Investors Are Undervaluing Gielda Papierów Wartosciowych w Warszawie SA (WSE:GPW) By 22.04%

Pricing capital market stocks such as GPW is particularly challenging. Given that these companies adhere to a different set of rules relative to other companies, their cash flows should also be valued differently. Asset managers, for example, must hold certain levels of capital in order to maintain a safe cash cushion. Emphasizing line items like book values, in addition to the return and cost of equity, may be beneficial for gauging GPW’s value. Below I will show you how to value GPW in a fairly accurate and straightforward approach.

Check out our latest analysis for Gielda Papierów Wartosciowych w Warszawie

What Model Should You Use?

Before we begin, remember that financial stocks differ in terms of regulation and balance sheet composition. Poland’s financial regulatory environment is relatively strict. Moreover, capital markets usually do not hold large portions of physical assets on their balance sheet. The Excess Returns model overcomes the required capital kept on hand and lack of tangibles by focusing on forecasting stable earnings, rather than less relevant factors such as depreciation and capex, which more traditional models focus on.

WSE:GPW Intrinsic Value Export October 10th 18
WSE:GPW Intrinsic Value Export October 10th 18

Deriving GPW’s Intrinsic Value

The key assumption for this model is, the value of the company is how much money it can generate from its current level of equity capital, in excess of the cost of that capital. The returns in excess of cost of equity is called excess returns:

Excess Return Per Share = (Stable Return On Equity – Cost Of Equity) (Book Value Of Equity Per Share)

= (0.17% – 8.7%) x PLN22.61 = PLN1.8

We use this value to calculate the terminal value of the company, which is how much we expect the company to continue to earn every year, forever. This is a common component of discounted cash flow models:

Terminal Value Per Share = Excess Return Per Share / (Cost of Equity – Expected Growth Rate)

= PLN1.8 / (8.7% – 3.3%) = PLN33.64

Putting this all together, we get the value of GPW’s share:

Value Per Share = Book Value of Equity Per Share + Terminal Value Per Share

= PLN22.61 + PLN33.64 = PLN56.24

This results in an intrinsic value of PLN56.24. Compared to the current share price of zł43.85, GPW is currently priced beneath its true value. This means you can buy GPW at a discount to its value of PLN56.24. Valuation is only one part of your investment analysis for whether to buy or sell GPW. Fundamental factors are key to determining if GPW fits with the rest of your portfolio holdings.

Next Steps:

For capital markets, there are three key aspects you should look at:

  1. Financial health: Does it have a healthy balance sheet? Take a look at our free bank analysis with six simple checks on things like leverage and risk.
  2. Future earnings: What does the market think of GPW going forward? Our analyst growth expectation chart helps visualize GPW’s growth potential over the upcoming years.
  3. Dividends: Most people buy financial stocks for their healthy and stable dividends. Check out whether GPW is a dividend Rockstar with our historical and future dividend analysis.

For more details and sources, take a look at our full calculation on GPW here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at