Valuation analysis of HSBC Bank Malta p.l.c. and Bank of Valletta p.l.c. securities using the free cash flow to equity technique

Abstract

This dissertation outlines the various methods which may be used in the valuation of companies and the main problems that one encounters when valuing a bank. The rationale behind this study is to identify the best valuation method and to determine whether the market prices of the shares of Bank of Valletta p.l.c. and HSBC Bank Malta p.l.c. are overvalued or undervalued when compared to the theoretical values. The results derived by using the Free Cash Flow to Equity Valuation approach which were then discounted by the capital asset pricing model suggest that the Bank of Valletta p.l.c. market price is lower than the estimated price while the shares of HSBC Bank Malta p.l.c are being traded at price higher than the estimated price. The results suggest that the local stock market may be prone to price inefficiencies.