Valuation of W Holding (WHI)

I have constructed a model for valuation of the W Holding company, a Puerto Rican bank (ticker: WHI). They are likely to suffer a one time loss over one or more bad loans this year. This model will assume that they have a fixed return-on-assets (ROA) over the immediate future. It assumes a fixed leverage, Assets/Equity. They have preferred shares and so pay a fixed dividend to preferred share holders. They also pay a common dividend. I will assume that this common dividend is a fixed percentage of net earnings (prior to preferred payments, common dividend and one time loss). I assume that common shareholders compound their dividends in a money market account. The following tables show the constants, the key variables, the expected yearly data and finally the results which include a valuation. We discount this to the present to get a Net Present Value which we can compare to today's stock price. All dollar amounts and share counts are in Millions.

Enjoy.

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Fixed Constants

Name	Value	Description
NSHARES	164.897	Number of shares
ASSETS	17894.0	Beginning Assets
EQUITY	1147.00	Beginning Equity
PREF	36.9120	Annual preferred payments
LEVERAGE	15.6000	Leverage ratio, Assets/Equity
PREF_EQ	530.800	Preferred Equity
PRICE_NOW	2.11000	Today's Price per share
PE	10.0000	Price-to-earnings ratio for final valuation
PCB	1.50000	Price-to-common-book-value ratio for final valuation
DISC_RATE	0.100000	Discount rate to convert final value to present value

Variables

Name	Value	Description
ROA	0.00800000	Return on Assets
DIV_PAYR	0.200000	Dividend Payout Ratio, fraction of Net Income before one time loss and dividends
LOSS1	170.000	One time after tax loss due to this years bad loans
BB_EQ	50.0000	Equity used to buy back stock in first year
PRICE_BB	2.60000	Average stock price for buy-back

Per Year Data

Year	Earnings	E. Growth %	Dividend	Assets (end)	Equity	Com. Eq. /share	ROE	ROCE
2007	-26.8480	-126.848	28.6304	15671.9	1004.61	3.25271	-2.34071	-4.35703
2008	125.375	NA	25.0751	16660.8	1068.00	3.68787	12.4800	26.4611
2009	133.286	6.30974	26.6572	17748.3	1137.71	4.16648	12.4800	24.8114
2010	141.987	6.52782	28.3974	18944.5	1214.39	4.69287	12.4800	23.3949
2011	151.556	6.73962	30.3112	20260.1	1298.73	5.27181	12.4800	22.1706
2012	162.081	6.94444	32.4162	21707.1	1391.48	5.90856	12.4800	21.1063

Results

Description	Value
Final number of shares	145.666
Ending common equity per share	5.90856
Total dividends received per share	1.17726
Total dividends compounded per share	1.32790
Price based on PE = 10.0000	11.1269
Price based on PCB = 1.50000	8.86284
Final Value/share = Av. Price + Total comp. dividend	11.3228
Net Present Value (discounted at rate = 10.0000%)	7.03054

The key variable is ROA. I have assumed 0.8% in the example above which is quite conservative. The average ROA for W Holding since 1996 is 1.15%. The max was 1.147% (in 1997) and the min is 0.59% (in 2006). A more optimistic value for ROA would be 1% which would increase the Net Present Value to $9.5/share.

The main thing that I left out was share dilution from stock options which may be considerable. I would guess that there may be about 10 million shares created for management. This would lead to a dillution of 6%.

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