Financial Report: Valuation of GlaxoSmithKline (GSK) - London & NYC

This report provides a comprehensive valuation analysis of GlaxoSmithKline (GSK), a company listed on both the London and New York Stock Exchanges. The report employs two primary valuation methodologies: Discounted Cash Flow (DCF) and relative valuation. The DCF method calculates the intrinsic value of GSK shares based on projected future cash flows, using an internal rate of return (IRR) to discount these flows to their present value. The report highlights key assumptions, such as a growth rate near GDP and a cost of equity, to arrive at an intrinsic value. The second method, relative valuation, compares GSK's financial worth to its industry peers, utilizing ratios like Price-to-Earnings (P/E) and other parameters such as Earning Per Share, Book Value Per Share, Sales Value per share, Free Cash Flow per share, and Enterprise Value to Earning Before Interest, Tax and Depreciation. The analysis considers comparable companies on the New York Stock Exchange. The report presents the valuation results derived from both methods, providing a detailed financial assessment of GSK's stock value. The report also includes a bibliography of sources used to support the analysis.

Report on Valuation of Galaxo Smith Kline Plc
Listed on London and New York Stock Exchange
Discounted Cash Flow Method
Discounted Cash Flow method is a tool used to analyze the whether the investment opportunity is
profitable or not. Through DCF prospects of future cash flow is done and discounted by using internal
rate of return (IRR) to arrive at the today’s value using future cash flow. If the present value is more than
the amount of investment than it is profitable to go with the opportunity but the present value of
investment is less than the cost of investment than it is not an attractive opportunity.
(www.investopedia.com)
DCF can be computed as:
DCF=(cashflow1 /(1+r)1)+( cashflow2 /(1+r)2)+……….. =(cashflowm /(1+r)m)
The intrinsic value of shares of Glaxo smith ranges about pound 14.72 which is near to the market value
of shares trading on London stock exchange. Further for the purpose of computation certain
assumptions were taken:
(a) Growth rate near GDP growth rate 1.5%.
(b) Cost of equity @8.3%
(c) No of shares outstanding 4.96b Billion;
(d) All the figures have been sourced from the link given here in below
https://simplywall.st/stocks/gb/pharmaceuticals-biotech/lse-gsk/glaxosmithkline shares/news/calculating-
the-fair-value-of-glaxosmithkline-plc-longsk/
Relative Valuation
Relative valuation method also known as business valuation method used to analyze the company’s
financial worth in comparison to its peer industry. It is an alternative way to assess the company
financial worth to absolute value model, which is an intrinsic value method through which future cash
flows are discounted at a required rate of return to arrive at the present value and comparing the same
with present cost of investment without any comparison to its peer competitor. Through both model
investor can analyze which stock will be a better investment opportunity. (Relative Valuation Model)
Relative valuation uses ratios, method of average to analyze the entity worth. Various relative valuation
ratios such as price as price to free cash flow, enterprise value, operating margin, popular ratio for
relative valuation is Price-to-earning (P/E) ratio. It is computed by stock price of firm/Earning
per share. A higher PE ratio indicates that it is overvalued and is trading at a higher price at the
stock market as compared to its competitor and a lower PE ratio indicates that the entity is
undervalued and trading at a very low price compared to its peers. For instance if the average
price earnings ratio is 9X and a particular entity in that industry is trading at 4X than it is
undervalued as compared to its peers.

On the basis of above and the comparable company considered on New York Stock Exchange
the valuation of the company comes to Dollar 43.71/-. The figure has been computed based on 5
parameters:
(a) Earning Per Share;
(b) Book Value Per Share;
(c) Sales Value per share;
(d) Free Cash Flow per share;
(e) Enterprise Value to Earning Before Interest, Tax and Depreciation.
On the basis of the above parameter, price has been computed and a simple average of all the
prices has been taken to compute the intrinsic value. The valuation is attached herewith as a part
of excel.
Bibliography
(n.d.). Retrieved August 3, 2018, from www.investopedia.com:
https://www.investopedia.com/terms/d/dcf.asp
Relative Valuation Model. (n.d.). Retrieved August 3, 2018, from www.investopedia.com:
https://www.investopedia.com/terms/r/relative-valuation-model.asp