Finc2011 Major Assignment
Woolworths Limited Valuation Report
Executive summary
Woolworths Limited (WOW), which is one of the listed companies in Australian Security Exchange (ASX) (ASX 200), is the largest supermarket in Australia (Kruger 2013), it specializes in the groceries, food and retailing (WOOLWORTHS LIMITED (WOW) 2013). The aim of this report is to estimate and determine the dividend growth rate, stock return and current share price of Woolworths. Methods used for the estimation include dividend growth model, Capital Asset Pricing Model (CAPM) and Gordon’s Growth Model. The results of the estimation indicate that the dividend payments will continuous increasing in the future, the return on the company’s assets is reasonable and its share price is expected to rise.
In addition, recommendations associated with the investment decision will be provided to the public investors regarding to the risks in the market by comparing with companies within the same industry. However, there are still a number of limitations of the report such as a few assumptions are made for calculations and limitations due to the difference of risk free rate.
Calculation of Growth Rate:
The approach used to estimate the growth rate (g) for dividend payments of Woolworths is: g = Ploughback Ratio x Return on Equity (ROE)
Ploughback Ratio = 1 – Payout Ratio
In which, payout ratio refers to the ratio of dividends to earnings per share (EPS) (Brealey, Myers and Allen 2011).
Souce: http://www.woolworthslimited.com.au/annualreport/2012/pdf/WW_AR12_Full.pdf
Based on the figures above, the growth rate (g) for the 2012 should be: g = (1 – 0.8528) x 0.2722 = 4.01%
In order to figure out a more accurate growth rate, the average should be taken from 2008 to 2012.
As it is shown in the table, the average g = 7.68%.
According to Woolworth’s annual report (2012), the payout ratio is quite stable, despite there is a sudden increase in 2012; hence, we could assume that the dividend payout ratio is
Executive summary
Woolworths Limited (WOW), which is one of the listed companies in Australian Security Exchange (ASX) (ASX 200), is the largest supermarket in Australia (Kruger 2013), it specializes in the groceries, food and retailing (WOOLWORTHS LIMITED (WOW) 2013). The aim of this report is to estimate and determine the dividend growth rate, stock return and current share price of Woolworths. Methods used for the estimation include dividend growth model, Capital Asset Pricing Model (CAPM) and Gordon’s Growth Model. The results of the estimation indicate that the dividend payments will continuous increasing in the future, the return on the company’s assets is reasonable and its share price is expected to rise.
In addition, recommendations associated with the investment decision will be provided to the public investors regarding to the risks in the market by comparing with companies within the same industry. However, there are still a number of limitations of the report such as a few assumptions are made for calculations and limitations due to the difference of risk free rate.
Calculation of Growth Rate:
The approach used to estimate the growth rate (g) for dividend payments of Woolworths is: g = Ploughback Ratio x Return on Equity (ROE)
Ploughback Ratio = 1 – Payout Ratio
In which, payout ratio refers to the ratio of dividends to earnings per share (EPS) (Brealey, Myers and Allen 2011).
Souce: http://www.woolworthslimited.com.au/annualreport/2012/pdf/WW_AR12_Full.pdf
Based on the figures above, the growth rate (g) for the 2012 should be: g = (1 – 0.8528) x 0.2722 = 4.01%
In order to figure out a more accurate growth rate, the average should be taken from 2008 to 2012.
As it is shown in the table, the average g = 7.68%.
According to Woolworth’s annual report (2012), the payout ratio is quite stable, despite there is a sudden increase in 2012; hence, we could assume that the dividend payout ratio is