Analyst’s Opinion
We expect Barita to achieve above average growth in profitability relative to its peer group on the back of both growth in revenue and margin expansion as the company takes advantage of its increased scale of operation. As such, our base expectation sees Barita achieving a return on equity averaging roughly 17% in our four-year forecast period.
We arrived at a target price for Barita using both the Residual Income valuation method along with a comparable company approach based on both P/E and P/B multiples. In the residual income method, we used a 10.6% required rate of return, valuing the company at $90.57 per share. This price implied a 16.39x forward P/E based on our expected 2022 EPS which is slightly higher than that of BIL’s peer group average P/E (14.60x) and but lower than the current trailing P/E (22.26x). BIL has generally traded in excess in 25x in the recent past, while its peers traded around the peer group average. Taking these factors into consideration, for our comparable company approach, we applied a P/E of 18.5x and P/B of 2.5x to BIL’s estimated 2022 EPS and book value per share, respectively, which would imply prices of $102.23 and $92.85. We believe that trading multiples above the peer group averages are appropriate given expectations of above average growth and profitability ratios.
Written by Victoria Mutual Wealth Management |
| Listed Company | P/E Ratio | P/B Ratio | ROE |
|---|---|---|---|
| Barita Investments Limited | 22.6x | 3.25x | 19.45% |
| Victoria Mutual Investments Limited | 16.27x | 2.02x | 12.48% |
| Mayberry Investments Limited | 7.92x | 0.49x | 7.41% |
| Proven Investments Limited | 11.93x | 0.84x | 8.51% |
| Comparable Average | 14.60x | 1.65x | - |
| Financial Sector Main Market Average | 17.21x | 1.38x | - |
| Main Market Average | 14.73x | 2.07x | - |
