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3 days ago
- Business
- Yahoo
Estimating The Fair Value Of Burckhardt Compression Holding AG (VTX:BCHN)
Burckhardt Compression Holding's estimated fair value is CHF739 based on 2 Stage Free Cash Flow to Equity With CHF610 share price, Burckhardt Compression Holding appears to be trading close to its estimated fair value The CHF716 analyst price target for BCHN is 3.1% less than our estimate of fair value How far off is Burckhardt Compression Holding AG (VTX:BCHN) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. 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 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. 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 (CHF, Millions) CHF33.8m CHF82.8m CHF96.0m CHF105.3m CHF112.5m CHF118.0m CHF122.3m CHF125.5m CHF128.0m CHF129.9m Growth Rate Estimate Source Analyst x2 Analyst x2 Analyst x2 Est @ 9.64% Est @ 6.87% Est @ 4.94% Est @ 3.58% Est @ 2.63% Est @ 1.97% Est @ 1.50% Present Value (CHF, Millions) Discounted @ 5.1% CHF32.2 CHF75.0 CHF82.8 CHF86.4 CHF87.9 CHF87.8 CHF86.6 CHF84.6 CHF82.1 CHF79.3 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CHF785m 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 (0.4%) 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 5.1%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = CHF130m× (1 + 0.4%) ÷ (5.1%– 0.4%) = CHF2.8b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CHF2.8b÷ ( 1 + 5.1%)10= CHF1.7b The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is CHF2.5b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of CHF610, the company appears about fair value at a 17% 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 Burckhardt Compression Holding 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 5.1%, which is based on a levered beta of 1.071. 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 Burckhardt Compression Holding Strength Earnings growth over the past year exceeded the industry. Debt is not viewed as a risk. Weakness Earnings growth over the past year is below its 5-year average. Dividend is low compared to the top 25% of dividend payers in the Machinery market. Opportunity Annual revenue is forecast to grow faster than the Swiss market. Current share price is below our estimate of fair value. Threat Dividends are not covered by cash flow. Annual earnings are forecast to grow slower than the Swiss market. Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize 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 Burckhardt Compression Holding, there are three important aspects you should consider: Risks: Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Burckhardt Compression Holding , and understanding this should be part of your investment process. Future Earnings: How does BCHN'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. Simply Wall St updates its DCF calculation for every Swiss 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
3 days ago
- Business
- Yahoo
Estimating The Fair Value Of Burckhardt Compression Holding AG (VTX:BCHN)
Burckhardt Compression Holding's estimated fair value is CHF739 based on 2 Stage Free Cash Flow to Equity With CHF610 share price, Burckhardt Compression Holding appears to be trading close to its estimated fair value The CHF716 analyst price target for BCHN is 3.1% less than our estimate of fair value How far off is Burckhardt Compression Holding AG (VTX:BCHN) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. 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 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. 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 (CHF, Millions) CHF33.8m CHF82.8m CHF96.0m CHF105.3m CHF112.5m CHF118.0m CHF122.3m CHF125.5m CHF128.0m CHF129.9m Growth Rate Estimate Source Analyst x2 Analyst x2 Analyst x2 Est @ 9.64% Est @ 6.87% Est @ 4.94% Est @ 3.58% Est @ 2.63% Est @ 1.97% Est @ 1.50% Present Value (CHF, Millions) Discounted @ 5.1% CHF32.2 CHF75.0 CHF82.8 CHF86.4 CHF87.9 CHF87.8 CHF86.6 CHF84.6 CHF82.1 CHF79.3 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CHF785m 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 (0.4%) 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 5.1%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = CHF130m× (1 + 0.4%) ÷ (5.1%– 0.4%) = CHF2.8b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CHF2.8b÷ ( 1 + 5.1%)10= CHF1.7b The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is CHF2.5b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of CHF610, the company appears about fair value at a 17% 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 Burckhardt Compression Holding 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 5.1%, which is based on a levered beta of 1.071. 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 Burckhardt Compression Holding Strength Earnings growth over the past year exceeded the industry. Debt is not viewed as a risk. Weakness Earnings growth over the past year is below its 5-year average. Dividend is low compared to the top 25% of dividend payers in the Machinery market. Opportunity Annual revenue is forecast to grow faster than the Swiss market. Current share price is below our estimate of fair value. Threat Dividends are not covered by cash flow. Annual earnings are forecast to grow slower than the Swiss market. Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize 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 Burckhardt Compression Holding, there are three important aspects you should consider: Risks: Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Burckhardt Compression Holding , and understanding this should be part of your investment process. Future Earnings: How does BCHN'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. Simply Wall St updates its DCF calculation for every Swiss 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.
