Discounted Cash Flow Calculation for LSE:FEDS using Excess Returns Model Model
The calculations below outline how an intrinsic value for Federal Bank is arrived at using the Excess Return Model. This approach is used for finance firms where free cash flow is difficult to estimate.
In the Excess Return Model the value of a firm can be written as the sum of capital invested currently in the firm and the present value of excess returns that the firm expects to make in the future.
The model is sensitive to the Return on Equity of the company versus the Cost of Equity, how these are calculated is detailed below the main calculation.
Amount off the current price
is available for.
Share price is
vs Future cash flow value of
Current Discount Checks
to be considered undervalued it must be available for at least 20% below the
current price. Less than 40% is even better.
Federal Bank's share price is below the future cash flow value, but not at a moderate discount (< 20%).
Federal Bank's share price is below the future cash flow value, but not at a substantial discount (< 40%).
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for
it. This is similar to the price of fruit (e.g. Mangoes or Avocados) increasing
when they are out of season, or how much your home is worth.
The amount the stock market is willing to pay for
is considered below, and whether this is a fair price.
Price based on past earnings
Federal Bank's earnings available for a low price, and how does
this compare to other companies in the same industry?
Federal Bank's earnings are expected to grow significantly at over 20% yearly.
Federal Bank's revenue is expected to grow by 20% yearly, however this is not considered high growth (20% yearly).
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can
be gauged below. We look back 3 years and see if they were any good at
predicting what actually occurred. We also show the highest and lowest estimates
looking forward to see if there is a wide range.
Federal Bank's performance over the past 5 years by checking for:
Has earnings increased in past 5 years? (1 check)
Has the earnings growth in the last year exceeded that of the
industry? (1 check)
Is the recent earnings growth over the last year higher than the average annual growth over the
past 5 years? (1 check)
Is the Return on Equity (ROE) higher than 20%? (1 check)
Is the Return on Assets (ROA) above industry average? (1 check)
Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent
earnings report. Some checks require at least 3 or 5 years worth of data.
has a total score of
1/6, see the detailed checks below.
Note: We use GAAP Net Income excluding extraordinary items in all our calculations.
Management is one of the most important areas of a company. We look at
unreasonable CEO compensation, how long the team and board of directors have
been around for and insider trading.
TENURE AS CEO
Mr. Shyam Srinivasan has been Managing Director, Chief Executive Officer and Director of Federal Bank Limited since September 2010. Mr. Srinivasan joined Bank after having worked with leading multinational banks in India and overseas across Middle East, India and South East Asia, where he has gained significant experience in retail lending, wealth management and SME banking. Mr. Srinivasan is an alumnus of the Indian Institute of Management, Kolkata and Regional Engineering College, Tiruchirapally. He has completed a Leadership Development Program from the London Business School and has served on the Global Executive Forum (the top 100 executives) of Standard Chartered Bank from 2004 to 2010.He holds key positions in the Industry as follows: Chairman of IBA Committee on Member Private Sector Banks., Member of the committee on Financial Sector Legislative Reforms set up by Reserve Bank of India, Past Chairman of Kerala State Council of Confederation of Indian Industries, Honorary fellow & governing council member of Indian Institute of Banking and Finance, Chairman of Policyholder Protection Committee of IDBI Federal.
Shyam's compensation has increased by more than 20% in the past year.
Shyam's remuneration is higher than average for companies of similar size in United Kingdom of Great Britain and Northern Ireland.
Management Team Tenure
Average tenure and age of the
management team in years:
The tenure for the Federal Bank management team is about average.
MD, CEO & Director
Executive Director & CFO
Chief Operating Officer
Senior VP & Company Secretary
Executive Vice President
Senior Vice President & Head - HR
Executive Vice President
Sunny N. V.
Senior Vice President & Zonal Head
Chief Credit Officer
Senior Vice President
Board of Directors Tenure
Average tenure and age of the
board of directors in years:
The tenure for the Federal Bank board of directors is about average.
The Federal Bank Limited engages in commercial banking activities in India. It operates in four segments: Treasury, Corporate/Wholesale Banking, Retail Banking, and Other Banking Operations. The company’s deposit products include savings accounts, current accounts, demat accounts, salary accounts, fixed deposits, cash certificates, recurring deposits, exchange earner’s foreign currency accounts, gilt accounts, and NRI deposit schemes. Its loan portfolio comprises gold, housing, car, property, educational or career, cash, instant digital, business, and agriculture and agricultural allied loans; travel, gift, debit, and credit cards; and loans against fixed deposits. The company also provides life, health, and general insurance products; mutual funds, online trading, and national pension system, as well as term loans, project finance, bill discounting, working capital loans, bank guarantees, letter of credit, packing credit limit, rediscounting of export bills, Internet banking, mobile banking, ATM, telephone banking services. As of March 31, 2017, it operated through a network of 1,252 branches and 1,696 ATMs. The company was formerly known as Travancore Federal Bank Limited and changed its name to The Federal Bank Limited in March 1947. The Federal Bank Limited was incorporated in 1931 and is headquartered in Aluva, India.
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