COURSE PROJECT

ON
Stock Valuation & Option Pricing
Course Code: FIN 480
Section: 1
Submitted by:
Asifur Rahman Amit 1210454030
Anzir Jahan Bari 1211309030
Md. Asif Mahmud 1210407030
Sadi Mohammad Tarif 1421569020

Submitted to: Ms. Farhana Zahir

Submission Date: 28.03.2016
Table of Contents
Stock Selection for Call Option .............................................................................................. 2
Fundamental Analysis ............................................................................................................ 2
Technical Analysis ................................................................................................................. 3
Stock Profile ........................................................................................................................... 4
Price Volume Chart ................................................................................................................ 6
Regression Analysis .............................................................................................................. 7
Return Distribution ................................................................................................................ 7
Option Pricing Using Binomial Model .................................................................................. 8
Option Pricing Using Black Scholes Model ....................................................................... 10
Stock Selection for Put Option.............................................................................................. 11
Fundamental Analysis .......................................................................................................... 11
Technical Analysis ............................................................................................................... 12
Stock Profile ......................................................................................................................... 13
Price Volume Chart .............................................................................................................. 15
Regression Analysis ............................................................................................................ 15
Return Distribution .............................................................................................................. 16
Option Pricing Using Binomial Model ................................................................................ 16
Option Pricing Using Black Scholes Model ....................................................................... 18

1
Stock Selection for Call Option

We have selected Titas Gas Transmission & Dist. Co. Ltd. (TITASGAS) stock expected to go
up by 20% by the end of 2 years. We have done our fundamental and technical analysis to
support our hypothesis.

Fundamental Analysis

We have used market multiplier model to find the intrinsic value of TITASGAS.

Revenue
Fuel & Power PE ROA ROE
growth
BARKAPOWER( Baraka Power Limited ) 9.75 5.50% 11.29% 16.83%
MPETROLEUM( Meghna Petroleum Limited ) 7.4 10.81% 3.81% 27.08%
JAMUNAOIL( Jamuna Oil Company Limited ) 7.37 17.79% 6.19% 16.69%
KPCL( Khulna Power Company Limited ) 30.39 -27.67% 5.97% 10.84%
SPPCL( Summit Purbanchol Power Company Limited ) 9.67 2.72% 14.60% 17.35%
PADMAOIL( Padma Oil Co. ) 8.93 2.07% 24.83%
BDWELDING( Bd. Welding Electrodes ) 88.42 -19.31% 0.66% 1.09%
SUMITPOWER( Summit Power Limited ) 11.26 -1.34% 11.45% 16.38%
TITASGAS( Titas Gas Transmission & Dist. Co. Ltd. ) 4.72 5.61% 9.42% 16.11%
GBBPOWER( GBB Power Ltd. ) 10.84 11.01% 6.65% 7.04%
DESCO( Dhaka Electric Supply Company Ltd. ) 17.61 13.11% 4.42% 13.50%
UPGDCL( United Power Generation & Distribution
Company Ltd. ) 18.43 31.43% 20.59% 29.86%
POWERGRID( Power Grid Company of Bangladesh Ltd. ) 59.78 8.15% 0.35% 1.37%
SPCL( Shahjibazar Power Co. Ltd. ) 15.14 81.62% 9.55% 27.65%
CVOPRL( CVO Petrochemical Refinery Limited ) 30 415.90% 24.07% 66.54%
EASTRNLUB( Eastern Lubricants ) 235.46 6.89% 3.02% 6.39%
MJLBD( MJL Bangladesh Limited ) 19.64 1.88% 7.40% 13.37%
LINDEBD( Linde Bangladesh Limited ) 27.48 -1.77% 16.96% 24.49%
Average 18.03 2% 8.80% 18.75%

From the above chart of Fuel & Power industry we can see that TITASGAS is trading at a
lower P/E ratio than industry average but has a higher ROA and Revenue growth than industry
average. Therefore, we think it is cheaper compared to industry.

TITASGAS EPS = 8.98

Intrinsic Value = 161.87

Market Price of 23 March, 2016 = 41.8

2
So, the stock is undervalued by 74%.

Hence we should buy this stock.

Technical Analysis

To support our technical analysis, we have taken consider of RSI and William %R of
TITASGAS. As we have made our analysis on March 23,2016 we have noted an RSI of 33.57.

Source: Stock Bangladesh

And also which is showing an upward trend later on. That indicates that the stock is oversold.
A bullish failure swing forms when RSI moves below 30, rises back above 30 and pulls back
again, but holds above the 30 level. The failure swing is complete when the RSI breaks its
recent high; this breakout is interpreted as a bullish signal. So thats clearly supports our
hypothesis.
Also we have noted the William %R of -91.67 on March 23,2016. For William %R a reading
between -80 and -100 are noted as indicating oversold levels. Which also indicates that
TITASGAS is oversold and we may expect the stock price to go up hence we should buy this
stock.

3
Stock Profile

Basic Information
Company Name Titas Gas Transmission & Distribution Company Limited
Company Profile TITASGAS, the premier gas distribution company of Bangladesh,
transmits natural gas from the gas fields to different areas and to distribute
the same to the consumers in power, fertilizer, industrial, captive power,
commercial, seasonal and domestic categories of its franchise areas of
Greater Dhaka &Mymenshingh districts and Brahmanbaria district. Titas
gas transmits and distributes around 74% of countrys total consumption.
Presently, TITASGASs system is receiving gas from Titas, Habiganj,
Narsingdi&Bakhrabad Gas Fields under Bangladesh Gas Fields Co. Ltd.
and from Rashidpur, Kailashtila, Beanibazar Gas Fields under Sylhet Gas
Fields Co. Ltd. and Jalalabad Gas Field of Oxydental/Unicol. Revenue
for TITASGAS is as per the guidelines of the Gas Price Distribution Index
which is also used in determining margins for each customer category and
the parties involved in the gas supply chain. The Government of
Bangladesh retains a 55% margin from sales receipt from consumers
while the remaining 45% is distributed among the different parties
involved in the supply chain. The distribution margin that belongs to
TITASGAS ranges between 7.2% and 22.8% depending on the customer
category, averaging at 15% mostly.
Establishing Date 20-Nov-64
Financial Year End June

Auditor HodaVasi Chowdhury & Co

Owners Bangladesh Oil, Gas & Mineral Corporation (Petrobangla) ( 75.00 %)

Board Members
Md. Abubaker Siddique Chairman
Md. Nowshad Islam Managing Director & Director
Sajjadul Hassan Director

4
 Istiaque Ahmad Director
Mohammad Iqbal Director
KhandkerMaksudul Hassan Director

Liakat Ali Bhuiyan Director

Khan Moinul Islam Mustaq Independent Director

M. Rafiqul Islam Independent Director

Updated Company Contact Info

Titas Gas Transmission & Distribution Company Limited Titas Gas Bhaban, 105
KaziNazrul Islam Avenue, Kawran Bazar C/A, Dhaka-1215, BangladeshContact Person: Md.
Abdul Aziz KhanBranch phone: 02-8112135-42; 02-8150805; 02-9144381; 02-8112167-
68Fax: 880-2-8113031, 880-2-9120513

Key Financials (Last 5-Years)

Parameters Details
Revenue Growth 5-Year CAGR) 3.8%
Gross Profit Growth (5-Year CAGR) -2.6%
Net Profit Growth (5-Year CAGR) -0.6%

Basic Company Details

Parameters 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
No. of Shares 94211603 942116030 989221831 989221831 989,221,831
Face Value 100 10 10 10 10
Stock Price 80.26 74.92 82.16 76.60 70.04
Market Capitalization 7561197149 70586347739 81270508748 75778744831 69289053931
Dividend 30 35 35 38 15

Market Value Ratios 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

Earnings Per Share (EPS) 9.74 9.46 9.2 10.38 8.98
Book Value Per Share 29.98 38.39 46.26 53.13 58.36
Price-to-Earning (P/E) 8.24 7.92 8.93 7.38 7.8
Dividend Yield 3.74 4.2 4.26 4.96 2.14
Market-to-Book value (M/B) 2.677 1.952 1.776 1.442 1.200

5
 TITASGAS
Market Capitalization (BDT) 41844080000
Shareholders Equity (BDT) 57,733,455,330
Book Value Per Share (BDT) 58.362
Last Audited P/B Ratio (x) 0.73
Forward P/E 4.71
EPS (BDT) 8.983
Audited P/E (x) 11.940
Current Price 42.4
free float shares 25%
paid up capital 9,892,000,000.00

Price Volume Chart

Price Volume Chart

80.00 9000000

70.00 8000000

7000000
60.00

6000000
50.00

5000000

Volume
Price

40.00
4000000

30.00
3000000

20.00
2000000

10.00 1000000

0.00 0
9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016 2/1/2016
Volume Price

6
Regression Analysis

15.00%

10.00%

5.00%
DSE

0.00%
-2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%

T
-5.00%
I
T y = 1.6701x - 0.0032
A R = 0.1636
-10.00%
S
G
A
-15.00% S
DSE-TITASGAS Linear (DSE-TITASGAS)

Return Distribution

Return Distribution of Titas Gas

45

40

35

30

25

20

15

10

7
We have calculated the skewness and kurtosis of the return distribution of TITASGAS. The
skewness of TITASGAS is 0.07167 and kurtosis is 6.03711.
Skewness measures the degree of asymmetry of a distribution around its mean. Positive
skewness indicates a distribution with an asymmetric tail extending toward more positive
values. Negative skewness indicates a distribution with an asymmetric tail extending toward
more negative values. Kurtosis measures the degree to which a distribution is more or less
peaked than a normal distribution. Positive kurtosis indicates a relatively peaked distribution.
Negative kurtosis indicates a relatively flat distribution. A normal distribution has a kurtosis of
3. Therefore, an investment characterized by high kurtosis will have "fat tails" (higher
frequencies of outcomes) at the extreme negative and positive ends of the distribution curve.
A distribution of returns exhibiting high kurtosis tends to overestimate the probability of
achieving the mean return.
In order to be normally distributed, return distributions should have a skewness close to 0 and
kurtosis close to 3. Based on our data, the skewness of TITASGAS is 0.07167 and kurtosis is
6.03711; while the skewness of TITASGAS suggests normal distribution with an asymmetric
tail extending toward more positive values although it is very close to 1, kurtosis measurement
points away from normal distribution rather it indicates relatively peaked distribution.

Option Pricing Using Binomial Model

Current Market Price, S0 = 41.8 Taka (March 23, 2016 Closing Price)
Exercise Price, X = 50.16
Risk Free Rate, rf = 5.05% (Cut off yield of 2 Year T-Bond)
Time to Maturity, T = 2 Years
Probability of going up = 20%
Probability of going down = 20%
u = 1.20
d = 0.80
1+
Risk Neutral Probability of going up, = = 63%

Risk Neutral Probability of going down, 1 = 37%

8
 60.19

10.03

50.16

5.98

Stock Price: 41.8 40.13

Option Price: 3.57 0.00

33.44

0.00

26.75

0.00

9
Option Pricing Using Black Scholes Model

Current Market Price, S0 = 41.8 Taka (March 23, 2016 Closing Price)
Exercise Price, X = 50.16
Risk Free Rate, rf = 5.05% (Cut off yield of 2 Year T-Bond)
Time to Maturity, T = 2 Years
Annualized Standard Deviation, = 35.61%
Annualized Variance = 12.68%
Continuous Risk Free Rate, rc = 4.93%
2
ln + ( + 2 )
1 = = 0.085393

2 = 1 = 0.41817
N(d1) = 0.534026
N(d2) = 0.33791
Call Option Price, = 0 (1 ) (2 ) = 6.96
Put Option Price, = [1 (2 )] 0 [1 (1 )] = 10.62

10
Stock Selection for Put Option

We have selected Jamuna Oil Company Limited (JAMUNAOIL) stock expected to go down
by 20% by the end of 2 years. We have done our fundamental and technical analysis to support
our hypothesis.

Fundamental Analysis

We have used dividend discount model to find out the intrinsic value of JAMUNAOIL.

Year EPS Dividend Dividend EPS growth PE ratio

Payout

2008 11.36 4 35% 17.8

2009 9.32 4 43% -18% 21.63
2010 12.53 5 40% 34% 39.06
2011 18.79 6 32% 50% 17.9
2012 29.62 7.5 25% 58% 10.91
2013 21.81 10 46% -26% 11.56
2014 23.08 10 43% 6% 10.14
2015 20.4 10 49% -12% 9.64
Average 40% 13% 17.26

Here our EPS growth is 13%but it is only for 7 years. Thats why we have calculated the geometric
mean of the EPS growth and calculated 9%. For required rate of return we took a proxy of the market
cap of Dhaka Stock Market for 10 years and calculated the geometric mean of 24.95%. So, using
constant growth rate model,

D1 = 11.31

G = 9%

R = 24.95%

Intrinsic Value of the Share, V0 = 69.7

Market Price of 13 March, 2016 = 158.9

So, the stock is overvalued by 128%.

Hence we should sell this stock.

11
Technical Analysis

To support our technical analysis, we have taken consider of RSI, William %R and 1-year stock
price trend of JAMUNAOIL. As we have made our analysis on March 13,2016 we have noted
an RSI of 76.21.

Source: Stock Bangladesh

Which indicates that the stock is overbought. A bearish failure swing forms when RSI moves
above 70, pulls back below 70 and rises again, but holds below 70. The failure swing is
complete when RSI breaks its recent low; this breakout is interpreted as a bearish signal. And
after that day it is shoeing a downward trend. So thats clearly supports our hypothesis.
Also we have noted the William %R of -7.273 on March 13,2016. For William %R a reading
between 0 and -20 are considered to indicate overbought levels. Which also indicates that
JAMUNAOIL is overbought. Also the 1-year stock price trend of JAMUNAOIL is showing a
downward trend which also supports our hypothesis. So, we may expect the stock price to go
down hence we should sell this stock.

12
Stock Profile

Basic Information
Company Name Jamuna Oil Company Limited

Company Profile The prime activities of the company include the procurement, storage
and marketing of petroleum products, non-petroleum products and
lubricants products. The petroleum products include High Octane
Blending Component (HOBC), Motor Spirit (MS), Superior Kerosene
Oil (SKO), High Speed Diesel (HSD), Light Diesel Oil (LDO), Furnace
Oil (FO), and Jute Batching Oil (JBO). Non- petroleum products
include Liquefied Petroleum Gas (LPG) and Bitumen. JOCL is the
distributor of lubricants of Mobil Jamuna Lubricants Limited.
Establishing Date 12-Mar-75
Financial Year End June
Auditor Khan Wahab Shafique Rahman & Co

Hoda Vasi Chowdhury & Co

Owners Bangladesh Petroleum Corporation (BPC) (60.08 %)

Board Members
Md. Abu Bakar Siddique Chairman
A.M. Badruddoja Director
MR. MAMATAZ-ALA-SHAKOOR Director
AHMED
MR. MD ALAUDDIN Director
M. Rafiqul Islam Director
Md. Abdul Hakim Director
MR. K M HASSAN KABIR ARIF Director
MR. ALIM UDDIN AHMED Director
MR. MOZAMMEL HAQUE Director
BHUIYAN
Md. Nazmul Haque Company Secretary

Updated Company Contact Info

Jamuna Oil Company Limited Jamuna Oil Company Limited, Jamuna Bhaban,Agrabad
C/A,P.O Box-694. Chittagong,Bangladesh. Branch phone: 720181-3,2520134-9,2520408 Fax:
88-031-713289.

13
 Key Financials (Last 5-Years)
Parameters Details
Revenue Growth 5-Year CAGR) 13.5%
Gross Profit Growth (5-Year CAGR) 8.7%
Net Profit Growth (5-Year CAGR) 17.3%

Basic Company Details

Parameters 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015
No. of Shares (in lakh) 540 702 912.6 1,003.86 1104.25
Face Value (BDT) 100 10 10 10 10
Stock Price 336.34 323.15 252.12 234.03 196.66
Market Capitalization 18162414000 22685424840 23008799736 3493456043 21715738800
Dividend 60% 75% 100% 100% 100%

Market Value Ratios 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015

Earnings Per Share (EPS) 18.79 29.62 21.81 23.08 20.4
Book Value Per Share 49.25 69.81 72.05 118.53 136.74
Price-to-Earning (P/E) 17.9 10.91 11.56 10.14 9.64
Dividend Yield 1.16 1.81 3.93 4.23 5.09
Market-to-Book value (M/B) 6.829 4.629 3.499 1.974 1.438

JAMUNAOIL
Market Capitalization (BDT) 7,369,432,632.00
Shareholders Equity (BDT) 8,330,118,748
Book Value Per Share (BDT) 20.99
Last Audited P/B Ratio (x) 0.88
Forward P/E 7.96
EPS (BDT) 2.62
Audited P/E (x) 4.58
Current Price 202.7
free float shares 39.9
paid up capital 1,104,200,000.00

14
Price Volume Chart

Price Volume Chart

220.00 200000

180000
200.00
160000

180.00 140000

120000

Volume
Price

160.00
100000

140.00 80000

60000
120.00
40000

100.00 20000
9/1/2015 10/1/2015 11/1/2015 12/1/2015 1/1/2016 2/1/2016
Date

Volume Price

Regression Analysis

4.00%

2.00%

DSE
0.00%
-2.00% -1.50% -1.00% -0.50% 0.00% 0.50% 1.00% 1.50% 2.00%
-2.00%
J
A
-4.00% M
U
N
y = 1.0126x - 0.0022
-6.00% A
R = 0.1761
O
I
-8.00%
L

-10.00%

DSE-JAMUNAOIL Linear (DSE-JAMUNAOIL)

15
Return Distribution

Return Distribution of Jamuna Oil

35

30

25

20

15

10

We have calculated the skewness and kurtosis of the return distribution of JAMUNAOIL. The
skewness of JAMUNAOIL is -1.326 and kurtosis is 8.62598.
In order to be normally distributed, return distributions should have a skewness close to 0 and
kurtosis close to 3. Based on our data, both skewness and kurtosis deviate from 0 and 3
respectively for JAMUNAOIL; with skewness equal to -1.326 and kurtosis equal to 8.62598
for JAMUNAOIL. The negative skewness suggests normal distribution with an asymmetric
tail extending toward more negative values and the kurtosis measurement points away from
normal distribution rather it indicates relatively peaked distribution.

Option Pricing Using Binomial Model

Current Market Price, S0 = 158.9 Taka (March 13, 2016 Closing Price)
Exercise Price, X = 127.12
Risk Free Rate, rf = 5.05% (Cut off yield of 2 Year T-Bond)
Time to Maturity, T = 2 Years
Probability of going up = 20%
Probability of going down = 20%

16
 u = 1.20
d = 0.80
1+
Risk Neutral Probability of going up, = = 63%

Risk Neutral Probability of going down, 1 = 37%

228.82

0.00

190.68

0.00

Stock Price: 158.9 152.54

Option Price: 3.22 0.00

127.12

9.05

101.70

25.42

17
Option Pricing Using Black Scholes Model
Current Market Price, S0 = 158.9 Taka (March 13, 2016 Closing Price)
Exercise Price, X = 127.12
Risk Free Rate, rf = 5.05% (Cut off yield of 2 Year T-Bond)
Time to Maturity, T = 2 Years
Annualized Standard Deviation, = 20.81%
Annualized Variance = 4.33%
Continuous Risk Free Rate, rc = 4.93%
2
ln + ( + 2 )
1 = = 1.240203

2 = 1 = 0.945914
N(d1) = 0.89255
N(d2) = 0.827904
Call Option Price, = 0 (1 ) (2 ) = 46.46
Put Option Price, = [1 (2 )] 0 [1 (1 )] = 2.75

18