Case
ENGRO FERTILIZERS LIMITED COST OF CAPITAL (A) AND VALUATION (B)
INDUSTRY :-
AREA :ACCOUNTING & CONTROL
ORGANIZATION :-
LENGTH :20
LUMS No :01-523-2019-1
PUBLICATION YEAR : 2019
ABSTRACT:
The case is based on Engro Fertilizers Limited (EFERT), a company listed on the Pakistan Stock Exchange and an important player in the fertilizer sector of Pakistan. The case describes the role of a senior equity analyst at Intermarket Securities Limited (IMS), Qasim Ahmad, who has to prepare the Intermarket Pulse report on Pakistan’s fertilizer sector. As part of stock valuation, he has to compute EFERT’s cost of capital and then estimate the projected cash flows to determine the stock’s target price. EFERT’s financial results for 2016 were announced on February 8, 2017, and the comprehensive Intermarket report was due on February 16, 2017. Qasim gathered the background information on the fertilizer sector in Pakistan as well as EFERT. He had to compute EFERT’s cost of capital and then work on preparing the cash flow forecast to determine the stock’s target price. In the meantime, Qasim asked one of the new hires for the position of the junior analyst to run the numbers to prepare an estimate of EFERT’s cost of capital. The case contains the cost of capital computations by the new hire. The students’ tasks in case (A) are to understand the dynamics of the fertilizer sector and evaluate the competitive position and performance of EFERT; and identify the errors made by the new hire in estimating the cost of capital and suggest corrections, if any, with appropriate justification. Part (B) of the case involves the valuation of EFERT and making a recommendation on the stock. Case has Excel Files for Instructor and Students. Please obtain from CRC.