Valuing & Pricing Financial Firm: Case of P.T. Bank Muamalat Indonesia,Tbk. Prior IPO Plan in 2023

Abstract

This research is focused on determining the intrinsic fair value of the P.T. Bank Muamalat Tbk (BMI/Bank) for pre-IPO initial offering price. The research begins with a banking industries analysis where the author will look for industry average ratios data. This analysis helps the author to summarize the company's internal & external position. Author differentiates the banking industries into two industries conventional bank and Islamic Sharia bank. Author will calculate the average ratios from the two industries, which is Commercial Conventional Bank (BUK) and Islamic commercial Bank & Islamic Business Unit (BUS & UUS), and will use them as multiples ratio. To determine the fair value of this research author uses two methods approach the relative and absolute valuation methods. On the Absolute valuation method, the author uses the Discounted Cash Flow (DCF) method with Free Cash Flow to Equity (FCFE) approach specifically for banks by looking at the regulatory capital with a projection of 5 years. While on the relative valuation method, the author uses three perspective approaches: earnings, book value, and revenue perspective. Multiples ratios representing the perspective are Price Earnings Ratio (PER), Price to Book Value (PBV), Price to Sales (P/S), and Price to Operating Profit (P/OPPS) approaches. To determine the Bank fair value author, differentiate the calculation involving negative earnings and see the effect of it. The data used in this research comes from historical data during the 2017 to 2022 period, also including the last quarter's performance in March 2023. The result of the relative valuation method of the three perspectives gives the result of an intrinsic fair price with a range of IDR 103.94 – IDR 168.18. Meanwhile as for absolute method, author use discounted cash flow method with free cash flow to equity for a financial firm, and it gives a result of intrinsic share price with a range IDR 152.84 – IDR 197.27. Thus, the average intrinsic fair price using the two valuation methods is IDR 149.54 – IDR 182.97. In the end, the result of this research is to find the real fair price based on academic study and could be used as a reference in the initial stock pricing pre-IPO plan of the Bank in 2023.