Valuation Summary and Recommendation
To determine a fair value for VMIL, a Single-Stage Residual Income and a Justified Price to Book valuation method were used.
Single-Stage Residual Income Model
The single-stage residual model was deemed appropriate given that since the pandemic, dividends have not been paid by the Company which would undermine a dividend discount approach. Furthermore, the single-stage residual income model enables us to evaluate the value VMIL creates for shareholders in excess of its cost of equity. This makes the valuation method very constructive for valuing VMIL. Utilizing this approach, we arrived at a fair value estimate of $8.22.
Price to Book Value (P/B)
Our residual income model was coupled with a Justified P/B valuation approach. The use of the Justified P/B method provides an estimate of what the company’s P/B multiple should be, derived from fundamentals as opposed to pure market movements. We estimated a 1-year book value per share of approximately $3.08 (12 months ended March 2022). Our P/B multiple was determined using the Justified Price to Book approach amounted to 2.15x, resulting in an intrinsic value per share of approximately $6.62.
Fair Value
Our estimated fair value is derived by averaging both values which essentially provide both an income and a market-based approximation of the Company’s fair value. Consequently, our fair value estimate for the stock is $7.42. This represents an upside of 15.94% relative to the July 15, 2021, close price of $6.40. Given our valuation, the foregoing assessment of the Company, and the identified drivers of its performance, our MARKETWEIGHT recommendation balances the relative risks surrounding the market dynamics of the Company against The view that the market currently underprices the stock.
| Stock | Victoria Mutual Investments Limited |
| Close Price (J$) | $6.40 |
| Estimated Fair Value (J$) | $7.42 |
| Potential Upside | 15.94% |
| Dividend Yield | 0.00% |
| Total Return | 15.94% |
| Year to Date Return | 8.47% |
| Trailing P/B | 2.36x |
| Trailing P/E | 17.14x |
| Recommendation | MARKETWEIGHT |
As at July 15, 2021
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