Is Monadelphous Group Limited (ASX:MND) Potentially Undervalued?

Do Its Financials Have Any Role To Play In Driving Aristocrat Leisure Limited's (ASX:ALL) Stock Up Recently?

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4 hours ago

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Do Its Financials Have Any Role To Play In Driving Aristocrat Leisure Limited's (ASX:ALL) Stock Up Recently?

Most readers would already be aware that Aristocrat Leisure's (ASX:ALL) stock increased significantly by 5.0% over the past week. We wonder if and what role the company's financials play in that price change as a company's long-term fundamentals usually dictate market outcomes. Specifically, we decided to study Aristocrat Leisure's ROE in this article. Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors' money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. The formula for ROE is: Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity So, based on the above formula, the ROE for Aristocrat Leisure is: 16% = AU$1.2b ÷ AU$7.2b (Based on the trailing twelve months to March 2025). The 'return' is the income the business earned over the last year. So, this means that for every A$1 of its shareholder's investments, the company generates a profit of A$0.16. View our latest analysis for Aristocrat Leisure Thus far, we have learned that ROE measures how efficiently a company is generating its profits. We now need to evaluate how much profit the company reinvests or "retains" for future growth which then gives us an idea about the growth potential of the company. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics. To start with, Aristocrat Leisure's ROE looks acceptable. Further, the company's ROE compares quite favorably to the industry average of 8.0%. However, for some reason, the higher returns aren't reflected in Aristocrat Leisure's meagre five year net income growth average of 4.4%. This is generally not the case as when a company has a high rate of return it should usually also have a high earnings growth rate. We reckon that a low growth, when returns are quite high could be the result of certain circumstances like low earnings retention or poor allocation of capital. As a next step, we compared Aristocrat Leisure's net income growth with the industry and were disappointed to see that the company's growth is lower than the industry average growth of 41% in the same period. Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. Doing so will help them establish if the stock's future looks promising or ominous. Has the market priced in the future outlook for ALL? You can find out in our latest intrinsic value infographic research report. While Aristocrat Leisure has a decent three-year median payout ratio of 34% (or a retention ratio of 66%), it has seen very little growth in earnings. Therefore, there might be some other reasons to explain the lack in that respect. For example, the business could be in decline. Moreover, Aristocrat Leisure has been paying dividends for at least ten years or more suggesting that management must have perceived that the shareholders prefer dividends over earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 33%. Still, forecasts suggest that Aristocrat Leisure's future ROE will rise to 26% even though the the company's payout ratio is not expected to change by much. Overall, we feel that Aristocrat Leisure certainly does have some positive factors to consider. However, given the high ROE and high profit retention, we would expect the company to be delivering strong earnings growth, but that isn't the case here. This suggests that there might be some external threat to the business, that's hampering its growth. That being so, the latest analyst forecasts show that the company will continue to see an expansion in its earnings. Are these analysts expectations based on the broad expectations for the industry, or on the company's fundamentals? Click here to be taken to our analyst's forecasts page for the company. 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.

Are Investors Undervaluing Treasury Wine Estates Limited (ASX:TWE) By 47%?

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7 hours ago

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Are Investors Undervaluing Treasury Wine Estates Limited (ASX:TWE) By 47%?

Using the 2 Stage Free Cash Flow to Equity, Treasury Wine Estates fair value estimate is AU$15.36 Treasury Wine Estates' AU$8.17 share price signals that it might be 47% undervalued Our fair value estimate is 38% higher than Treasury Wine Estates' analyst price target of AU$11.16 Does the June share price for Treasury Wine Estates Limited (ASX:TWE) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Don't get put off by the jargon, the math behind it is actually quite straightforward. Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (A$, Millions) AU$472.8m AU$434.4m AU$498.0m AU$496.8m AU$500.5m AU$507.5m AU$517.0m AU$528.3m AU$541.1m AU$555.1m Growth Rate Estimate Source Analyst x4 Analyst x4 Analyst x3 Analyst x1 Est @ 0.74% Est @ 1.40% Est @ 1.87% Est @ 2.19% Est @ 2.42% Est @ 2.58% Present Value (A$, Millions) Discounted @ 6.4% AU$444 AU$384 AU$413 AU$387 AU$367 AU$350 AU$335 AU$321 AU$309 AU$298 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = AU$3.6b We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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 6.4%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = AU$555m× (1 + 2.9%) ÷ (6.4%– 2.9%) = AU$16b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= AU$16b÷ ( 1 + 6.4%)10= AU$8.9b 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 AU$12b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of AU$8.2, the company appears quite good value at a 47% 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. 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 Treasury Wine Estates 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 6.4%, 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. View our latest analysis for Treasury Wine Estates Strength Debt is not viewed as a risk. Weakness Earnings declined over the past year. Dividend is low compared to the top 25% of dividend payers in the Beverage market. Opportunity Annual earnings are forecast to grow faster than the Australian market. Trading below our estimate of fair value by more than 20%. Threat Dividends are not covered by earnings and cashflows. Annual revenue is forecast to grow slower than the Australian market. Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn't be the only metric you look at when researching 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. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. Can we work out why the company is trading at a discount to intrinsic value? For Treasury Wine Estates, there are three additional factors you should look at: Risks: Be aware that Treasury Wine Estates is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning... Future Earnings: How does TWE'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 Australian 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

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7 hours ago

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Are Investors Undervaluing Treasury Wine Estates Limited (ASX:TWE) By 47%?

Using the 2 Stage Free Cash Flow to Equity, Treasury Wine Estates fair value estimate is AU$15.36 Treasury Wine Estates' AU$8.17 share price signals that it might be 47% undervalued Our fair value estimate is 38% higher than Treasury Wine Estates' analyst price target of AU$11.16 Does the June share price for Treasury Wine Estates Limited (ASX:TWE) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Don't get put off by the jargon, the math behind it is actually quite straightforward. Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. AI is about to change healthcare. These 20 stocks are working on everything from early diagnostics to drug discovery. The best part - they are all under $10bn in marketcap - there is still time to get in early. We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (A$, Millions) AU$472.8m AU$434.4m AU$498.0m AU$496.8m AU$500.5m AU$507.5m AU$517.0m AU$528.3m AU$541.1m AU$555.1m Growth Rate Estimate Source Analyst x4 Analyst x4 Analyst x3 Analyst x1 Est @ 0.74% Est @ 1.40% Est @ 1.87% Est @ 2.19% Est @ 2.42% Est @ 2.58% Present Value (A$, Millions) Discounted @ 6.4% AU$444 AU$384 AU$413 AU$387 AU$367 AU$350 AU$335 AU$321 AU$309 AU$298 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = AU$3.6b We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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 6.4%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = AU$555m× (1 + 2.9%) ÷ (6.4%– 2.9%) = AU$16b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= AU$16b÷ ( 1 + 6.4%)10= AU$8.9b 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 AU$12b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of AU$8.2, the company appears quite good value at a 47% 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. 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 Treasury Wine Estates 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 6.4%, 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. View our latest analysis for Treasury Wine Estates Strength Debt is not viewed as a risk. Weakness Earnings declined over the past year. Dividend is low compared to the top 25% of dividend payers in the Beverage market. Opportunity Annual earnings are forecast to grow faster than the Australian market. Trading below our estimate of fair value by more than 20%. Threat Dividends are not covered by earnings and cashflows. Annual revenue is forecast to grow slower than the Australian market. Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn't be the only metric you look at when researching 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. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. Can we work out why the company is trading at a discount to intrinsic value? For Treasury Wine Estates, there are three additional factors you should look at: Risks: Be aware that Treasury Wine Estates is showing 2 warning signs in our investment analysis , and 1 of those is a bit concerning... Future Earnings: How does TWE'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 Australian 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

Is Monadelphous Group Limited (ASX:MND) Potentially Undervalued?

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Do Its Financials Have Any Role To Play In Driving Aristocrat Leisure Limited's (ASX:ALL) Stock Up Recently?

Are Investors Undervaluing Treasury Wine Estates Limited (ASX:TWE) By 47%?

Are Investors Undervaluing Treasury Wine Estates Limited (ASX:TWE) By 47%?

Is Monadelphous Group Limited (ASX:MND) Potentially Undervalued?

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Do Its Financials Have Any Role To Play In Driving Aristocrat Leisure Limited's (ASX:ALL) Stock Up Recently?

Are Investors Undervaluing Treasury Wine Estates Limited (ASX:TWE) By 47%?

Are Investors Undervaluing Treasury Wine Estates Limited (ASX:TWE) By 47%?

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