yield 9 Dividend Payout Ratio 10 Cash Dividend Coverage 11 Dividends Paid 12 Total Cash Preferred Dividends 13 Total Cash Common Dividends 14 Trailing 12M Preferred Dividends 15 Trailing 12M Common Dividends 16 Trailing 12M Dividends Per Share 17 Source: Bloomberg 18 19 20 21 22 23 3.7003 60.0536 1.6652 -79.9 0.0 84.0 0.0 84.0 0.84 FY 2014 06/30/2014 1.52 76.0031 3.2846 73.879 1.3536 -146.8 0.0 152.9 0.0 152.9 1.52 4.7015 56.008 1.7855 -89.0 0.0 112.1 0.0 112.1 1.12 -25.9 FY 2015 06/30/2015 1.52 16.7748 4.4562 59.7343 1.6741 -153.1 0.0 153.3 0.0 153.3 1.52 2.9748 55.9101 1.7886 -117.3 0.0 137.6 0.0 137.6 1.37 FY 2016 06/30/2016 1.52 12.5934 4.9715 62.7218 1.5943 -158.4 0.0 153.4 0.0 153.4 1.52 0.0 69.8 0.0 69.8 0.7 FY 2017 06/30/2017 1.39 4.4141 3.577 60.8399 1.6437 -138.3 0.0 140.4 0.0 140.4 1.39 QUESTION 3 STOCK VALUATION: (20 Marks) Use the spreadsheet Q2-Stock-FLT.xlsx" on Blackboard to complete this question. The spreadsheet contains information output from Bloomberg Terminal. All financial statement numbers are in millions of dollars unless otherwise indicated. Assume today is 30th June 2017 and you have just been paid a dividend and that the next dividend will be received in exactly one year (assume dividend is paid annually). The stock price as at 30th June 2017 was $38.30. a) You expect Flight Centre Ltd. to maintain the same dividend payout ratio as at 30th June 2017 for the next three years. After three years, the company will increase the dividend payout ratio to 70%. Assume company's return on new investment is 16.6% and the required rate of return is 10%. Using the dividend discount model, calculate the intrinsic value for stock today. (5 marks) b) Based on your answer in Part (a), would you recommend to buy, sell or hold the stock? Give the recommendation and briefly discuss the difference between the intrinsic value and stock price. (no more than 200 words) (3 marks) c) Calculate the following ratios for financial year ending at 30th June 2017 - Forward Price-Earnings Ratio and Trailing Price-Earnings Ratio. Briefly discuss the difference between these two ratios. - If the stock was fairly priced according to the dividend discount model, what would be its Price- Earnings ratio (both Forward and Trailing)? - The P/E ratio of the S&P/ASX 200 Consumer Discretionary Sector GICS Level 1 Index is 25.07 as at the end of financial year of 2017, use this number as the average industry P/E ratio for Flight Centre. Comparing your estimate of P/E ratio for Flight Centre with the industry average P/E ratio, what conclusion could you make? (6 marks) Now assume you bought this share two years ago: d) If you bought share in the company on the 1st July 2015 at $34 and the share price exactly one year ago was $31, what is your capital gain per share today? (2 mark) e) Use the information in part (d), if you reinvested the dividends you received in more FLT shares, what is your wealth on 30th June 2017 on a per share basis? Assume that you have bought 1000 shares. (4 marks) 3 A C D E F G H J K 1 2 Flight Centre Travel Group Ltd (FLT AU) - Dividend Summary FY 2010 06/30/2010 0.7 FY 2011 06/30/2011 0.84 FY 2012 06/30/2012 1.12 FY 2013 06/30/2013 1.37 1.5634 49.9374 2.0025 3 4 In Millions of AUD except Per Share 5 12 Months Ending 6 Dividends per Share 7 Dividends per Share - 5 Yr Geo Growth 8 Dividend Yield 9 Dividend Payout Ratio 10 Cash Dividend Coverage 11 Dividends Paid 12 Total Cash Preferred Dividends 13 Total Cash Common Dividends 14 Trailing 12M Preferred Dividends 15 Trailing 12M Common Dividends 16 Trailing 12M Dividends Per Share 17 Source: Bloomberg 18 19 20 21 22 23 3.7003 60.0536 1.6652 -79.9 0.0 84.0 0.0 84.0 0.84 FY 2014 06/30/2014 1.52 76.0031 3.2846 73.879 1.3536 -146.8 0.0 152.9 0.0 152.9 1.52 4.7015 56.008 1.7855 -89.0 0.0 112.1 0.0 112.1 1.12 -25.9 FY 2015 06/30/2015 1.52 16.7748 4.4562 59.7343 1.6741 -153.1 0.0 153.3 0.0 153.3 1.52 2.9748 55.9101 1.7886 -117.3 0.0 137.6 0.0 137.6 1.37 FY 2016 06/30/2016 1.52 12.5934 4.9715 62.7218 1.5943 -158.4 0.0 153.4 0.0 153.4 1.52 0.0 69.8 0.0 69.8 0.7 FY 2017 06/30/2017 1.39 4.4141 3.577 60.8399 1.6437 -138.3 0.0 140.4 0.0 140.4 1.39