The Dividend Discount Model 1 (1-year projection)

\[\begin{align} P = \frac D {K - g} \end{align}\]

\[\begin{align} P = \frac {0.43}{0.07 - 0.05} \end{align}\]

\[\begin{align} P = PLN\:21.5 \end{align}\]

Where:

D - Dividend Rate

K - WACC

g - ICT Market Growth

The Dividend Discount Model 2 (1-year projection)

\[\begin{align} P = \frac D {K - g} \end{align}\]

\[\begin{align} P = \frac {0.43}{0.184 - 0.05} \end{align}\]

\[\begin{align} P = PLN\:3.20 \end{align}\]

Where:

D - Dividend Rate

K - Expected S&P 500 2020 rate of return

g - ICT Market Growth

WACC

\[\begin{align} WACC = (E/V \times Re) + ((D/V \times Rd) \times (1-T)) \end{align}\]

\[\begin{align} WACC = (0.172 \times 0.111) + ((0.828 \times 0.075) \times (1-0.1825)) \end{align}\]

\[\begin{align} WACC \approx 0.07 \end{align}\]

Where:

E/V - Equity to total capital

Re - Required rate of return

D/V - Debt to total capital

Rd - Cost of debt

T - Tax rate

\[\begin{align} Re = Rf + \beta \times (Rm - Rf) \end{align}\]

\[\begin{align} Re = 0.0175 + 0.56 \times (0.184 - 0.0175) \end{align}\]

\[\begin{align} Re = 0.111 \end{align}\]

The Dividend Discount Model 3 (5-year stress case projection)

\[\begin{align} P = \frac {0.83}{(1 + 0.184)^1} + \frac {0.78}{(1 + 0.184)^2} + \frac {0.65}{(1 + 0.184)^3} + \frac {0.69}{(1 + 0.184)^4} + \frac {0.61}{(1 + 0.184)^5} \end{align}\]

\[\begin{align} P = PLN\:2.26 \end{align}\]

Where:

r - S&P 500 2020 rate of return

\[\begin{align} P = \frac {0.83}{(1 + 0.07)^1} + \frac {0.78}{(1 + 0.07)^2} + \frac {0.65}{(1 + 0.07)^3} + \frac {0.69}{(1 + 0.07)^4} + \frac {0.61}{(1 + 0.07)^5} \end{align}\]

\[\begin{align} P = PLN\:2.94 \end{align}\]

Where:

r - WACC

The Dividend Discount Model 4 (5-year positive scenario)

Group 1

\[\begin{align} P = \frac {1.69}{(1 + 0.184)^1} + \frac {2.02}{(1 + 0.184)^2} + \frac {2.43}{(1 + 0.184)^3} + \frac {2.91}{(1 + 0.184)^4} + \frac {3.49}{(1 + 0.184)^5} \end{align}\]

\[\begin{align} P = PLN\:7.31 \end{align}\]

Where:

r - S&P 500 2020 rate of return

\[\begin{align} P = \frac {1.69}{(1 + 0.07)^1} + \frac {2.02}{(1 + 0.07)^2} + \frac {2.43}{(1 + 0.07)^3} + \frac {2.91}{(1 + 0.07)^4} + \frac {3.49}{(1 + 0.07)^5} \end{align}\]

\[\begin{align} P = PLN\:10 \end{align}\]

Where:

r - WACC

Group 2

\[\begin{align} P = \frac {1.52}{(1 + 0.184)^1} + \frac {1.73}{(1 + 0.184)^2} + \frac {1.98}{(1 + 0.184)^3} + \frac {2.26}{(1 + 0.184)^4} + \frac {2.59}{(1 + 0.184)^5} \end{align}\]

\[\begin{align} P = PLN\:6 \end{align}\]

Where:

r - S&P 500 2020 rate of return

\[\begin{align} P = \frac {1.52}{(1 + 0.07)^1} + \frac {1.73}{(1 + 0.07)^2} + \frac {1.98}{(1 + 0.07)^3} + \frac {2.26}{(1 + 0.07)^4} + \frac {2.59}{(1 + 0.07)^5} \end{align}\]

\[\begin{align} P = PLN\:8 \end{align}\]

Where:

r - WACC

DDM Evaluation Table - Multiperiod Growth Model

Terminal value Formula

\[\begin{align} TV = \dfrac{{Dividend_5} \times {1 + g}}{K-g} \end{align}\]

Where:

D - Dividend Rate at year 5

K - S&P 500 2020 rate of return

g - WACC

NPV Terminal value Formula

\[\begin{align} TV = \dfrac{TV}{(1 + K)^5} \end{align}\]

Summary

Please note that dividends in ASBISc’s case are ordinarily paid in the form of advanced and final payments declared in annual reports. However, in this analysis, calculations are based on data contained in cash flow statements on a year-to-year basis.

Both DDMs are grounded on the assumption of n - periods, being infinite and earnings computed as an average net-to-sales ratio, given the revenue growth rate of 20.1% as per geometric mean calculated earlier in an exhibit called “Revenue Growth” under row name “Total”. The averaged dividend payout of 28% was used as a means of determining and establishing future dividend payment and fair valuation range under different assumptions made to the denominator. The dividend per share in PLN represents the conversion at an average $/PLN exchange rate for 2020 (Fusion Media Limited, 2022).
For other assumptions refer directly to data contained in the “Selected Financial Data” table.

A diminutive average net-to-sales of 0.76% is a vital indicator of the earnings margin being inadequate to accommodate future sales decline and delineate risk exposure with regard to insufficient cash levels and reduced liquidity. One year price projection via dividend discount model ranges from PLN 3.20 - 21.5 showing high volatility of this particular stock pricing and alerts that any potential economic downturn might dwindle the sales and decrease if not gradually eliminate the dividend payments.

5-year stress case projections, however, lean towards the lower bound, oscillating between PLN 2.26 - 2.94 indicating what can happen in a negative revenue scenario and what possible capital loss can be inflicted against the current share price of PLN 10.02 (04/03/2022).

Positive 5-year exhibit showcases the appraisal considering a constant revenue growth of 20% and improved profitability margin (net to earnings) of 3%. In the first instance, dividend payout ratio remained at historical average of 28% with share price ranging from PLN 7.31-10. Whilst, in the later example, the dividend payout ratio reflects the current downward trend, with assumed decline of 5% annually, and stock price range between PLN 6-8.

Under Multi-Period DDM Growth Model, a net present terminal share price has been established and added to previously computed net present dividends variants. In a negative scenario, the share price melts to the notch of PLN 5.4, which might be indicative of the lowest threshold, at which it would be ideal to acquire the company’s stocks thereby maximising returns. In either positive scenarios, assuming constant revenue growth and despite the decreasing dividend payout ratio in the second instance, values return to PLN 18.45 - 24.08. Purchasing a stock at PLN 5.4 and selling it at 24.08 would have amounted to 346% rate of return. The following models exhibit that once company had dealt with possible sales declines, the share price is likely to go back to the level around PLN 20.

I would personally be inclined to purchasing this stock at the threshold below PLN 5 to accommodate for the intrinsically written risk to minimise the capital loss and get greater returns for higher risk incurred (high leverage). In the current geopolitical situation arisen from the war in Ukraine, such a scenario seem to be highly probable, taking into account that nearly 9% of the company’s revenue in 2020 derived from Ukraine, another c.9% from Russia and approximately 6% from Belarus. With the imposition of sanctions that might vary from the company’s standing and their government actions, these might affect future performance and hence, the final stock price.