TASK 2

STOCK VALUATION
STEP 1

Difficult Word
1. Stock overvalued : Overvalued stocks are securities that trade higher than their fair
market value.
2. Stock undervalued : Defined as a stock that is selling at a price significantly below
what is assumed to be its intrinsic value.

STEP 2

Define the Problem

“Analyze the case above according to the material of stock valuation related with PT Selamat
Sempurna, Tbk’s stock to find the value of common stock that they would have”

STEP 3

Main Problem
Mr. Oliver is evaluating PT Selamat Sempurna, Tbk’s stock because he believe with the
company’s future. Estimate the value of common stock if:

a. Dividends are expected to grow at an annual rate of 0% to infinity.

b. Dividends are expected to grow at a constant annual rate (use current dividend growth)
c. Dividends are expected to grow at an annual rate of current dividend growth for each of
the next year, 5% annual growth rate for year 2 and 3, followed by a constant annual
growth rate of 4% in years 4 to infinity.
d. Is the stock undervalued or overvalued? Explain your answer!

Notes:

1. Mr. Oliver’s required return remain the same as Task 1.

2. Historical prices and dividend can be obtain from www.idx.co.id or
www.finance.yahoo.com
STEP 4

Analyze the Problem

The relations between the material of stock valuation with PT Selamat Sempurna, Tbk’s stock to
find the value of common stock that they would have.

STEP 5

Learning Objective
To understand the material of chapter 7 that is stock valuation.

STEP 6

Theoritical basis
The formula of Zero – Growth Dividend Model :

D 0=D 1

D1
P 0=
r

The formula of Constant – Growth Dividend Model :

D1
P 0=
r −g

The formula of Variable Growth Model :

STEP 7
Solution

D0 = Rp60,00

rs = 10%
a. Dividends are expected to grow at an annual rate of 0% to infinity.
D0=D 1
D1
P 0=
r
Rp 60,00
P 0=
10 %

P0=Rp 600,00
b. Dividends are expected to grow at a constant annual rate (use current dividend growth)

Current dividend growth (Yahoo Finance) (g) = 5,45%

D1
Constant growth model P0=
r −g
Po = Rp 1,318.68
D1 (2020) 60.00
rs 10%
g 5.45%

Growth dividend by historical data

Year Dividend per share

2019 Rp 15.00
2018 Rp18.00
2017 Rp12.00
2016 Rp10.00

D1
P 0=
r −g

D2019 = D2016 x (1 + g)^3

Rp 15.00 = Rp10.00 x (1+g)^3
 Rp 1.50 = (1+g)^3
Rp 1.14 = (1+g) Po = - Rp1,500.00 per share

g = 14%

c. Dividend are expected to grow at an annual rate of current dividend growth for each of
the next year
Variable growth model
Year Growth
D0 = 60.00
2 (g1) 5%
rs = 10 %
3 (g2) 5%
4 (g3) 4%
D1 = D0 ( 1 + g1 )
D1 = 63.00

D2 = D1 (1 + g1)^2
D2 = 69.46

D3 = D2 (1 + g1)^3
D3 = 80.41

D4 = D3 ( 1 +
g1)^4  
D4 = 97.73

Ds = 63/(1+10%)+(69.46/(1+10%)^2)+(80.41/(1+10%)^3)+(97.73/(1+10%)^4)
Ds = 241.84

P4 = D5/r-g3
P4 = D4 x ( 1 + 4%)

10%-4%

P4 = 1,694.05
d. Is the stock undervalued or overvalued?
Stock Price from IDX = Rp1,035
The dividend yield = (Cash dividend/ stock price) x 100
The dividend yield = (60/Rp1035) x 100 = 5.797%

By the dividend yield calculations, it shows that the stock is overvalued because the dividend
yield 5.797%. Adividend yield tells you how much dividend income you receive in relation
to the pride of the stock. Buying stocks with a high dividend yield can provide a good source.