Summary:
A peer comparison indicates that Philip Morris CR shares are correctly valued compared both with a larger group of companies and with its parent company. However, we focus more on the intrinsic valuation as this takes future performance into account. We use the peer comparison only as a supporting methodology.
Given Philip Morris CR's stable dividend policy, we believe that a two-stage dividend-discount model provides the best valuation for investors. Based on a conservative projection of the income statement, assuming a stable dividend policy (a 100% pay-out), and using the net dividend, the dividend-discount model returns a target price of 19,040 CZK. The current market situation indicates that the stock is now trading 4.7% above our target price. We are therefore changing our long-term recommendation to SELL from Hold.
Since a dividend pay-out is just two months away, we expect dividend-oriented investors to still be attracted by a dividend yield that is currently expected to amount to 6.4%. But we also expect the price to fall by more than the dividend shortly after the ex-dividend day. It did just that in 2004 and the sector is currently on a downward trend. Based on these assumptions, we reiterate our short-term NEUTRAL outlook for the stock.
