s 2. ASSIGNMENT 1: (20%) STOCK VALUATION ANALYSIS Scenario: You are recently hired as a Stock Analyst in one of an Investment Bank. Recent Covid 19 pandemic has provided opportunities for large drug manufacturers in healthcare sector to benefits from vaccine-related products. Your manager has conducted stock screening process and assigned you a task to determine the intrinsic value from the final list of companies chosen from healthcare industry. Home News Screener Maps Groups Portfolio Insider Futures Forex Crypto Backtests Elite The OCT 142021:15 AMET Hp Login Register My Presets Filters: 11 P/E Price/Cash Order: Ticker Asc Under 50 Forward P/E Any Description(2) Signal: None (all stocks Tickers Fundamental(9) Technical (11) PEG Any P/B Any Over 10% Price/Free Cash Any EPS growth any F EPS grow (>0 next 5 years past 5 years Positive (>0 < EPS growth trover Return on Equity Over +10% Current Ratio Over 1 trover Quick Rat Assets Any LT Debt/Equity Any Investment Dubiquity Any Gross Margin Over 20% Operating Over 10% Hargin Margin Ownership Any Insider Invitational Ownership Overview Valuation Financial Ownership Performance Technical Custom Total: 41 No. Ticker Company 1 AZN 2LLY AstraZeneca PLC Eli Lilly and Company 3 VRK Marck & Co., Inc. 4NVO News Nordisk A/S Sector Industry Any Charts Auto Refresh: 3 Basic | aff TA Country Payout Ratio Over 20% Reset(11) Snapshot Stats Healthcare Drug Manufacturers-United Kingdom Heathcare Drug Manufacturers USA Healthcare Drug Manufacturers-General USA Healthcare Drug Manufactu Filter:fcuratio: fpears postgrowth:10 Denmark grossmargin:20 fa_netmargin... Market Cap P/E Price Change Volume 106.258 42.18 60.45 0.30% 4,345,203 225.448 35.54 236.44 1.57% 2,076,727 203.108 41.79 170.500 33.00 100.0 3.00% export Type From the above list of stock screening, choose any one of the companies below: 1. AstraZeneca PLC 2. Eli Lily and Company 3. Merck & Co. Inc 4. Novo Nordisk A/S Tasks: Compute the intrinsic value per share for your company chosen and compare with different valuation techniques using: 1. Dividend Discount Model 2. Market-Based Valuation - PEG, P/BV, P/S and P/E Multiples Approach 3. Free Cash Flow Approach a) Determine the fair value of the company based on the intrinsic price b) Determine whether the stock is currently undervalued or overvalued based on the latest closing market price. DKK million Financial performance Net sales 2016 2017 2018 2019 2020 2019-2020 Change 111,780 Sales growth as reported 3.6% 111,696 (0.1%) 111,831 122,021 126,946 4% 0.1% 9.1% 4.0% Sales growth in constant exchange rates (CER)' 5.5% 2.3% 4.6% 5.6% 6.7% Operating profit 48,432 48,967 47,248 52,483 54,126 3% Operating profit growth as reported (2.0%) 1.1% (3.5%) 11.1% 3.1% Operating profit growth in constant exchange rates (CER)' 0,2% 4.8% 2.8% 5.6% 6.8% Depreciation, amortisation and impairment losses 3,193 3,182 3,925 5,661 5,753 Net financials (634) (287) 367 (3,930) (996) Profit before income taxes 47,798 48,680 47,615 48,553 53,130 966 Effective tax rate Net profit Purchase of intangible assets 20.7% 21.7% 18.9% 19.8% 20.7% 37,925 38,130 38,628 38,951 42,138 8% 1,199 1,022 2,774 2,299 16,256 607% Purchase of property, plant and equipment? 7,068 7,626 9,636 8,932 5,825 (35%) Free cash flow' Total assets Equity Financial ratios 39,991 32,588 32,536 34,451 28,565 (17%) 97,539 102,355 45,269 49,815 110,769 125,612 51,839 57,593 144,922 15% 63,325 10% Gross margin 84.6% 84.2% 84.2% 83.5% 83.5% Sales and distribution costs in percentage of sales 25.4% 25.4% 26.3% 26.1% 25.9% Research and development costs in percentage of sales 13.0% 12.5% 13.2% 11.7% 12.2% Operating margin 43.3% 43.8% 42.2% 43.0% 42.6% Net profit margin 33.9% 34.1% 34.5% 31.9% 33.2% Cash to earnings' 105.4% 85.5% 84.2% 88.4% 67.8% Operating profit after tax to net operating assets' 150,2% 143,2% 116,7% 98,0% 82.8% Dividend payout ratio 50.2% 50.4% 50.6% 50.5% 50.0% Share performance Basic earnings per share/ADR in DKK 14.99 15.42 15.96 16.41 18.05 10% Diluted earnings per share/ADR in DKK 14.96 15.39 15.93 16.38 18.01 10% Total number of shares (million), 31 December 2,550 2,500 2,450 2,400 2,350 (2%) Dividend per share in DKK 7.60 7.85 8.15 8.35 9.103 9% Total dividend (DKK million) 19,048 19,206 19,547 19,651 21,066 3 7% Share repurchases (DKK million) 15,057 16,845 15,567 15,334 16,855 10% Closing share price (DKK) 255 335 298 387 427 10% Income statement and statement of comprehensive income for the year ended 31 December DKK million Income statement Note 2020 2019 2018 DKK million Note 2020 2019 2018 Statement of comprehensive income Net sales Cost of goods sold Gross profit Sales and distribution costs 2.1, 2.2 126,946 2.2 20,932 106,014 122,021 20,088 101,933 111,831 Net profit 42,138 38,951 38,628 17,617 Other comprehensive income: 94,214 2.2 32,928 31,823 Research and development costs 2.2, 2.3 15,462 14,220 29,397 14,805 Items that will not be reclassified subsequently to the income statement: Remeasurements of retirement benefit obligations 3.5 627 (67) (187) 87 Administrative costs 2.2 3,958 4,007 3,916 Other operating income, net 2.2, 2.5 460 600 1,152 Operating profit 54,126 52,483 47,248 Items that will be reclassified subsequently to the income statement: Exchange rate adjustments of investments in subsidiaries Cash flow hedges: (1,689) 226 491 Financial income 4.9 1,628 65 2,122 Realisation of previously deferred (gains)/losses 4.1, 4.3 329 1,677 (2,027) Financial expenses 4.9 2,624 3,995 1,755 Profit before income taxes 53,130 Deferred gains/(losses) incurred during the period Other items 4.1, 4.3 1,384 (329) (1,677) 10 9 48,553 47,615 (27) Income taxes 2.6 10,992 9,602 8,987 Tax on other comprehensive income, income/(expense) 2.6 (577) (231) 755 Net profit 42,138 38,951 38,628 Other comprehensive income, net of tax (610) 1,165 (2,398) Total comprehensive income 41,528 40,116 36,230 Earnings per share Basic earnings per share (DKK) 4.1 18.05 16.41 15.96 Diluted earnings per share (DKK) 4.1 18.01 16.38 15.93 Cash flow statement for the year ended 31 December DKK million Cash flow statement Net profit Adjustment of non-cash items: Note 2020 2019 2018 DKK million Note 2020 2019 2018 Purchase of treasury shares 4.1 (16,855) (15,334) (15,567) 42,138 38,951 38,628 Dividends paid 4.1 (20,121) (19,409) (19,048) Repayment of borrowings 4.4 (950) (822) Income taxes in the income statement 2.6 10,992 9,602 8,987 Proceeds from borrowings 4.4 5,682 81 94 Depreciation, amortisation and impairment losses 3.1 5,753 5,661 3,925 Net cash used in financing activities (32,244) (35,484) (34,521) Other non-cash items 4.7 7,849 7,032 6,098 Net cash generated from activities (2,729) Change in working capital 4.6 (4,353) (3,388) (3,370) Interest received 100 64 51 Interest paid (422) Income taxes paid 2.6 Net cash generated from operating activities (10,106) 51,951 Purchase of intangible assets 3.1 (16,256) (204) (10,936) 46,782 (2,299) (89) (9,614) 44,616 Cash and cash equivalents at the beginning of the year Reclassification of bank overdraft to financing activities Exchange gains/(losses) on cash and cash equivalents Cash and cash equivalents at the end of the year 4.5 15,411 (211) 15,629 (1,985) 17,158 - 412 (456) (7) 44 4.5 12,226 15,411 15,629 (2,774) Proceeds from sale of property, plant and equipment 7 4 13 Purchase of property, plant and equipment 3.1 (5,825) (8,932) (9,636) Proceeds from other financial assets 12 148 178 Purchase of other financial assets (350) (248) Investment in associated companies 5.3 (392) (97) Proceeds from the divestment of Group and associated companies (3) 368 Dividend received from associated companies Net cash used in investing activities 5.3 18 (22,436) 20 19 (11,509) (12,080) Balance sheet at 31 December DKK million Assets Intangible assets Note 2020 2019 DKK million Note 2020 2019 Equity and liabilities 3.1 20,657 5,835 Share capital 4.1 470 480 Property, plant and equipment 3.1 50,269 50,551 Treasury shares 4.1 (8) (10) Investments in associated companies 582 474 Retained earnings 63,774 57,817 Deferred income tax assets 2.6 5,865 4,121 Other reserves 4.1 (911) (694) Other receivables and prepayments 674 841 Total equity 63,325 57,593 Other financial assets 1,066 1,334 Borrowings 4.4 2,897 3,009 Total non-current assets 79,113 63,156 Deferred income tax liabilities 2.6 2,502 80 Inventories 3.3 18,536 17,641 Retirement benefit obligations 3.5 1,399 1,334 Trade receivables 3.4 27,734 24,912 Provisions 3.6 4,526 4,613 Tax receivables 289 806 Total non-current liabilities 11,324 9,036 Other receivables and prepayments 4,161 3,434 Borrowings 4.4 7,459 1,474 Derivative financial instruments 4.2, 4.3 2,332 188 Trade payables 5,717 6,358 Cash at bank 4.2, 4.5 12,757 15,475 Tax payables 3,913 4,212 Total current assets Total assets 65,809 62,456 Other liabilities 3.7 17,005 15,085 144,922 125,612 Derivative financial instruments 4.3 1,365 734 Provisions 3.6 34,814 31,120 Total current liabilities 70,273 58,983 Total liabilities 81,597 68,019 Total equity and liabilities 144,922 125,612 Equity statement at 31 December 2020 2019 2018 Share DKK million capital Balance at the beginning of the year 480 (10) Treasury Retained shares earnings 57,817 Other reserves Total Share capital Treasury Retained shares earnings Other reserves Total Share Treasury Retained capital shares earnings Other reserves Total (694) 57,593 490 (11) 53,406 (2,046) 51,839 500 (11) 48,887 439 49,815 Net profit 42,138 42,138 38,951 38,951 38,628 38,628 Other comprehensive income (67) (543) (610) (187) 1,352 1,165 87 (2,485) (2,398) Total comprehensive income 42,071 (543) 41,528 38,764 1,352 40,116 38,715 (2,485) 36,230 Transfer of cash flow hedge reserve to intangible assets 326 326 Transactions with owners: Dividends (note 4.1) (20,121) (20,121) (19,409) (19,409) (19,048) (19,048) Share-based payments (note 5.1) 823 823 363 363 414 414 Tax related to restricted stock units 31 31 18 18 (5) Purchase of treasury shares (note 4.1) (8) (16,847) (16,855) (9) (15,325) (15,334) (10) (15,557) (5) (15,567) Reduction of the B share capital (note 4.1) (10) 10 (10) 10 (10) 10 Balance at the end of the year 470 (8) 63,774 (911) 63,325 480 (10) 57,817 (694) 57,593 490 (11) 53,406 (2,046) 51,839 Refer to note 4.1 for details of movements in other reserves. 2.6 Income taxes and deferred income taxes Income taxes expensed DKK million 2020 2019 2018 Current tax on profit for the year 11,557 11,275 10,469 Deferred tax on profit for the year 1,105 (1,559) (1,007) Tax on profit for the year 12,662 9,716 9,462 Current tax adjustments recognised for prior years (563) (191) (522) Deferred tax adjustments recognised for prior years (1,107) 77 47 Income taxes in the income statement 10,992 9,602 8,987 Tax on other comprehensive income for the year, (income)/expense 577 231 (755) Computation of effective tax rate DKK million 2020 2019 2018 Statutory corporate income tax rate in Denmark 22.0% 22.0% 22.0% Deviation in foreign subsidiaries' tax rates compared to the Danish tax rate (net) (2.5%) (2.1%) (1.9%) Non-taxable income less non-tax- deductible expenses (net) (0.2%) 0.1% (0.2%) Other adjustments (net) 1.4% (0.2%) (1.0%) Effective tax rate 20.7% 19.8% 18.9% Income taxes paid DKK million 2020 2019 2018 Income taxes paid in Denmark for current year 4,262 7,774 6,640 Income taxes paid outside Denmark for current year 4,508 2,258 2,376 Income taxes paid/repayments relating to prior years 1,336 904 598 Income taxes paid 10,106 10,936 9,614