Valuation Models

Accounting Valuation Model

  2019 2020 2021 2022 2023

2652073
NI 9 32353778 34962813 37394142 39623854
1248499
BOE 0 18,944,673 24,078,282 26,520,585 29,165,659
Kc 0.2468 0.2468 0.2468 0.2468 0.2468
ROE 2.12 1.71 1.45 1.41 1.36
ROE - Kc 1.88 1.46 1.21 1.16 1.11
2343944
ANI 3 27678233 29020293 30848862 32425769
Terminal Growth 0.0124
Terminal Value 140050550
NPV 134074839
No. of shares 1,810,188
Intrinsic Value per share 74.067

Intrinsic Value 74.067

MV 148.4

Conclusion Overvalued

Conclusion: Since the market price of Hascol Petroleum Limited stands at Rs. 148 which is
higher than the intrinsic value of Rs.74.067, the conclusion is that the stock value is
overvalued.

Decision: By looking at the overall model results and market price of Hascol Petroleum
Limited, we suggest that investors should not invest in stocks.
Price to Book Value Ratio

  2018
Current Market Price 148.4
Book Value 12,482,425
No. of shares 181,0188
Book Value Per Share 68.96
Conclusion Overvalued

Conclusion: Since the market price of Hascol Petroleum Limited stands at Rs. 148 which is
higher than the intrinsic value Rs. 68.69, the conclusion is that the stock value is overvalued.

Decision: By looking at the overall model results and market price of Hascol Petroleum
Limited, we suggest that investors should not invest in stocks.
PE Ratio

Calculation of g 2018
ROE 0.020
P/o ratio 0.368

g 0.013
kc 0.247
Po 148.4
E1 28.46

Tangible PE 4.052
FF 0.052
g factor 0.055
Intrinsic PE 4.055
Actual leading P/E 5.214

Intrinsic P/E < Actual leading PE

Overvalued
Do not Invest

Conclusion: If the actual leading PE ratio is greater than the intrinsic leading PE ratio, then
the stock is overvalued and vice versa. In our case, the actual leading PE ratio is greater than
the intrinsic leading PE ratio which means that the stock of Hascol Limited Petroleum is
overvalued.

Decision: By looking at the overall model results and market price of Hascol Petroleum
Limited it is recommended to investors not to invest in this stock as the price may decrease in
the future.
Dividend Discount Model

  2019 2020 2021 2022 2023

Earnings per
share 14.65 17.873 19.314 20.658 21.889
Dividend per
share 4.2 4.2 4.2 4.2 4.2
ROE 2.12 1.71 1.45 1.41 1.36
Kc 0.247 0.247 0.247 0.247 0.247
Growth rate
(g) 0.01512 0.01306 0.01136 0.01123 0.01098
Kc - g 0.2317 0.2337 0.2354 0.2356 0.2358
Value of stock 18.13 17.97 17.84 17.83 17.81
Market Value 148.4 148.4 148.4 148.4 148.4
Overvalue Overvalue Overvalue Overvalue Overvalue
Conclusion d d d d d

Conclusion: Since the market price of Hascol Petroleum Limited stands at Rs. 148 which is
higher than the intrinsic value of all five years hence, the stock is overvalued.

Decision: By looking at the overall model results and market price of Hascol Petroleum
Limited, we suggest that investors should not invest in stocks.
Price to Cash flow per share

Year 2019

Current Market Price 148.4

Cash Balance 8,799,447

No. of shares 1,810,188

Cash Balance Per Share 486.11%

Conclusion Undervalued

Conclusion: As the market price of Hascol Petroleum Limited stands at Rs. 148 while the
Price to Cash flow ratio is at 486.11% which is quite high. This indicates that the stocks are
undervalued.

Decision: By looking at the overall model results and market price of Hascol Petroleum
Limited, we suggest that investors should invest in stocks.
Benjamin Graham Formulae

BG Intrinsic Value
V=(EPS*(8.5+2g)*4.4)/Y

  2019 2020 2021 2022 2023

EPS 14.651 17.873 19.314 20.658 21.889
g 1.51% 1.31% 1.14% 1.12% 1.10%
8.5+2g 8.530 8.526 8.523 8.522 8.522
EPS*(8.5+2g
) 124.975 152.389 164.612 176.054 186.540
MV 148.4        

Updated Intrinsic Value Formulae

  2019 2020 2021 2022 2023

EPS 14.651 17.873 19.314 20.658 21.889
g 1.51% 1.31% 1.14% 1.12% 1.10%
Value 124.975 152.389 164.612 176.054 186.540
New value 66.815 81.472 88.006 94.123 99.730
MV 148.4        
Overvalue
Conclusion d

Conclusion: Market Price of Hascol Petroleum Limited stands at Rs. 168. Now we are going
to look at the beginning intrinsic value of 2019 to reach at a conclusion. Looking at the
beginning value of 2017, the intrinsic value stands at Rs. 66.815, therefore stock is
overvalued.
Decision: By looking at the overall model results and market price of Hascol Petroleum
Limited, we suggest that investors should not invest in stocks.
Current Price to Net Working Capital

  2019 2020 2021 2022 2023

Operating Net
Working
Capital 110762369 127060822 126451466 114680309 123310352

No. of shares 1,810,188 1,810,188 1,810,188 1,810,188 1,810,188

NWC per
share 61.188 70.192 69.855 63.353 68.120

MV 148.4 148.4 148.4 148.4 148.4

Overvalue Overvalue Overvalue Overvalue Overvalue
Conclusion d d d d d

Conclusion: Graham’s criteria for buying NCAV stocks was if the stock price was 2/3 of the
NCAV- e.g. If the NCAV per share was $10, then Graham wanted to buy it when the stock
price was at $6.66. In this case Stock price is Rs. 148 while NWC per Share is Rs 61.188, so
this indicates that this is not a favourable case. It shows the stocks of Hascol Petroleum
Limited are overvalued.

Decision: Hence, according to Graham, investors should not invest in Hascol Petroleum
Limited’s stocks because they are overvalued.
Graham Number

  2019 2020 2021 2022 2023

EPS 14.65 17.87 19.31 20.66 21.89
Total Equity 18944673 24078282 26520585 29165659 26324434
Number of shares 181,0188 181,0188 181,0188 181,0188 181,0188
Book Value per
share 104.66 133.02 146.51 161.12 145.42
EPS x Book Value
per share 1533.215 2377.394 2829.655 3328.421 3183.195
22.5 x (EPS x Book
Value per share) 34497.331 53491.368 63667.249 74889.481 71621.880
Value 185.735 231.282 252.324 273.659 267.623
MV 148.4 148.4 148.4 148.4 148.4
Undervalue Undervalue Undervalue Undervalue Undervalue
Conclusion d d d d d

Conclusion: Market Price of Hascol Petroleum Limited stands at Rs. 148. Now we are going
to look at the beginning Graham number of 2019 to reach at a conclusion. Graham number
stands at Rs. 185.735 which is higher than the stock price of Rs. 148. Therefore, stock is
undervalued.

Decision: By looking at the overall model results and market price of Hascol Petroleum
Limited’s, we suggest that investors should invest in stocks.
Dividend Cash flow Model

Year 2019 2020 2021 2022 2023

Earnings per share 14.651 17.873 19.314 20.658 21.889
DPS 4.2 4.2 4.2 4.2 4.2
Interest Rates 9% 9% 9% 9% 9%
Discounted Dividend
per share 3.853 3.853 3.853 3.853 3.853
ROE 2.124 1.708 1.452 1.410 1.359
Kc 0.2468 0.2468 0.2468 0.2468 0.2468
Growth rate 1.51% 1.31% 1.14% 1.12% 1.10%
Value of stock 16.632 16.485 16.366 16.357 16.340

Value of stock 82.18

MV 148.4
Overvalue
Conclusion d

Conclusion: Since the market price of Nishat Mills stands at Rs. 148 which is higher than the
intrinsic value Rs.82.18, the conclusion is that the stock value is overvalued.

Decision: By looking at the overall model results and market price of Hascol Petroleum
Limited’s, we suggest that investors should not invest in stocks.
Free Cash flow Model

Year 2018 2019 2020 2021 2022 2023

EBIT 5,995,879 32,018,114 36,578,133 40,333,343 43,992,954 46,116,972
TAX 29.00% 29.00% 29.00% 29.00% 29.00% 29.00%
NOPAT [EBIT x (1-
T)] 4257074 22732861 25970474 28636674 31234997 32743050
OP.CA 23,886,111 28103581 32905905 37708229 42510551 47312875
OP.CL 0 1902216 2382426 2862635 3342844 3823053
OP.NWC 23886111 26201365 30523479 34845594 39167707 43489822
Change in NWC - 2315254 4322114 4322115 4322113 4322115
OP Net Fixed Assets 22,565,797 66902092 106555725 101232817 84457036 87727092
(16775781
Change in OP FA - 44336295 39653633 (5322908) ) 3270056
FCF= NOPAT-Change
in NWC- Change in (47804799 (44206638
FA - ) ) (886012) 8843071 14016828
Number of Shares 1810188 1810188 1810188 1810188 1810188 1810188
WACC 12.20%          
Terminal Growth 1.24%          
Terminal Value
(FCF(1+g))/(WACC-
g)) 129533026          
NPV 7974078          
No. of Shares (2020) 1,810,188          
Intrinsic Price per
Share 440.51          
Market Price 148.40          
Undervalue
Conclusion d          

Conclusion: Since the market price of Hascol Petroleum Limited stands at Rs. 148 which is
lower than the intrinsic value Rs. 440.51, the conclusion is that the stock value is
undervalued.

Decision: By looking at the overall model results and market price of Hascol Petroleum
Limited, we suggest that there should be more investment in stocks.
Conclusion

We applied a total of 10 Valuation Models which lead us towards the decision of investing or
not investing into the Company. The decision of invest/not invest is based on the decision of
stocks being undervalued or overvalued as undervalued stocks act as an incentive for the
investers because they can make profit in the future when the stock price rises.

Accounting Valuation Model – Accounting valuation is an important because the value of

assets on a company's financial statements needs to be reliable as it provides the kind of
information that is just as important as the valuation itself. Due to its due importance we have
assigned it a weight of 30% and it implies that the investors should not invest in the company.

PE Ratio – This is the only ratio that takes into account the industry and the competitors
within it. This gives companies a good insight as to where they stand in the market.
Moreover, the PE ratio is a good area where companies can evaluate if potential investors
will buy their shares or not since a low PE ratio compared to its average is a good indicator of
healthy company. We assigned it a weight of 20% and it implies that the investors should not
invest in the company.

Dividend Discount Model - The justifications of this method are rock solid and indisputable.
When an investor buys a share of the business, they are basically paying a price today which
entitles them to enjoy the benefits of all the dividends that the corporation will pay
throughout its lifetime. Hence, the value of the firm is basically the value of a perpetual never
ending stream of dividends that the buyer intends to receive later with the passage of time.
Thus, many analysts believe that there is absolutely no subjectivity involved in this model
and the logic is crystal clear. Based on the importance of this model we assigned it a weight
of 15%

Out of the 10 models we applied, 3 imply that the stocks are undervalued while 7 imply that
the stocks are overvalued. The 3 models that hold the most weightage based on our analysis
also point towards the direction of not investing.

Based on these models, the final decision should be to Not Invest. Moreover, according to
our company, industry and economic analysis we have seen how the company has taken a lot
of debt, is facing cash flow problems and is going towards bankruptcy, which supports the
claim that investing in Hascol Petroleum Limited will not be a wise decision for the
investors.

Final Decision: NOT INVEST