Valuing MEGB

Earlier this year I valued MEGB using acquisition techniques. My assumptions include that there are no changes in business and financial risk. The figures are plugged from the 2013 annual report.

1) Book value plus model 

	(RM)`000
Total value of net assets	567 933
Less: Intangibles	(42 286)
Non-current liabilities	(47 546)
Net value of equity	478 101

Total number of shares = Book value of share capital / Par value of share

                                      = 81 981/0.2

                                      = 409 905

Value per share = Net value of equity / total number of shares

                          = 478 101/409 905 

                          = 1.17

Therefore, using the book value plus model, MEGB should be valued at RM 1.17 per share. 

2) Economic Value Added (EVA)

Weighted average cost of capital (WACC) calculation:

(i) Cost of equity = Dividends per share/ Share price
(Note: I`ll assume the share price used for this calculation is the market value today, which is RM0.40.)
                            = 0.08/ 0.40

                            = 0.2

                            = 20%

(ii) Cost of debt

Long term borrowing costs is 4.45% (after adjustments) in the notes to the financial statement. 

(iii) WACC = [ 0.2(81 981) + 0.045(68 262)] / 68262 + 81 918
                    = 0.1296
WACC is rounded up to 13% for simplicity.

EVA = NOPAT - (WACC x Book value of capital employed)

         = 36 847 - 0.13(81 981)

         = 26 198.47

Value per share = 26 198.47 / 409 905

                          = 0.0639 

EVA shows RM 0.06 per share, the lowest value as the fundamental basis for the valuation is economic profits.


3) Market Value Added (MVA) 

MVA = Market value of (debt + equity) - Book value of (debt + equity)
(Note: The market value of debt is derived after the effect of amortization)

          = (422 405 + 68 265) + (81 918 +198 566)
          = 210 123

Value per share = 210 123/ 409 905
                          = 0.5126

MVA at RM 0.51 per share is the nearest to the closing price of this counter today (RM 0.40).