I did a review of my valuation for Dangote Cement after a reconsideration of some of my assumptions;
- Some believe since Dividend paid out is also a form of return to investors there is probably no need deducting it to arrive at retained earnings. Dividend paid is already a return. I agree with that model and as such decided not to adjust
- In its place however is an adjustment for errors on forecasting profitability. Now, this is so because, I have to forecast future profits based on the prior 5 year historical EPS as well as all the information obtainable as per the future direction of the company. I hate to predict and no one for sure can be spot on on what next year’s EPS will be exactly. So, I will adjust for error projection based on the consistency of past EPS growth.
After making the above adjustment this is what my revised valuation looks like
Current – N173
Former – N152
The fact here is if you adjust the error higher the price drops and vice versa. Your ability to be spot on with earnings growth affects the price prediction. I chose 3%.