RAK Ceramics (Bangladesh) Limited - DSE

(ii)Valuation based on Dividend Discount Model:They have adopted Dividend Discount Model (DDM) for valuing the share ofRAK. The valuation is based on the forecasted earnings and dividend paymentsof the company prepared by RAK Ceramics (Bangladesh) Limited.Assumptions:1. Required Rate of Return (RRR) is assumed at 12.00% while the risk-free rateis around 10%.2. The dividend payout ratio is assumed to be 80% for the year 2009, 2010 and2011. The perpetual payout ratio is assumed to be 40%.3. Perpetual growth rate is determined by multiplying the average Return onEquity (ROE) for the last three years by the projected retention rate.Determining Adjusted DPS and Present Value of Dividends:1st StageTerminalYear2009 2010 2011 2012Projected Year 0 1 2EPS (Tk.) 1.4 1.8 2.4 2.6Payout Ratio 80% 80% 80% 40%Adjusted DPS (Tk.) 1.10 1.40 1.88 1.03PV Factors 1.0000 0.8929 0.7972Present Value of Dividend(Tk.)1.1 1.3 1.5Determining the Dividend Growth Rate (g)2006 2007 2008Return on Equity (ROE) 14.34% 19.30% 14.47%(a) Average ROE = 16%(b) Retention Rate (g) = 60%Dividend Growth Rate (a)X(b) = 9.6%Determining the Value of RAK ShareTerminal Value (TV) at year 2011 43.5Present Value of TV 34.7Present Value of Dividends 3.9Value Per share (Tk.) 38.6Therefore, applying the DDM, the per share value of RAK has been derived atTk. 38.6