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Yahoo
4 hours ago
- Business
- Yahoo
A Look At The Intrinsic Value Of MYR Group Inc. (NASDAQ:MYRG)
Using the 2 Stage Free Cash Flow to Equity, MYR Group fair value estimate is US$162 With US$169 share price, MYR Group appears to be trading close to its estimated fair value The US$171 analyst price target for MYRG is 5.7% more than our estimate of fair value Does the June share price for MYR Group Inc. (NASDAQ:MYRG) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the forecast future cash flows of the company and discounting them back to today's value. This will be done using the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF ($, Millions) US$80.6m US$96.3m US$108.2m US$118.4m US$127.4m US$135.2m US$142.2m US$148.7m US$154.7m US$160.4m Growth Rate Estimate Source Analyst x1 Analyst x1 Est @ 12.32% Est @ 9.51% Est @ 7.54% Est @ 6.16% Est @ 5.19% Est @ 4.52% Est @ 4.04% Est @ 3.71% Present Value ($, Millions) Discounted @ 7.6% US$74.9 US$83.1 US$86.7 US$88.2 US$88.1 US$86.9 US$84.9 US$82.4 US$79.7 US$76.8 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$832m After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.9%. We discount the terminal cash flows to today's value at a cost of equity of 7.6%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$160m× (1 + 2.9%) ÷ (7.6%– 2.9%) = US$3.5b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$3.5b÷ ( 1 + 7.6%)10= US$1.7b The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$2.5b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$169, the company appears around fair value at the time of writing. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at MYR Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.6%, which is based on a levered beta of 1.087. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. Check out our latest analysis for MYR Group Strength Debt is not viewed as a risk. Weakness Earnings declined over the past year. Expensive based on P/E ratio and estimated fair value. Opportunity Annual earnings are forecast to grow faster than the American market. Threat Annual revenue is forecast to grow slower than the American market. Valuation is only one side of the coin in terms of building your investment thesis, and it is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For MYR Group, we've put together three pertinent elements you should look at: Risks: We feel that you should assess the 1 warning sign for MYR Group we've flagged before making an investment in the company. Future Earnings: How does MYRG's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
19 hours ago
- Business
- Yahoo
Estimating The Intrinsic Value Of BLD Plantation Bhd. (KLSE:BLDPLNT)
The projected fair value for BLD Plantation Bhd is RM10.68 based on 2 Stage Free Cash Flow to Equity BLD Plantation Bhd's RM10.76 share price indicates it is trading at similar levels as its fair value estimate Industry average of 423% suggests BLD Plantation Bhd's peers are currently trading at a higher premium to fair value Does the June share price for BLD Plantation Bhd. (KLSE:BLDPLNT) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by projecting its future cash flows and then discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. There's really not all that much to it, even though it might appear quite complex. Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (MYR, Millions) RM80.1m RM68.1m RM61.7m RM58.3m RM56.7m RM56.2m RM56.5m RM57.3m RM58.5m RM60.0m Growth Rate Estimate Source Est @ -23.00% Est @ -15.01% Est @ -9.41% Est @ -5.50% Est @ -2.76% Est @ -0.84% Est @ 0.51% Est @ 1.45% Est @ 2.10% Est @ 2.57% Present Value (MYR, Millions) Discounted @ 8.4% RM73.9 RM58.0 RM48.5 RM42.2 RM37.9 RM34.7 RM32.2 RM30.1 RM28.4 RM26.8 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = RM413m We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (3.6%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.4%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = RM60m× (1 + 3.6%) ÷ (8.4%– 3.6%) = RM1.3b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= RM1.3b÷ ( 1 + 8.4%)10= RM586m The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is RM999m. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of RM10.8, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at BLD Plantation Bhd as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.4%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. Check out our latest analysis for BLD Plantation Bhd Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For BLD Plantation Bhd, we've put together three essential aspects you should consider: Risks: To that end, you should be aware of the 2 warning signs we've spotted with BLD Plantation Bhd . Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! Other Top Analyst Picks: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook! PS. Simply Wall St updates its DCF calculation for every Malaysian stock every day, so if you want to find the intrinsic value of any other stock just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
Yahoo
a day ago
- Business
- Yahoo
Is Trainline plc (LON:TRN) Trading At A 46% Discount?
Using the 2 Stage Free Cash Flow to Equity, Trainline fair value estimate is UK£5.16 Trainline is estimated to be 46% undervalued based on current share price of UK£2.79 The UK£4.08 analyst price target for TRN is 21% less than our estimate of fair value Today we will run through one way of estimating the intrinsic value of Trainline plc (LON:TRN) by projecting its future cash flows and then discounting them to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow. We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (£, Millions) UK£99.9m UK£102.6m UK£121.5m UK£132.3m UK£140.5m UK£147.7m UK£154.1m UK£160.0m UK£165.4m UK£170.7m Growth Rate Estimate Source Analyst x8 Analyst x8 Analyst x8 Analyst x7 Est @ 6.22% Est @ 5.12% Est @ 4.34% Est @ 3.80% Est @ 3.42% Est @ 3.16% Present Value (£, Millions) Discounted @ 8.6% UK£92.0 UK£86.9 UK£94.8 UK£95.0 UK£92.9 UK£90.0 UK£86.4 UK£82.6 UK£78.6 UK£74.7 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = UK£874m The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.5%. We discount the terminal cash flows to today's value at a cost of equity of 8.6%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = UK£171m× (1 + 2.5%) ÷ (8.6%– 2.5%) = UK£2.9b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= UK£2.9b÷ ( 1 + 8.6%)10= UK£1.3b The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is UK£2.1b. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of UK£2.8, the company appears quite undervalued at a 46% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Trainline as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.6%, which is based on a levered beta of 1.184. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. Check out our latest analysis for Trainline Strength Earnings growth over the past year exceeded the industry. Debt is not viewed as a risk. Weakness No major weaknesses identified for TRN. Opportunity Annual revenue is forecast to grow faster than the British market. Good value based on P/E ratio and estimated fair value. Threat Annual earnings are forecast to grow slower than the British market. Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. Can we work out why the company is trading at a discount to intrinsic value? For Trainline, we've put together three additional factors you should explore: Risks: To that end, you should be aware of the 1 warning sign we've spotted with Trainline . Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for TRN's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the LSE every day. If you want to find the calculation for other stocks just search here. — Investing narratives with Fair Values Vita Life Sciences Set for a 12.72% Revenue Growth While Tackling Operational Challenges By Robbo – Community Contributor Fair Value Estimated: A$2.42 · 0.1% Overvalued Vossloh rides a €500 billion wave to boost growth and earnings in the next decade By Chris1 – Community Contributor Fair Value Estimated: €78.41 · 0.1% Overvalued Intuitive Surgical Will Transform Healthcare with 12% Revenue Growth By Unike – Community Contributor Fair Value Estimated: $325.55 · 0.6% Undervalued View more featured narratives — Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
2 days ago
- Business
- Yahoo
Calculating The Intrinsic Value Of Nordwest Handel AG (FRA:NWX)
The projected fair value for Nordwest Handel is €18.16 based on Dividend Discount Model With €20.60 share price, Nordwest Handel appears to be trading close to its estimated fair value The average discount for Nordwest Handel's competitorsis currently 52% How far off is Nordwest Handel AG (FRA:NWX) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow. Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. We have to calculate the value of Nordwest Handel slightly differently to other stocks because it is a trade distributors company. Instead of using free cash flows, which are hard to estimate and often not reported by analysts in this industry, dividends per share (DPS) payments are used. Unless a company pays out the majority of its FCF as a dividend, this method will typically underestimate the value of the stock. The 'Gordon Growth Model' is used, which simply assumes that dividend payments will continue to increase at a sustainable growth rate forever. For a number of reasons a very conservative growth rate is used that cannot exceed that of a company's Gross Domestic Product (GDP). In this case we used the 5-year average of the 10-year government bond yield (1.3%). The expected dividend per share is then discounted to today's value at a cost of equity of 6.8%. Relative to the current share price of €20.6, the company appears around fair value at the time of writing. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate) = €1.0 / (6.8% – 1.3%) = €18.2 Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Nordwest Handel as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 6.8%, which is based on a levered beta of 1.271. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. View our latest analysis for Nordwest Handel Strength Currently debt free. Dividend is in the top 25% of dividend payers in the market. Weakness Earnings declined over the past year. Current share price is above our estimate of fair value. Opportunity NWX's financial characteristics indicate limited near-term opportunities for shareholders. Lack of analyst coverage makes it difficult to determine NWX's earnings prospects. Threat Paying a dividend but company has no free cash flows. Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Nordwest Handel, we've compiled three further items you should look at: Risks: For instance, we've identified 3 warning signs for Nordwest Handel that you should be aware of. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! Other Environmentally-Friendly Companies: Concerned about the environment and think consumers will buy eco-friendly products more and more? Browse through our interactive list of companies that are thinking about a greener future to discover some stocks you may not have thought of! PS. Simply Wall St updates its DCF calculation for every German stock every day, so if you want to find the intrinsic value of any other stock just search here. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
2 days ago
- Business
- Yahoo
Calculating The Fair Value Of Charisma Energy Services Limited (Catalist:YSV)
Charisma Energy Services' estimated fair value is S$0.052 based on 2 Stage Free Cash Flow to Equity With S$0.051 share price, Charisma Energy Services appears to be trading close to its estimated fair value The average premium for Charisma Energy Services' competitorsis currently 346% In this article we are going to estimate the intrinsic value of Charisma Energy Services Limited (Catalist:YSV) by estimating the company's future cash flows and discounting them to their present value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow. Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF ($, Millions) US$2.28m US$1.56m US$1.23m US$1.05m US$956.0k US$900.8k US$870.8k US$856.7k US$853.0k US$856.5k Growth Rate Estimate Source Est @ -46.00% Est @ -31.49% Est @ -21.34% Est @ -14.23% Est @ -9.25% Est @ -5.77% Est @ -3.33% Est @ -1.62% Est @ -0.43% Est @ 0.41% Present Value ($, Millions) Discounted @ 11% US$2.1 US$1.3 US$0.9 US$0.7 US$0.6 US$0.5 US$0.4 US$0.4 US$0.3 US$0.3 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$7.4m The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.4%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 11%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$857k× (1 + 2.4%) ÷ (11%– 2.4%) = US$10m Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$10m÷ ( 1 + 11%)10= US$3.6m The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$11m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of S$0.05, the company appears about fair value at a 1.2% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Charisma Energy Services as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 11%, which is based on a levered beta of 2.000. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. See our latest analysis for Charisma Energy Services Strength No major strengths identified for YSV. Weakness Interest payments on debt are not well covered. Opportunity Has sufficient cash runway for more than 3 years based on current free cash flows. Current share price is below our estimate of fair value. Lack of analyst coverage makes it difficult to determine YSV's earnings prospects. Threat Debt is not well covered by operating cash flow. Total liabilities exceed total assets, which raises the risk of financial distress. Valuation is only one side of the coin in terms of building your investment thesis, and it is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Charisma Energy Services, we've put together three pertinent aspects you should consider: Risks: We feel that you should assess the 3 warning signs for Charisma Energy Services (2 make us uncomfortable!) we've flagged before making an investment in the company. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! Other Top Analyst Picks: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook! PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the CATALIST every day. If you want to find the calculation for other stocks just search here. — Investing narratives with Fair Values Vita Life Sciences Set for a 12.72% Revenue Growth While Tackling Operational Challenges By Robbo – Community Contributor Fair Value Estimated: A$2.42 · 0.1% Overvalued Vossloh rides a €500 billion wave to boost growth and earnings in the next decade By Chris1 – Community Contributor Fair Value Estimated: €78.41 · 0.1% Overvalued Intuitive Surgical Will Transform Healthcare with 12% Revenue Growth By Unike – Community Contributor Fair Value Estimated: $325.55 · 0.6% Undervalued View more featured narratives — Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
