Stock Valuation - Class 5

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Multiple growth dividend discount models

Company ABC

Last dividends paid 3.00 € per share


estimated long term growth 4% per annum
RRR (Required Rate of Return) 9%
Current growth of dividends 10% Per annum

Constant growth model 62.40 € C6*(1+C7)/(C8-C7)

Simple two stage model

High growth 5 years


Long term growth

Year 1 2 3
Growth of dividend 10% 10% 10%
Dividend 3.30 € 3.63 € 3.99 €

PV 3.03 € 3.06 € 3.08 €


Present Value of TV
Present Value of TV (diff appr)
Price per share 80.73 € per share

Multiple Stage Growth Model

5 years of high growth


5 years of convering towards long term growth
Annual convergence 1% (High g - long g)/ years of conve
from Y11 on, long term growth

Year 1 2 3
Growth of dividend 10% 10% 10%
Dividend 3.30 € 3.63 € 3.99 €
PV 3.17 € 3.36 € 3.55 €
Present Value of TV

Price per share 99.36 € per share


RRR - rate thats investors demands back for investing

PV (price) = D1 / (rrr - long term growth g )


- > D1 = D0(1+ growth in dividend)

Terminal value: something that growths forever at same rate


= Last dividend*(1 + estimated long term growth 4 ) / (RRR - g)
Terminal value of 100,50 euro means that thats the worth of firm
sure..)

- > When using constant growth model ( RRR > g)

- size of firm/market plays big role in estimating long term growt


- if a firm keeps growing, they gain market share

Pv = FV / (1 + RRR) ^n

PRICE PER SHARE = Sum of all prices + TV

CANT DO THAT
4 5 6
10% 10% 10%
4.39 € 4.83 € 5.31 €

Terminal Value
100.50 €

3.11 € 3.14 € 3.17 €


65.32 €
65.32 €

ears of conve

4 5 6 7 8 9
10% 10% 9% 8% 7% 6%
4.39 € 4.83 € 5.27 € 5.69 € 6.09 € 6.45 €

TV
3.75 € 3.97 € 4.16 € 4.32 € 4.45 € 4.53 €
TV (PV)

3.71%
emands back for investing

term growth g )
vidend)

that growths forever at same rate


ated long term growth 4 ) / (RRR - g)
uro means that thats the worth of firm at beginnning year 6 (not

owth model ( RRR > g)

big role in estimating long term growth


hey gain market share

all prices + TV

US GDP Apple
Billions PV 24,000.00 € 100.00 €
Billions FV in 170,560.40 € 910,043.82 €
growth 4% 20%

This could not happen, this would indicate that apple is few times larger than the whole US GDP
Therefor, don’t be absurd with estimating long term growth for companies…

10
5%
6.77 €

140.89 €
4.58 €
59.51 €
e whole US GDP

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