Stock Valuation on IDX-Listed Retail Companies Using DCF with FCFF and Relative Valuation (2021-2025 Projection)

Abstract

IntroductionThe development in the business world will result in high competition between companies. This situation requires every company to constantly improve and develop its business to meet its objectives and ensure its survival.According to , a company will attract or retain its investors by realizing the company's value that will cause investors to expect a high return on their investment or the value of their stocks in accordance with risk compensation that considers the time value of money invested in the company's stock so that stock performance drop will affect the value of the stock that has been purchased. Damodaran(1995) states valuation is a fundamental analysis by discounting cash flows or using predetermined ratios to analyze the intrinsic value of stocks. Fundamental analysis with valuation consists of four methods, which are Discounted Cash Flow (DCF), Relative Valuation (RV), Contingent Valuation, and Assets Based. In addition, DCF consists of Free Cash Flow to Equity (FCFE), Free Cash Flow to Firm (FCFF), and Dividend Discounted Model.This study employs Discounted Cash Flow and Relative Valuation. FCFF method was also adopted to project future growth potential. FCFF will be accurate if the assumption and the projection are conducted properly. Therefore, three scenarios of assumptions and projections were adopted, which are optimistic, moderate, and pessimistic (Miala & Kristanti, 2019).The retail industry in Indonesia is growing, proven by the opening of retail stores in various places. Retail is a popular industrial sector and has influenced many Indonesians for generations. For example, grocery stores have been spread widely nearly in every region in Indonesia, including in remote villages and major cities. With the population growth, this industry develops at a rapid pace. Since the introduction of modern retail in Indonesia, such as Indomaret, Alfamart, Carrefour, and Hypermart, this industry has grown in popularity (Nurviani, 2013).There are currently 26 companies listed in the Indonesia Stock Exchange (IDX) retail sub-sector, which is in the trade, services, and investment sector. Three of them have the greatest capitalization value, which are PT Sumber Alfaria Trijaya (Persero) Tbk (AMRT), PT Ace Hardware Indonesia (Persero) Tbk (ACES), and PT MitraAdiperkasa (Persero) Tbk (MAPI). The following chart shows the stock price movements of retail companies in 2016-2020.

Comprehensive Analysis of Indonesian Retail Stocks Valuation in 2023

“…Prior research indicated that the intrinsic value of AMRT, which rose to Rp 8,473.99 under the optimistic scenario, was excessively high. (Julia & Hendrawan, 2021) Because AMRT's intrinsic value of 4.32 percent is lower than the industry average of 4.90, it is seen as an undervalued company in the Value Book Valuation (PBV) and Value Ratio (RV) techniques. However, given that it is above the industry avera ge, AMRT stock is viewed as being overly costly under a reasonable and optimistic situation.…”

“…The basic study of businesses, especially publicly traded ones, is the basis of intrinsic value. (Julia & Hendrawan, 2021) (Damodaran, 2012) (Jeffrey C. Hookie, 1998).…”