Calculating The Fair Value Of OM Holdings Limited (ASX:OMH)
The projected fair value for OM Holdings is AU$0.38 based on 2 Stage Free Cash Flow to Equity
OM Holdings' AU$0.31 share price indicates it is trading at similar levels as its fair value estimate
OM Holdings' peers seem to be trading at a higher discount to fair value based onthe industry average of 33%
Today we'll do a simple run through of a valuation method used to estimate the attractiveness of OM Holdings Limited (ASX:OMH) as an investment opportunity by taking the forecast future cash flows of the company and discounting them back to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. 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.
This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.
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 start off with, we need to estimate 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$33.0m
US$22.7m
US$17.9m
US$15.4m
US$14.0m
US$13.3m
US$12.9m
US$12.7m
US$12.7m
US$12.8m
Growth Rate Estimate Source
Est @ -45.96%
Est @ -31.35%
Est @ -21.12%
Est @ -13.96%
Est @ -8.95%
Est @ -5.44%
Est @ -2.99%
Est @ -1.27%
Est @ -0.07%
Est @ 0.77%
Present Value ($, Millions) Discounted @ 9.8%
US$30.1
US$18.8
US$13.5
US$10.6
US$8.8
US$7.6
US$6.7
US$6.0
US$5.5
US$5.0
("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$113m
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 2.7%. We discount the terminal cash flows to today's value at a cost of equity of 9.8%.
Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$13m× (1 + 2.7%) ÷ (9.8%– 2.7%) = US$186m
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$186m÷ ( 1 + 9.8%)10= US$73m
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$186m. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of AU$0.3, the company appears about fair value at a 18% 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.
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 OM Holdings 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 9.8%, which is based on a levered beta of 1.628. 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 OM Holdings
Strength
Debt is well covered by cash flow.
Weakness
Earnings declined over the past year.
Interest payments on debt are not well covered.
Dividend is low compared to the top 25% of dividend payers in the Metals and Mining market.
Opportunity
Annual earnings are forecast to grow faster than the Australian market.
Current share price is below our estimate of fair value.
Threat
No apparent threats visible for OMH.
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. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. 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. For OM Holdings, there are three further elements you should explore:
Risks: You should be aware of the 1 warning sign for OM Holdings we've uncovered before considering an investment in the company.
Future Earnings: How does OMH'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 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 ASX every day. If you want to find the calculation for other stocks just search here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This 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.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
an hour ago
- Yahoo
$100 million Powerball win sparks ATO, Centrelink warning for every Aussie: 'Trap'
Australians are being warned about the potential implications of winning the lottery following last night's $100 million Powerball draw. It was the biggest Powerball jackpot of 2025, and one lucky person walked away as the sole jackpot winner. However, there are a few stipulations worth considering as we get close to tax time and how a massive sum of cash like this can affect you. The Australian Taxation Office (ATO) had some handy advice. "You don't need to declare your winnings to us, and you won't pay tax on them," the tax office said. RELATED Major lottery warning after Aussie winners reveal what they spent their money on Centrelink cash boost coming from July 1 for millions of Aussies Aussie teen's job paying $300 per hour without a uni degree "But, any interest earned on the winnings will need to be included in your assessable income." If you were the sole winner of the jackpot and had it sitting in a savings account with a 5 per cent interest rate, you would generate around $5 million in just one year. Come tax time next year, you would have to pay tax on that immense amount of money. First Financial's James Wrigley told Yahoo Finance you should seek out advice from professionals if you win big as they can guide you into divvying up the money wisely before you spend it Australia doesn't always count lottery wins in its income assessment. This is because it assesses what you might earn on a regular basis and hitting the jackpot is stored under the "unlikely to happen again" and "hard to predict" categories. It's also because the money wasn't from "a service or work provided". But it depends on how you accept the payment. Lottery winners can usually either get it as a lump sum payment, or they can choose to have it spread out in regular payment intervals over several years. Services Australia will treat it as part of the income assessment if you pick the latter option because then it would be regular income, and that could drastically reduce how much Centrelink you receive. That's what happened to South Australian resident Frank Kemmler, who was kicked off his disability support pension after winning a $60,000 lotto prize. While he was stoked at the sudden influx of cash, he claimed he wasn't given an option between the lump sum or regular payments. The Adelaide man had to foot the bill for GP appointments and medication that was previously paid for by his pension. "I'm just trying to stop other people from falling into the same trap,' he told A Current Affair. 'These people that are buying these [lottery] tickets, there's no warning anywhere … to say that you're going to lose your pension. Centrelink recipients have been urged to tell Services Australia as soon as possible about their new financial situation. Even if you take a lump sum payment, your payments could still be affected. Depending on how much you win, the government body will include your lottery earnings as part of your asset test. If it's over a certain amount, combined with your other assets, your payments could be reduced or switched off. The winning numbers in Powerball draw 1517 on Thursday, 12 12 were 28, 10, 3, 16, 31, 14 and 21. The all-important Powerball number was 6. The person who won the entire $100 million jackpot purchased their ticket in Sydney's eastern suburbs. There were also six division two winners, who scored $282,415.55 each. In addition to them, there were 3,056,245 wins across divisions two to nine in the draw, and they have shared in more than $60.9 million of prize money. That's an average win of $19 each. Half of all Australian adults were expected to have bought a ticket for the megadraw. More than 10 million people bought a ticket for the last $100 million draw in November last year. If you didn't win, rest assured that scoring the grand prize has odds of one to 134 in to access your portfolio
Yahoo
an hour ago
- Yahoo
People From 44 Different Professions Shared Their Salaries To The Digit, And I'm Digging The Transparency
Recently, I asked members of the BuzzFeed Community to share their salaries and what they do if they were comfortable doing so. Here are 44 different professionals from all across the board and how much they make, and where they're located. 1."$110,000 — HR for an NYC-based real estate brokerage." —34, NJ 2."I make $76K a year as a children's librarian." —33, No location 3."I'm an accountant for a large company making about $70K, and I've been there one year." —25, No location 4."$132,000 — Elementary principal." —54, Utah 5."Carpenter — $136K." —Anonymous 6."$110,000+ a year. Flight attendant for one of the big three US carriers. Been flying for 11 years." —37, Chicago 7."Surgeon, sub-specialized, make $700K per year entirely production-based working 50–55 hours/week." —42, Seattle 8."$164,000 plus profit-sharing as the director of digital marketing and customer data for a national CPG brand." —46, NH 9."Project Manager, base salary plus bonus — $185K." —48, NY 10."$118K per year working nine days per fortnight as a Clinical Manager for a not-for-profit. I'm a mental health social worker." —40, Australia 11."$110,000 Instructional Designer with MA Ed and 30+ years in corporate training." —68, TX 12."$166K as a Senior Network Install Analyst." —42, CO 13."$105K — mobile radiographer. I take X-rays with a portable machine in people's homes and small hospitals." —47, AZ 14."$127K as a teacher of 26 years." —58, Chicago 15."$160,000 a year as a truck driver, quit school in Grade 9." —59, Alberta, Canada 16."$200,000 — Aerospace Sourcing Manager." —57, CA 17."I make $140K as a parcel consultant." —41, AK 18."$135K — UPS driver." —34, CO 19."I am a freelance television cameraman covering sporting events around the world, working part-time, I easily make over 100K." —60, Detroit, MI 20."Union Electrician, no college, $120K–$140K." —37, OR 21."I have a 35-year career in real estate, and my average income is $120,000." —76, AZ 22."System architect for a late-stage startup. Salary is $235K, and I get around $200K in bonuses each year." —41, Atlanta 23."Trial attorney working for the government, $104K." —41, PA 24."Boutique Fitness Manager — $130K." —Anonymous 25."IT assistant for a public school, $23K at entry-level pay." —25, TX 26."Environmental consultant — $80,000/year." —26, PA 27."Radiologic Technologist (X-ray & CT cert) for seven years. $135,000 per year." —51, CA 28."Data Analyst, $145K." —33, NYC 29."$120K. A&P aircraft mechanic." —40, OK 30."$103K with a bachelor's degree and an HR certification." —31, PA 31."Attorney at a virtual firm. $150K with additional bonuses between $40K–$100K." —60, TX 32."Environmental permitting and regulatory specialist — $135K." —35, Chicago 33."$190K (base salary plus bonus) as a computer security architect." —63, FL 34."$108,000, Special Education teacher, which doesn't go far in an HCOL area like the Bay Area." —39, San Francisco 35."Telephone lineman, base $110,000 per year, not salary." —49, OH 36."I make $132K as an ER pharmacist in a relatively LCOL area." —33, No location 37."$143K. Over 29 years as a forensic scientist, working my way up to middle management." —55, MD 38."Senior Cybersecurity Engineer — $180,000/year." —36, VA 39."Family law and criminal defense attorney. I make $250,000 per took 25 years to get to this point." —56, OH 40."Public Works inspector — $80,000 a year." —61, CA 41."$310,000. Occupational Medicine doctor." —51, IN 42."Fire Lieutenant/Paramedic-Critical Care. $110K with 23 years on the department." —46, WI 43."Supervisor of a pathology lab at a top-10 medical center. $185,000." —70, CA "Clinical pharmacist with 30 years of experience. $158,000/year. I work in a hospital outpatient setting." —56, NC Want to share how much you make? Tell us in the comments below or completely anonymously in this Google form!
Bloomberg
3 hours ago
- Bloomberg
Qualitas Leads Bidding for $8 Billion Clean Energy Firm Cubico
Spain's largest renewable fund Qualitas Energy is the frontrunner to acquire clean-energy company Cubico Sustainable Investments, according to people with knowledge of the matter. Qualitas has emerged as the leading bidder for the business after interest from KKR & Co. 's ContourGlobal, the other remaining suitor, has cooled, the people said, asking not to be identified as the information is private.
