Security Valuation and Analysis of

BDCOM Online Ltd.

Course Name: Analysis of Financial Investment

Course Code: F- 307

Submitted to: Khairul Alam Siddique

Lecturer,
Department of Finance,
University of Dhaka

Submitted by: Md. Sultan Mahmud

ID 23-004
Section- A
23rd Batch
Department of Finance
University of Dhaka

12 February, 2020

i
 Letter of Transmittal
12 February, 2020

Khairul Alam Siddique

Lecturer,
Department of Finance,
University of Dhaka

Subject: Submitting report for the requirements of course “F-307: Analysis of Financial
Investment”.

Dear Sir,

We are pleased to present the report named “Security Valuation and Analysis of BDCOM
Online Ltd.” for the requirement of course “F-307: Analysis of Financial Investment”. We are
glad to inform you that we have successfully completed our report.
Working on this report has been really interesting & informative experience for us .We learned
many unidentified facts which we believe will be supportive to our academic & professional
career in the future. While doing this report, we learned to integrate plenty of information into a
concise volume. We have enjoyed working on this report and we hope that our report will meet
the level of your expectations. We would try our best and shall be obliged to provide you with
any clarification regarding the report.

Sincerely,
Md. Sultan Mahmud

--------------------------------
ID 23-004
Section- A
Department of Finance
University of Dhaka

ii
Table of Contents
Executive Summery....................................................................................................................................iv
Introduction.................................................................................................................................................1
Analysis of Economy, Industry and Company..............................................................................................2
Global Economy Analysis.........................................................................................................................3
Macro-Economy Analysis.........................................................................................................................4
GDP Growth.........................................................................................................................................4
Interest rate and Inflation....................................................................................................................5
PESTEL Analysis....................................................................................................................................6
Industry Analysis......................................................................................................................................6
Global scenario of IT industry..............................................................................................................6
IT industry in Bangladesh.....................................................................................................................7
Industry Life-Cycle Theory...................................................................................................................8
Company Analysis....................................................................................................................................8
Products & Services.............................................................................................................................8
Enterprise Risk Management...............................................................................................................9
Porter’s Five Forces of Competitive Edge............................................................................................9
Generic Business Strategies...............................................................................................................10
Sources of Competitive Advantage....................................................................................................10
VRIN Model........................................................................................................................................10
Ansoff Matrix.....................................................................................................................................10
BCG Matrix.........................................................................................................................................11
SWOT Analysis...................................................................................................................................11
Estimated Financial Statements and Other Assumptions & Calculations..................................................12
Free Cash-Flow of......................................................................................................................................24
BDCOM Online Ltd.....................................................................................................................................24
Dividend Discount Model..........................................................................................................................26
Relative Valuation......................................................................................................................................28
Opinion......................................................................................................................................................30
References.................................................................................................................................................31

iii
 Executive Summery

In 2019, the global economic growth slowed down relative to that in 2018 due increase of
geopolitical tension, rising trade barriers and protracted policy uncertainty, financial sector
vulnerabilities, social unrest, swings in commodity prices. WTO predicts that the global
economy might grow at 2.5% in 2020 though facing these challenges.

The economy of Bangladesh expands at the rate of 8.15%. There was stable rate of real interest
rate and inflation rate. The PESTEL Analysis gives a quite positive note about business
possibility.

IT industry has a great potential in the perspective of both global and Bangladesh economy
perspective. It is a growing industry and Bangladesh is also improving its environment for IT
industry.

BDCOM Online Ltd. was incorporated under the Companies Act. 1994 on 12th February, 1997,
is a ICT based company. Its average sales growth is 12% and it is growing. It follows
differentiation and product development strategy. BDCOM’s Beta is -0.187 and on 11 February,
2020 trading price of BDCOM Online Ltd. is 19.50 BDT.

According to Free Cash-flow Valuation Method, the share value of BDCOM Online Ltd is 81.61
BDT. On the other hand, according the Dividend Discount Model, the share value of BDCOM
Online Ltd is 38.94 BDT.

iv
 Introduction

Origin of the Report:

This report is prepared for the requirement of course named “F-307: Analysis of Financial
Investment”, under the academic supervision of our course teacher, Department of Finance,
University of Dhaka. Here the topic of the report is “Security Valuation and Analysis of
BDCOM Online Ltd.”.

Context of the report:

The main concern of this report is valuation and analysis of BDCOM Online Ltd.

Objective of the Report:

Primary Objective: is to find out the share value of BDCOM Online Ltd. and to determine
whether it is suitable to include in portfolio.
Secondary objective: is to analyze the global economy and macroeconomic and to determine
how the IT industry will perform in the near future.

Methodology:
This study has been prepared on the basis of experience gathered from theoretical knowledge.
We have presented our experience and findings by using different figures and tables in the
various part of this study. For preparing this study, we have collected the information from the
secondary source.

Scope of the Report:

This report gives an overview idea of current global economy, macro-economy of Bangladesh.
This report is also helpful to understand the current position of IT industry in the perspective of
global or Bangladeshi. The main usefulness of this report is one can get a good understanding
about BDCOM Online Ltd. and its future potentials. In this report, the share value of BDCOM
Online Ltd. is determined by Free Cash-flow Method and Dividend Discount Method which can
helps the investors.

Limitations of the Report:

We have faced some problems while conducting the study some of which are as follows:

1) Relevant information was not as available as required.

2) Due to lack of practical experience, some errors might be occurred during the study.
Therefore, maximum efforts have given to avoid mistake

1
 Analysis of Economy,
Industry and Company

2
Global Economy Analysis

Global growth decelerated markedly in 2019 since the global financial crisis in 2009. In 2018
and in 2017, the global economic growth was in good pace. But, in 2019, global growth is
weakened by rising trade barriers and increasing geopolitical tensions. Rising trade disputes
between the United States and China has heightened policy uncertainty and weighed on
international trade, confidence, and investment. As a result of the increase of tariffs between the
two countries over the past couple of years, a substantially higher share of world trade has
become subject to protectionist measures.

The scenario of global growth and growth factors are shown below through graph.

8 World Advanced economies EMDEs

0
2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022
Graph 1: Global GDP Source: World Bank

6 Percent

Graph 2: Factors of Global GDP Source: World Bank

3
As per WTO report, Global growth, which weakened to an estimated 2.4 percent in 2019, is
projected to edge up to 2.5 percent this year, following an expected recovery of trade and
investment. But, in 2020, global economy will have to face many other challenges and risks. The
challenges and risks the global economy is going face in the upcoming years are listed below:

 Rising trade barriers and protracted policy uncertainty

 Financial sector vulnerabilities
 Major economies could slow more than expected
 Financial stress in emerging developing economies
 Social unrest
 Swings in commodity prices
 Increasingly volatile weather patterns

Macro-Economy Analysis

GDP Growth
The Bangladesh economy has experienced both macro-economic stability and robust economic
growth in the last decade at a rate above 7%. In the last year, Bangladeshi economy has
experienced growth more than 8%. This high positive GDP growth rate gives a good impression
for future economic condition. The GDP growth rate and its factors growth rate are shown below
through graph.

40.00

30.00

20.00
GDP
Consumption
10.00 Investment
Export
Import
0.00
ar 8 9 0 1 2 3 4 5 6 7 8 9
Ye 200 200 201 201 201 201 201 201 201 201 201 201
-10.00

-20.00

Source: World
Graph 3: GDP and its factors of Bangladesh
Development Indicators

4
Interest rate and Inflation
The real interest rate of Bangladesh in recent decade was quite stable, ranging from 3.50% to
6.50%. There were several fluctuations of inflation rate in period before 2012, and then the
inflation rate is quite stable at a rate around 5.50%. The following graph shows the interest rate
and inflation rate of Bangladesh from 2008 to 2019:

11.40

8.90

5.42 5.51 5.75

5.06
4.66
3.45 3.62

Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Real interest rate Inflation

Source: World
Graph 4: Interest rate and inflation of Bangladesh
Development Indicators
Stock Market Index

The current situation of Dhaka Stock Exchange is very much volatile. The DSEX index was at
highest point 6,306.86 on November, 2017. After this, DSEX has come down to point 4,452.96
at present.

Source: [Link]

5
 Graph 5 : DSEX Historical Data

PESTEL Analysis

P E S T E L
Stable political H igh econom ic H igh population Poor H as tw o sea- Poor
environvent grow th (7% ) H igh illiteracy technological port im plem entation
Business Establishm ent rate infrastructure faces som e of law
cooperative of Econom ic Growing natural calam ity N ew tim ely law
governm ent Zone aw areness of
technology

Industry Analysis

Global scenario of IT industry

The global information technology industry is on pace to reach $5.2 trillion in 2020, according to
the research consultancy IDC. Economies, jobs, and personal lives are becoming more digital,
more connected, and more automated. Waves of innovation build over time, powering the
technology growth engine that appears to be on the cusp of another major step forward. The
United States is the largest tech market in the world, representing 32% of the total, or
approximately $1.7 trillion for 2020. Despite the size of the U.S. market, the majority of
technology spending (68%) occurs beyond its borders. Spending is often correlated with factors
such as population, GDP, and market maturity.

CompTIA projects the global information technology industry will grow at a rate of 3.7% in
2020. The optimistic upside forecast is in the 5.4% range, with a downside floor of 1.9%.

Source: CompTIA
Graph 6- Global growth of IT Industry

6
IT industry in Bangladesh
Bangladesh has laid down an exemplary digital foundation and is striving to prepare its citizens
for the digital future. The ICT sector in Bangladesh has grown by 40% annually since 2010, as
per UNCTAD assessment of the country’s readiness to engage in e-commerce shows. The
enormous growth in its information and communications technology (ICT) sector and its young,
dynamic and IT savvy population can only make things better, the assessment report indicates.
The Bangladeshi government’s ongoing efforts are to realize the vision of its digital strategy and
to build a robust, safe and business-friendly e-commerce ecosystem. Some private organizations
have already started to work for setting up IT Park and IT villages in the country. Some investors
are foreigners and they are very much interested to build Bangladeshi students as IT
professionals. So, we can hope, the future of IT industry in Bangladesh is very much optimistic.

The recent export of IT services from Bangladesh is also very expectable. The amount of IT
services exported from Bangladesh is shown below through graph:

ICT service exports (BoP, current US$)

700000000.00
600000000.00
500000000.00
400000000.00
300000000.00
200000000.00
100000000.00
0.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ICT service exports (BoP, current US$)

Source: World
Graph 7: ICT services export from Bangladesh Development Indicators

Though there is many good sign for IT industry of Bangladesh, Some challenges are needed to
be tackled to cash out the advantages:

 A better digital future, especially for the people living in rural areas, where
connectivity and lack of skills hinder a truly inclusive digital development.

 An estimated 65% of the population resides in rural areas, which poses significant
hurdles for both providing government services to citizens as well as integration of
the rural population with the cities.

7
  Two out of three Bangladeshis live in areas that still lack internet connectivity and
less than 4% of the people use 4G-capable devices.

 Also, last-mile delivery challenges and security concerns make operations difficult in
the remotest areas, pointing to the need for improvements in trade logistics.

 Efforts to tackle these and other barriers to IT industry development need to be scaled
up and it calls for continued concerted action between public and private sectors,
increased cooperation between development partners, effective monitoring and
evaluation mechanisms and a resource mobilization strategy.

Industry Life-Cycle Theory

There are 5 stages of industry life-cycle and they are

1. Embryonic
2. Growth
3. Shakeout
4. Mature
5. Decline

In the developing country, Bangladesh, the IT industry is in the growing stage.

Company Analysis

BDCOM Online Ltd. was incorporated under the Companies Act. 1994 on 12th February, 1997
as a Private Limited Company. On December 12 2001, BDCOM was converted into a Public
Limited Company. At present authorized capital of Tk. 1,000,000,000.00 consisting of
100,000,000 ordinary shares of Tk. 10.00 each increased as on 29th June 2010. At present paid
up capital of the Company is Tk. 465,221,367.00 consisting of 46,522,136 ordinary shares of Tk.
10 each.

Products & Services

The major business lines of BDCOM are as follows:

1. Nationwide Internet and Data Connectivity

2. IP Telephony Service
3. Software Development
4. System Integration
5. Managed Services
6. Fleet Management & Tracking Solution
7. Hospitality Management & Hotspot Solution
8. Pre-Press BPO

8
9
Enterprise Risk Management
BDCOM Online Ltd. faces different type of risks due to the complexity of the business and the
nature of industry it operates in. BDCOM Online Ltd. faces mainly operational risk, credit risk,
liquidity risk, currency risk and interest rate risk. Some of the other risks which might affect the
company are competitor risk, strategic risks, etc. The IT sector of Bangladesh is very competitive
and there are new entrants in the market every day. Hence it is important for BDCOM Online
Ltd. to be aware of its competition. Strategic risk is defined as the risk associated with existing
strategy, future business plans and strategies, including plans on entering new business lines,
expanding existing services through organic business growth, mergers and acquisitions or
exposure loss resulting from a strategy that turned out to be defective or inappropriate.

Porter’s Five Forces of Competitive Edge

1. Competition in the industry: The IT sector of Bangladesh is very competitive. BDCOM is to

compete with many public and private company and private firms, such as Amara Networks Ltd,
Daffodil Computers Ltd, TigerIT Bangladesh Ltd, Datasoft Systems BD ltd, Southtech Group,
Brain Station 23 Limited, to run its business activity. So, BDCOM needs to more innovative in
its products and services to survive in this industry

2. Potential of new entrants into the industry: Everyday many new competitors are coming in the
IT industry with their new innovative ideas as sole proprietor or partnership firms. Many of them
are not able to survive in the long run, but some firm survive and make strong competition with
old existing company.

3. Power of suppliers: The suppliers of this sector have strong bargaining power. Most of the
machineries of information technology, computers and accessories are imported. BDCOM is to
take rent sever space; buy bandwidths which are generally trade at fixed rate.

4. Power of customers: IT industry is specially a customer oriented industry. The success of this
industry largely depends on ability fulfilling consumers’ needs and making them satisfied.

5. Threat of substitute products: Actually, the products and services BDCOM offers are identical
to the products and services offered by its competitors. Customers and consumers actually value
the effectiveness and convenience of the products and services. So, any new innovative and more
convenient products and services can substitute the products and services that BDCOM offers.

Summary: The demand of IT services is at the top and gradually increasing day by day. On the
other hand competition is at the top. BDCOM needs to innovative to survive.

10
Generic Business Strategies
According to Michael Porter there are four Generic strategies:

1. Cost Leadership
2. Differentiation
3. Cost Focus
4. Differentiation Focus

BDCOM tries to differentiate its products and services from its competitors to provide more
effective and more convenient service to its customers.

Sources of Competitive Advantage

1. Innovation
2. Domain Expertise Service
3. Skilled and Efficient Workforce
4. International Standard Quality
5. Policy Effective Communication
6. Long Service Experience
7. Portfolio Quality Service & Customer Satisfaction

VRIN Model

VRIN Model is the tool used to analyze firm’s internal resources and capabilities to find out if
they can be a source of sustained competitive advantage. I think, the result of VRIN Model in the
case of BDCOM will be its skilled workforce who helps to earn customer satisfaction though
standard quality services and new innovations.

Ansoff Matrix

BDCOM is now following introducing new products in the existing market.

11
BCG Matrix

BDCOM Online Ltd is one of the major public companies in IT industry of Bangladesh. Its
average growth rate is now above 4%. So, BDCOM Online Ltd is a star.

SWOT Analysis
Strength Opportunity
1. Innovation 1. Introduce new products and
2. Domain Expertise Service services
3. Skilled and Efficient Workforce 2. Enter into new market
4. International Standard Quality
[Link] Service Experience
6. Portfolio Quality Service &
Customer Satisfaction
Weakness Threat
1. Identical products and services 1. Threat of product substitution
2. Threat of new strong competitors

12
Estimated Financial Statements and Other
Assumptions & Calculations

13
Here is the Statement of Profit or Loss of BDCOM Online Ltd. from 2014-15 to 2018-19:

BDCOM Online Ltd.

Statement of Profit or Loss
      Figures in Thousand Taka
Particulars 2014-15 2015-16 2016-17 2017-18 2018-19
Revenue 361,553 444,680 520,959 534,744 602,099
Less: Cost of sales & services 146,280 184,274 229,888 238,126 258,383
Gross profit 215,273 260,406 291,071 296,618 343,716
Less: Operating expense 155,342 193,069 206,222 214,797 248,818
Operating profit 59,931 67,337 84,849 81,821 94,898
Plus: Other income 89 155 233 880 194
Plus: Interest income 15,400 18,783 15,866 18,831 31,261
Less: Interest expense 860 1,955 2,189 1,630 2,480
Less: Other expense 1,206 - 8,778 - 7,626
Less: Contribution to WPPF 3,668 4,216 4,284 4,757 5,535
EBT 69,686 80,104 85,697 95,145 110,712
Less: Tax 9,903 13,019 21,404 15,419 26,863
Net income 59,783 67,085 64,293 79,726 83,849
Less: Cash Dividend 26,838 20,207 22,153 32,565 29,308
Less; Stock Dividend 30,672 28,985 22,153 23,261 29,308
Transfer to the reserve 2,273 17,893 19,987 23,900 25,233
           
Depreciation 36,448 41,532 47,430 46,520 48,888

14
The Balance Sheet of BDCOM Online Ltd. from 2014-15 to 2018-19 is given below:

BDCOM Online Ltd.

Balance Sheet
Figure in Thousand Taka
Particulars 2014-15 2015-16 2016-17 2017-18 2018-19
PPE 296,125 346,362 343,922 345,868 361,786
Investment - - - - -
Other fixed asset 5,107 4,193 3,850 3,926 28,923
Total fixed asset 301,232 350,555 347,772 349,794 390,709
Inventory 23,404 15,381 15,819 14,389 19,766
Accounts receivable 95,559 95,284 147,810 163,108 171,631
Advance and prepayment 11,459 17,243 12,903 15,003 17,564
Advance Income Tax & VAT 18,886 20,963 26,620 24,046 39,741
Investment in Shares(at Market Value)4,121 6,677 48,809 11,345 8,117
Investment in FDR 195,966 241,532 223,350 306,929 305,804
Cash and Cash Equivalents 19,201 18,855 40,098 32,571 43,571
Total current asset 368,596 415,935 515,409 567,391 606,194
Total asset 669,828 766,490 863,181 917,185 996,903

Share capital 383,409 414,082 443,068 465,221 488,482

Reserve & Surplus 202,484 209,306 234,233 258,387 289,680
Total equity 585,893 623,388 677,301 723,608 778,162
Long-term loan 6,965
Deferred Tax Liabilities 3,800 4,628 10,935 13,156 14,442
Total long-term liability 3,800 4,628 10,935 13,156 21,407
Short-term loan 12,894 27,229 13,209 26,070 28,493
Current portion of LTD 2,753
Accounts payable 44,506 74,155 105,235 98,818 103,488
Accrued expenses 2,283 1,821 11,781 9,472 10,446
Other liabilities 11,120 19,348 20,272 18,204 26,214
Provision for Income Tax 9,332 12,191 14,491 12,994 25,940
Provision for Bad & Doubtful Debts 3,730 9,957 14,863
Total current liability 80,135 138,474 174,945 180,421 197,334
Total liabilities 83,935 143,102 185,880 193,577 218,741
Total equity & liabilities 669,828 766,490 863,181 917,185 996,903

Number of outstanding shares 38,340,946 41,404,221 44,306,796 46,522,136 48,848,243

15
Some calculations based on previous data:
Figure in Thousand Taka
Particulars 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Sales growth rate 0.23 0.17 0.03 0.13
Average sales growth rate 0.14 0.14 0.14 0.14 0.14 0.14
COGS in proportion to sales 0.40 0.41 0.44 0.45 0.43
Average proportion 0.43 0.43 0.43 0.43 0.43 0.43
Operating expense in proportion to sales 0.43 0.43 0.40 0.40 0.41
Average proportion 0.41 0.41 0.41 0.41 0.41 0.41
Growth rate of other income 0.74 0.50 2.78 (0.78)
Average proportion 0.81 0.81 0.81 0.81 0.81 0.81
Growth rate of interest income 0.22 (0.16) 0.19 0.66
Average proportion 0.23 0.23 0.23 0.23 0.23 0.23
Total loan 12,894 27,229 13,209 26,070 38,211 44,320 59,869 72,773 85,107 94,076
Average loan 20,062 20,219 19,640 32,141 41,265 52,094 66,321 78,940 89,592
Interest rate 0.10 0.11 0.08 0.08
Average interest rate 0.09 0.09 0.09 0.09 0.09 0.09
Average proportion of other expense 3,522 3,522 3,522 3,522 3,522 3,522

Short-term loan in proportion to sales 0.04 0.06 0.03 0.05 0.05

Average proportion 0.04 0.04 0.04 0.04 0.04 0.04
Growth rate of PPE 0.17 (0.01) 0.01 0.05
Average growth rate 0.05 0.05 0.05 0.05 0.05 0.05
Proportion of contribution to WPPF to sales 0.01 0.01 0.01 0.01 0.01
Average 0.01 0.01 0.01 0.01 0.01 0.01
Tax rate 0.14 0.16 0.25 0.16 0.24
Average 0.19 0.19 0.19 0.19 0.19 0.19
Dividend payout ratio 0.96 0.73 0.69 0.70 0.70
Average dividend payout ratio 0.76 0.76 0.76 0.76 0.76 0.76
Depreciation rate 0.12 0.12 0.14 0.13 0.14
Average 0.13 0.13 0.13 0.13 0.13 0.13
Growth rate of other fixed asset 0.16 (0.01) 0.01 0.12
Normalized growth rate 0.07 0.07 0.07 0.07 0.07 0.07
Inventory in proportion to sales 0.06 0.03 0.03 0.03 0.03
Average proportion 0.04 0.04 0.04 0.04 0.04 0.04
Accounts receivable in proportion to sales 0.26 0.21 0.28 0.31 0.29
Average proportion 0.27 0.27 0.27 0.27 0.27 0.27
Advance & prepayment in proportion to sales 0.03 0.04 0.02 0.03 0.03
Average proportion 0.03 0.03 0.03 0.03 0.03 0.03
Advance Income Tax & VAT in proportion to sales 0.05 0.05 0.05 0.04 0.07
Average proportion 0.05 0.05 0.05 0.05 0.05 0.05
Growth rate of Investment in Shares 0.62 6.31 (0.77) (0.28)
Average Growth 1.47 1.47 1.47 1.47 1.47 1.47
Growth of Investment in FDR 0.23 (0.08) 0.37 (0.00)
Average growth 0.13 0.13 0.13 0.13 0.13 0.13
Growth rate of deferred Tax Liabilities 0.22 1.36 0.20 0.10
Average growth rate 0.47 0.47 0.47 0.47 0.47 0.47
Accounts payable in proportion to sales 0.12 0.17 0.20 0.18 0.17
Average proportion 0.17 0.17 0.17 0.17 0.17 0.17
Accrued expenses in proportion to sales 0.01 0.00 0.02 0.02 0.02
Average proportion 0.01 0.01 0.01 0.01 0.01 0.01
Other liabilities in proportion to sales 0.03 0.04 0.04 0.03 0.04
Average proportion 0.04 0.04 0.04 0.04 0.04 0.04
Provision for Income Tax in proportion to sales 0.03 0.03 0.03 0.02 0.04
Average proportion 0.03 0.03 0.03 0.03 0.03 0.03
Provision for Bad & Doubtful Debts in proportion to - 0.01 0.02 0.03 -
Average proportion 0.01 0.01 0.01 0.01 0.01 0.01

Here, I, actually, calculated some average value, such as average growth rate of items and items
proportion to sales, to forecast the financial result of future years for BDCOM Online Ltd.

16
Here I make some assumption to do further analysis and valuation:

1. Perpetual growth rate is 3.45%. I have calculated the growth rate using the following formula:
Growth = ( Dividend/Net income) *(EBIT(1- tax rate))/Total Capital

2. Increase in PPE will be financed by long-term loan.

3. Current long-term loan will be repaid in next 2 years.

4. New long term loan will be repaid equally within 5 years after loan taken.

5. Risk-free rate is 7.71%, average of last 10 years.

BDCOM Online Ltd. is in its growth stage. So, some average growth rate based on the previous
data might be improper for future forecast. Also, these are not part of operating income or
expense. Assumptions 6-10 cover these items:

6. Growth rate of other income is 10%

7. Growth rate of interest income 12%

8. Growth of other expense 5%

9. Growth rate of Current Investment in shares 15%

10. Growth rate of FDR 5%

11. Dividend growth rate for next 5 years is 7%. Since, BDCOM Online Ltd. pays stock
dividend, the cash dividend growth rate will be relatively low.

12. Terminal Dividend growth rate after 5 years is 3%. Since, the calculated perpetual growth
rate of the company is 3.45%, terminal dividend growth will be close to it.

13. Stock Dividend has no growth. Now, its earning rate is quite good and will able to pay cash
dividend in future.
14. Stock Dividend payment will stop after 3 years. BDCOM Online Ltd. has already paid a lot
of stock dividend after starting their operation. After 3 years, they will need less amount of
retention and also cash dividend rate will be higher.

17
Beta Calculation

BDCOM DSEX
Date BDCOM DSEX return % return %

27/06/2019 25.24 5,430.05 (0.10) 0.01

30/05/2019 28.00 5,377.75 (0.01) 0.03

30/04/2019 28.37 5,202.85 0.03 (0.05)

28/03/2019 27.64 5,505.50 (0.08) (0.04)

27/02/2019 30.09 5,711.83 0.00 (0.02)

31/01/2019 30.00 5,821.01 (0.02) 0.08

27/12/2018 30.71 5,385.64 0.16 0.02

29/11/2018 26.55 5,281.25 0.13 (0.00)

31/10/2018 23.55 5,284.13 0.02 (0.02)

30/09/2018 23.14 5,368.96 (0.08) (0.04)

30/08/2018 25.10 5,600.64 0.00 0.06

31/07/2018 25.07 5,302.64 (0.01) (0.02)

28/06/2018 25.28 5,405.46 0.04 0.01

31/05/2018 24.42 5,343.88 (0.05) (0.07)

30/04/2018 25.74 5,739.23 (0.07) 0.03

29/03/2018 27.70 5,597.44 0.07 (0.04)

28/02/2018 25.94 5,804.94 0.04 (0.04)

31/01/2018 25.02 6,039.78 0.03 (0.03)

BDCOM DSEX
Date BDCOM DSEX return % return %
28/12/2017 24.35 6,244.52

18
 (0.03) (0.01)

30/11/2017 25.12 6,306.86 0.03 0.05

31/10/2017 24.29 6,019.59 (0.25) (0.01)

28/09/2017 32.55 6,092.84 (0.12) 0.01

31/08/2017 36.92 6,006.43 (0.03) 0.02

31/07/2017 38.10 5,860.64 0.06 0.04

29/06/2017 35.87 5,656.04 (0.07) 0.05

31/05/2017 38.68 5,403.11 0.16 (0.01)

30/04/2017 33.48 5,475.55 0.26 (0.04)

30/03/2017 26.47 5,719.61 0.20 0.02

28/02/2017 22.06 5,612.69 0.02 0.03

31/01/2017 21.71 5,468.34 (0.02) 0.09

29/12/2016 22.20 5,036.05 (0.01) 0.05

30/11/2016 22.46 4,801.24 0.11 0.05

31/10/2016 20.23 4,592.17 (0.04) (0.02)

29/09/2016 21.05 4,695.18 0.01 0.04

31/08/2016 20.85 4,526.57 0.06 0.00

31/07/2016 19.61 4,525.34 0.03 0.00

30/06/2016 19.11 4,507.58 0.07 0.02

BDCOM DSEX
Date BDCOM DSEX return % return %

31/05/2016 17.93 4,419.39 (0.01) 0.05

28/04/2016 18.14 4,195.69 0.01 (0.04)

19
31/03/2016 17.93 4,357.53 (0.03) (0.03)

29/02/2016 18.49 4,511.96 (0.04) (0.01)

31/01/2016 19.31 4,540.89 (0.04) (0.01)

30/12/2015 20.18 4,604.91 0.09 0.01

30/11/2015 18.47 4,580.99 0.03 0.00

29/10/2015 17.99 4,564.48 (0.02) (0.06)

30/09/2015 18.33 4,852.08 (0.05) 0.02

31/08/2015 19.31 4,768.66 (0.01) (0.00)

30/07/2015 19.56 4,792.30 0.02 0.05

30/06/2015 19.09 4,583.10 (0.01) (0.00)

31/05/2015 19.22 4,586.95 (0.03) 0.13

30/04/2015 19.83 4,047.28 0.13 (0.11)

31/03/2015 17.55 4,530.48 (0.03) (0.05)

26/02/2015 18.08 4,763.21 (0.07) 0.01

29/01/2015 19.34 4,724.04 0.08 (0.03)

31/12/2014 17.92 4,864.96 (0.00) 0.02

30/11/2014 17.96 4,769.42 0.06 (0.08)

BDCOM DSEX
Date BDCOM DSEX return % return %

30/10/2014 16.95 5,173.23 0.01 0.02

30/09/2014 16.83 5,074.30 0.04 0.12

31/08/2014 16.15 4,549.51 (0.01) 0.03

31/07/2014 16.25 4,427.15

20
 0.12 (0.01)
30/06/2014 14.49 4,480.52    
         
Covariance -0.000369      
Variance of market
return 0.001963      
Beta -0.187874      
Market return 0.004163      
Market return -yearly 0.049956      

21
Here is the forecasted Statement of Profit or Loss of BDCOM Online Ltd. from 2019-20 to
2023-24:

BDCOM Online Ltd.

Proforma Statement of Profit or Loss
Figure in Thousand Taka
Particulars 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Revenue 361,553.00 411,616.49 468,612.16 533,499.90 607,372.52 691,474.11
Less: Cost of sales & services 146,280.00 175,736.27 200,070.10 227,773.39 259,312.69 295,219.18
Gross profit 215,273.00 235,880.22 268,542.06 305,726.51 348,059.82 396,254.94
Less: Operating expense 155,342.00 170,788.81 194,437.57 221,360.94 252,012.32 286,907.94
Operating profit 59,931.00 65,091.41 74,104.48 84,365.58 96,047.50 109,347.00
Plus: Other income 89.00 97.90 107.69 118.46 130.30 143.34
Plus: Interest income 15,400.00 18,908.64 23,216.66 28,506.20 35,000.87 42,975.25
Less: Interest expense 860.00 3,774.46 4,764.97 6,066.27 7,220.52 8,194.78
Less: Other expense 1,206.00 1,266.30 1,329.62 1,396.10 1,465.90 1,539.20
Less: Contribution to WPPF 3,668.00 4,175.90 4,442.90 4,387.13 5,403.09 6,356.61
EBT 69,686.00 74,881.29 86,891.35 101,140.74 117,089.17 136,375.00
Less: Tax 9,903.00 14,363.66 16,667.42 19,400.72 22,459.93 26,159.32
Net income 59,783.00 60,517.63 70,223.93 81,740.02 94,629.23 110,215.67
Less: Cash Dividend @5% 26,838.00 33,329.69 37,445.90 42,471.14 48,170.77 51,542.72
Less; Stock Dividend 30,672.00 25,957.70 32,706.70 34,669.10 - -
Transfer to the reserve 2,273.00 1,230.25 71.33 4,599.77 46,458.46 58,672.95

22
Here is the forecasted Balance Sheet of BDCOM Online Ltd. from 2019-20 to 2023-24:
BDCOM Online Ltd.
Proforma Balance Sheet
Figures in Thousand Taka
Particulars 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
PPE 361,786.00 381,167.32 401,586.92 423,100.42 445,766.43 469,646.68
Investment - - - - - -
Other fixed asset 28,923.00 30,937.35 33,092.00 35,396.71 37,861.93 40,498.84
Total fixed asset 390,709.00 412,104.67 434,678.92 458,497.13 483,628.36 510,145.52
Inventory 19,766.00 15,593.90 17,753.15 20,211.39 23,010.02 26,196.17
Accounts receivable 171,631.00 111,332.29 126,748.23 144,298.80 164,279.55 187,026.99
Advance and prepayment 17,564.00 12,551.46 14,289.44 16,268.07 18,520.67 21,085.19
Advance Income Tax & VAT 39,741.00 21,523.18 24,503.45 27,896.39 31,759.15 36,156.77
Investment in Shares(at Market Value) 8,117.00 9,334.55 10,734.73 12,344.94 14,196.68 16,326.19
Investment in FDR 305,804.00 336,384.40 370,022.84 407,025.12 447,727.64 492,500.40
Cash and Cash Equivalents 43,571.00 64,728.66 51,335.13 45,436.92 83,285.32 98,419.60
Total curent asset 606,194.00 571,448.44 615,386.97 673,481.64 782,779.03 877,711.31
Total asset 996,903.00 983,553.11 1,050,065.89 1,131,978.77 1,266,407.39 1,387,856.83
-
Share capital 488,482.00 519,154.00 545,111.70 577,818.40 612,487.51 612,487.51
Reserve & Surplus 289,680.00 290,910.25 290,981.58 295,581.34 342,039.81 400,712.76
Total equity 778,162.00 810,064.25 836,093.28 873,399.75 954,527.31 1,013,200.26
Long-term loan 6,965.00 18,987.56 27,964.47 35,920.35 40,002.49 39,995.43
Deferred Tax Liabilities 14,442.00 21,235.32 31,224.13 45,911.54 67,507.70 99,262.41
Total long-term liability 21,407.00 40,222.88 59,188.60 81,831.88 107,510.18 139,257.84
Short-term loan 28,493.00 17,973.30 20,462.03 23,295.37 26,521.03 30,193.34
Current portion of LTD 2,753.00 7,358.76 11,442.68 13,557.63 18,583.87 23,887.30
Accounts payable 103,488.00 69,854.06 79,526.60 90,538.48 103,075.16 117,347.76
Accrued expenses 10,446.00 5,605.07 6,381.19 7,264.78 8,270.72 9,415.94
Other liabilities 26,214.00 15,703.92 17,878.41 20,354.00 23,172.37 26,381.00
Provision for Income Tax 25,940.00 12,218.77 13,910.68 15,836.86 18,029.76 20,526.30
Provision for Bad & Doubtful Debts - 4,552.11 5,182.43 5,900.03 6,716.99 7,647.08
Total current liability 197,334.00 133,265.99 154,784.02 176,747.14 204,369.89 235,398.72
Total liabilities 218,741.00 173,488.87 213,972.62 258,579.02 311,880.07 374,656.56
Total equity & liabilities 996,903.00 983,553.11 1,050,065.89 1,131,978.77 1,266,407.39 1,387,856.83

23
Here I have calculated WACC and growth rate of BDCOM:

Risk-free rate 7.71%

Market return 0.05
Beta (0.19)
Cost of equity 0.08
Cost of debt 0.09
After tax cost of debt 0.07

Total market value of equity 1,232,929,653.32

Book value of debt 38,211,000.00
Weight of equity 0.97
Weight of debt 0.03

WACC 0.08
Years 2019-20 2020-21 2021-22 2022-23 2023-24
Growth 0.03 0.03 0.03 0.04 0.04
Average growth 0.03

Calculation of Net Working Capital:

Figure in Thousand Taka

Particulars 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Inventory 19,766.00 15,593.90 17,753.15 20,211.39 23,010.02 26,196.17
Accounts receivable 171,631.00 111,332.29 126,748.23 144,298.80 164,279.55 187,026.99
Advance and prepayment 17,564.00 12,551.46 14,289.44 16,268.07 18,520.67 21,085.19
Advance Income Tax & VAT 39,741.00 21,523.18 24,503.45 27,896.39 31,759.15 36,156.77
Investment in Shares(at Market Value) 8,117.00 9,334.55 10,734.73 12,344.94 14,196.68 16,326.19
Investment in FDR 305,804.00 336,384.40 370,022.84 407,025.12 447,727.64 492,500.40
Non-cash current asset 562,623.00 506,719.78 564,051.84 628,044.71 699,493.71 779,291.71

Accounts payable 103,488.00 69,854.06 79,526.60 90,538.48 103,075.16 117,347.76

Accrued expenses 10,446.00 5,605.07 6,381.19 7,264.78 8,270.72 9,415.94
Other liabilities 26,214.00 15,703.92 17,878.41 20,354.00 23,172.37 26,381.00
Non- STD Current liabilities 140,148.00 91,163.04 103,786.20 118,157.26 134,518.24 153,144.70

Working capital 422,475.00 415,556.73 460,265.64 509,887.46 564,975.46 626,147.00

Change in WC (6,918.27) 44,708.91 49,621.81 55,088.01 61,171.54

24
 Free Cash-Flow of
BDCOM Online Ltd.

25
Here is the Free Cash-flow calculation of BDCOM Online Ltd:

Figures in Thousand Taka

Particulars 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25
EBIT 74,881.29 86,891.35 101,140.74 117,089.17 136,375.00
EBIT (1-tax rate) 60,517.63 70,223.93 81,740.02 94,629.23 110,215.67
Depreciation 49,592.41 52,249.14 55,048.19 57,997.19 61,104.17
Capital expenditure (19,381.32) (20,419.60) (21,513.50) (22,666.01) (23,880.25)
Change in NWC 6,918.27 (44,708.91) (49,621.81) (55,088.01) (61,171.54)
Free cashflow 172,528.29 144,235.90 166,793.63 191,961.57 222,643.04 230,324.65

Present value discount factor 1.081920507 1.17055198 1.2664442 1.37019195 1.48243877

Present value of free cashflow 159464.8471 123220.418 131702.311 140098.307 150187.008
Terminal value 3276534.57
Figures in Taka
Enterprise value 3,981,207,459.50
Cash 43,571,000.00
Interest-bearing debt 38,211,000.00
Equity value 3,986,567,459.50
Value per share 81.61

So, according to Free Cash-flow Valuation Method, the share value of BDCOM Online Ltd is
81.61 BDT.

26
Dividend Discount Model

27
Here is the Dividend Discount Model of BDCOM Online Ltd:

Figures in Thousand Taka

Particulars 2019-20 2020-21 2021-22 2022-23 2023-24
Cash Dividend 33,329.69 37,445.90 42,471.14 48,170.77 51,542.72
Stock Dividend 25,957.70 32,706.70 34,669.10 - -
Total Dividend 59,287.39 70,152.61 77,140.25 48,170.77 51,542.72
PV factor 1.08 1.17 1.27 1.37 1.48
PV 64,144.24 82,117.27 97,693.82 66,003.20 76,408.93
Terminal Value 1,022,505.54
Figures in Taka
PV of Dividend 386,367,464.94
PV of Terminal value 1,515,801,852.59
PV of share capital 1,902,169,317.53
PV of share price 38.94

So, according the Dividend Discount Model, the share value of BDCOM Online Ltd is 38.94
BDT.

28
Relative Valuation

29
Here I have done Relative Valuation of BDCOM Online Ltd. with another company, Daffodil
Computers Ltd which has similar business line compared to BDCOM Online Ltd. The result of
relative valuation is given below:

Figures in Taka
BDCOM Online Ltd 2014-15 2015-16 2016-17 2017-18 2018-19
EPS 1.56 1.62 1.45 1.71 1.72
Book value/Share 15.28 15.06 15.29 15.55 15.93
Operating Cash flow/ share 2.21 3.35 2.39 1.66 1.36
Sales/Share 9.43 10.74 11.76 11.49 12.33
Price 20.18 22.20 24.35 30.71 20.23

Daffodil Computers Ltd 2014-15 2015-16 2016-17 2017-18 2018-19

EPS 0.93 1.56 2.17 2.18 1.47
Book value/Share 12.65 13.01 14.06 13.68 13.84
Operating Cash flow/ share 0.36 0.34 1.22 3.36 2.22
Sales/Share 6.98 7.83 10.12 10.53 12.05
Price 19.00 43.00 43.40 43.60 63.30
Share amount 49,912,262 49,912,262 49,912,262 49,912,262 49,912,262

Relative Valuation- P/E ratio 2014-15 2015-16 2016-17 2017-18 2018-19

BDCOM Online Ltd 12.94 13.70 16.78 17.92 11.79
Daffodil Computers Ltd 20.43 27.56 20.00 20.00 43.06

Relative Valuation- P/BV ratio 2014-15 2015-16 2016-17 2017-18 2018-19

BDCOM Online Ltd 1.32 1.47 1.59 1.97 1.27
Daffodil Computers Ltd 1.50 3.31 3.09 3.19 4.57

Relative Valuation- P/CF ratio 2014-15 2015-16 2016-17 2017-18 2018-19

BDCOM Online Ltd 9.13 6.63 10.19 18.50 14.88
Daffodil Computers Ltd 52.78 126.47 35.57 12.98 28.51

Relative Valuation- P/s ratio 2014-15 2015-16 2016-17 2017-18 2018-19

BDCOM Online Ltd 2.14 2.07 2.07 2.67 1.64
Daffodil Computers Ltd 2.72 5.49 4.29 4.14 5.25

30
Opinion
According to Free Cash-flow Valuation Method, the share value of BDCOM Online Ltd is 81.61
BDT. On the other hand, according the Dividend Discount Model, the share value of BDCOM
Online Ltd is 38.94 BDT. But, on 11 February, 2020 trading price of BDCOM Online Ltd. is
19.50 BDT. So, as an investor, I will include the share of BDCOM Online Ltd. in my portfolio, if
my portfolio requires some negative market beta securities.

31
References
1. Annual Reports of BDCOM Online Ltd.

Link- [Link]

2. Dhaka Stock Exchange Data Archive

Link - [Link]

3. Global Economic Prospects, January 2020; A World Bank Group Flagship Report

Link - [Link]
economic-prospects-slow-growth-policy-challenges

4. Website of [Link]( archived historical data of DSEX and month end price of BDCOM)

Link - [Link]

[Link]

32