Valuation and Recommendation
Based on our concerns regarding the sustainability of BIL’s strategy, and expectations that investment banking and asset management growth may be impacted by a saturated market, we assumed a LTGR of 7%.
Current valuation: We also estimated a beta of 0.82, a risk-free rate of 5.14%, a cost of equity of 10.14% and dividend payout ratio of 60% in the stable period. This resulted in an estimated a fair value of $76.28 using the Dividend Discount Model (DDM). Based our relative valuation model, with a P/E of 20.84x and a P/B of 3x with equal weighting, BIL target price is $89.05.
Assuming the APO is successful: The increase in share capital is expected to bolster the company’s equity position and facilitate expansion of the investment banking business, increase funds under management and ultimately drive revenue growth. This led to a revised valuation which resulted in a fair value of $88.43 and a target price of $100.22. Assuming the APO is successful and is upsized, we estimate a fair value of $99.39 with a target price of $106.63
We are recommending Marketweight for Barita’s APO, as such we recommend investors participate in the offer if it is aligned to their current strategy. Barita has shown growth in profitability, and the company has expressed that plans are in place for further growth; however, the current negative news surrounding the company could adversely influence market sentiments thereby impacting the company’s price performance in the near-term.
Read full an analysis here.