Federal Bank: Dividend Discount Valuation
(4 pages of text)
In mid-2014, an investor was examining Federal Bank stock and its valuation. In order to fund her children’s educational savings for the future, the investor had been looking for high-growth but undervalued investment stocks. Based on her current market analysis, she had narrowed her search to Federal Bank Limited. Could Federal Bank be the undervalued stock that the investor was looking for? What would be the fair fundamental value of the bank? The dividend discount valuation model, a technique to identify and value undervalued stocks, would determine whether Federal Bank was a potential investment target.
The case allows students to identify a potential investment target using the dividend discount valuation method. After completion of this case, students will be able to
- assess the opportunities and risks associated with a potential investment target using a strengths, weakness, opportunities, and threats analysis;
- understand the key assumptions and mechanics of dividend discount valuation methodology; and
- perform valuation of a stock using dividend discount valuation methodology.
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