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Yahoo
2 days ago
- Business
- Yahoo
Rexel SA (RXEEY) H1 2025 Earnings Call Highlights: Navigating Growth and Challenges in a ...
H1 2025 Sales: EUR9.8 billion, up 1.6% on a same-day basis. Q2 2025 Sales: Almost EUR5 billion, up 0.6% on a reported basis. Free Cash Flow Before Interest and Tax: EUR251 million, 42% conversion rate. Adjusted EBITDA Margin H1 2025: 5.8%. Gross Margin: Maintained at 25%. North America Q2 2025 Sales Growth: 8.7% same-day sales growth. Europe Q2 2025 Sales: Down 3% same-day sales. Recurring Net Income H1 2025: EUR308 million. Net Debt: Close to EUR3.1 billion. Indebtedness Ratio: 2.4 times. Digital Sales Q2 2025: 34% of total sales, up nearly 200 basis points year-on-year. Non-Cable Selling Prices Q2 2025: Up 0.9%. Financial Expense H1 2025: EUR107 million. Tax Rate H1 2025: 34.5%. Warning! GuruFocus has detected 3 Warning Signs with GOVX. Release Date: July 28, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Positive Points Rexel SA (RXEEY) reported strong sales growth in North America, driven by higher volumes in data centers and broadband infrastructure, contributing significantly to Q2 growth. Digital sales accounted for approximately 34% of total sales in Q2, up nearly 200 basis points year-on-year, supporting top-line growth and future productivity gains. The company achieved a free cash flow conversion rate of 42%, significantly above the five-year H1 average, providing flexibility for strategic investments. Rexel SA (RXEEY) maintained a resilient adjusted EBITDA margin of 5.8% in H1, despite a challenging macroeconomic environment, supported by cost initiatives and a reduction in FTEs. The company completed five acquisitions in 2025, strengthening its footprint in North America and expanding into higher-margin businesses in Canada and Italy. Negative Points The European market remained challenging, with sales declining due to softer demand, a difficult base effect, and lower solar market contributions. Currency effects negatively impacted sales by 2.3% in Q2, primarily due to US dollar depreciation, with an anticipated full-year impact of minus 2.1%. Adjusted EBITDA margin in Europe decreased by 55 basis points, mainly due to under-absorption of fixed costs and competitive pressures. The company faced a EUR124 million fine from the French Competition Authority, impacting free cash flow despite an appeal. Sales in the Asia-Pacific region, particularly in China and Australia, declined due to competitive market conditions and lower volumes in residential and non-residential segments. Q & A Highlights Q: Can you clarify the growth contribution from data centers and broadband in North America? It seems like it's growing at more than 40%. A: Guillaume Texier, CEO: There was a slight acceleration in Q2, but the growth is primarily due to the Talley acquisition, which is growing in strong double digits. Data centers now represent about 5% of our US business, with initiatives in place to increase market penetration, resulting in strong double-digit growth in this segment. Q: How did US tariffs impact pricing in Q2, and what are your expectations for Q3? A: Guillaume Texier, CEO: We saw price increases between 4% and 20% in some categories due to tariffs. However, steel piping experienced double-digit deflation, offsetting some gains. Overall, non-cable prices increased by 2.2% in North America. We expect continued progression in pricing, with potential additional increases depending on tariff developments. Q: Can you elaborate on the early signs of a rebound in Europe? A: Guillaume Texier, CEO: While figures remain negative, we see slight positive trends in residential markets in Switzerland and the UK. Indicators like residential transactions and loan activity are rebounding, suggesting potential market stabilization. However, our H2 assumptions do not anticipate a European rebound. Q: How does increased exposure to data centers and infrastructure in the US impact margins? A: Guillaume Texier, CEO: Margins on these projects are not significantly different from other businesses. Large projects typically have slightly lower gross margins but also lower costs to serve, resulting in equivalent EBITA margins. The volume increase aids fixed cost absorption, making it slightly beneficial overall. Q: Why is the backlog in North America stable despite strong growth in data centers and datacom? A: Guillaume Texier, CEO: The stable backlog is due to improved supply situations, allowing us to service existing orders while receiving new ones. The backlog represents about two to three months of sales, similar to last year, indicating a balanced supply and demand. Q: What actions are being taken to ensure productivity and efficiency in Europe amidst weaker sales? A: Laurent Delabarre, CFO: We are intensifying OpEx discipline and executing restructuring plans, particularly in the UK and Germany. These efforts, along with our Accelerate 2028 program, are expected to yield more savings in H2 compared to H1, with around 20 basis points of savings anticipated for the full year. Q: How do you view the potential for data center sales growth in North America? A: Guillaume Texier, CEO: Data centers currently account for 5% of our North American sales, with potential to grow further. While competitors may have higher exposure, we aim to increase our share through proven value and service delivery, although reaching double-digit percentages organically may be ambitious. Q: Can you provide more details on the current M&A pipeline? A: Guillaume Texier, CEO: The M&A landscape is not very active due to economic uncertainties. We completed five small to mid-sized acquisitions in H1 and continue to pursue opportunities, but 2025 may not be a record year for M&A activity. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. 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
A Look At The Intrinsic Value Of GDI Integrated Facility Services Inc. (TSE:GDI)
Key Insights Using the 2 Stage Free Cash Flow to Equity, GDI Integrated Facility Services fair value estimate is CA$34.26 GDI Integrated Facility Services' CA$31.86 share price indicates it is trading at similar levels as its fair value estimate The CA$44.13 analyst price target for GDI is 29% more than our estimate of fair value Today we will run through one way of estimating the intrinsic value of GDI Integrated Facility Services Inc. (TSE:GDI) by taking the forecast future cash flows of the company and discounting them back to today's value. This will be done using the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward. We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. Crunching The Numbers We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars: 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Levered FCF (CA$, Millions) CA$54.7m CA$62.6m CA$51.5m CA$45.6m CA$42.2m CA$40.3m CA$39.4m CA$39.0m CA$39.1m CA$39.4m Growth Rate Estimate Source Analyst x2 Analyst x1 Est @ -17.66% Est @ -11.62% Est @ -7.38% Est @ -4.42% Est @ -2.35% Est @ -0.90% Est @ 0.12% Est @ 0.83% Present Value (CA$, Millions) Discounted @ 6.9% CA$51.1 CA$54.8 CA$42.2 CA$34.9 CA$30.3 CA$27.1 CA$24.8 CA$23.0 CA$21.5 CA$20.3 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = CA$330m 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 (2.5%) 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 6.9%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = CA$39m× (1 + 2.5%) ÷ (6.9%– 2.5%) = CA$926m Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CA$926m÷ ( 1 + 6.9%)10= CA$477m 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 CA$807m. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of CA$31.9, the company appears about fair value at a 7.0% 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. Important Assumptions The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the 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 GDI Integrated Facility 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 6.9%, which is based on a levered beta of 1.007. 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 GDI Integrated Facility Services SWOT Analysis for GDI Integrated Facility Services Strength Earnings growth over the past year exceeded the industry. Debt is well covered by cash flow. Weakness Interest payments on debt are not well covered. Opportunity Annual earnings are forecast to grow for the next 3 years. Current share price is below our estimate of fair value. Threat Annual earnings are forecast to grow slower than the Canadian market. Looking Ahead: Whilst important, the DCF calculation is only one of many factors that you need to assess for a company. The DCF model is not a perfect stock valuation tool. 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 GDI Integrated Facility Services, there are three important elements you should consider: Risks: Take risks, for example - GDI Integrated Facility Services has 2 warning signs (and 1 which is concerning) we think you should know about. Future Earnings: How does GDI'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 Canadian 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
5 days ago
- Business
- Yahoo
Is There An Opportunity With IQVIA Holdings Inc.'s (NYSE:IQV) 39% Undervaluation?
Key Insights Using the 2 Stage Free Cash Flow to Equity, IQVIA Holdings fair value estimate is US$325 IQVIA Holdings' US$199 share price signals that it might be 39% undervalued Our fair value estimate is 56% higher than IQVIA Holdings' analyst price target of US$208 Today we will run through one way of estimating the intrinsic value of IQVIA Holdings Inc. (NYSE:IQV) by taking the expected future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. There's really not all that much to it, even though it might appear quite complex. We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. Step By Step Through The Calculation We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars: 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Levered FCF ($, Millions) US$2.11b US$2.27b US$2.44b US$2.69b US$2.87b US$3.02b US$3.17b US$3.30b US$3.42b US$3.55b Growth Rate Estimate Source Analyst x6 Analyst x4 Analyst x2 Analyst x2 Est @ 6.55% Est @ 5.46% Est @ 4.71% Est @ 4.18% Est @ 3.81% Est @ 3.55% Present Value ($, Millions) Discounted @ 7.7% US$2.0k US$2.0k US$2.0k US$2.0k US$2.0k US$1.9k US$1.9k US$1.8k US$1.8k US$1.7k ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$19b 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 2.9%. We discount the terminal cash flows to today's value at a cost of equity of 7.7%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = US$3.5b× (1 + 2.9%) ÷ (7.7%– 2.9%) = US$76b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$76b÷ ( 1 + 7.7%)10= US$36b 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$55b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of US$199, the company appears quite good value at a 39% 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. The Assumptions Now 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 IQVIA 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 7.7%, which is based on a levered beta of 1.104. 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 IQVIA Holdings SWOT Analysis for IQVIA Holdings Strength Debt is well covered by earnings. Weakness Earnings declined over the past year. Opportunity Annual earnings are forecast to grow for the next 3 years. Trading below our estimate of fair value by more than 20%. Threat Debt is not well covered by operating cash flow. Annual earnings are forecast to grow slower than the American market. Moving On: Whilst important, the DCF calculation 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. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. What is the reason for the share price sitting below the intrinsic value? For IQVIA Holdings, we've compiled three essential elements you should consider: Risks: As an example, we've found 1 warning sign for IQVIA Holdings that you need to consider before investing here. Future Earnings: How does IQV'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 NYSE 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) 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.
Yahoo
5 days ago
- Business
- Yahoo
Mohawk Industries Inc (MHK) Q2 2025 Earnings Call Highlights: Stability Amid Market Challenges
Net Sales: $2.8 billion, flat as reported and on a constant basis. Adjusted Earnings Per Share (EPS): $2.77. Free Cash Flow: Approximately $125 million. Share Repurchase: About 393,000 shares for approximately $42 million. Gross Margin: 25.5% as reported; 26.4% excluding charges. Operating Income (Adjusted): $223 million or 8% of sales. Interest Expense: $5 million. Non-GAAP Tax Rate: 19.3% for Q2. Global Ceramic Sales: Just over $1.1 billion, a 0.5% increase as reported. Flooring North America Sales: $947 million, a 1.2% decrease. Flooring Rest of the World Sales: $734 million, a 1% increase as reported. Cash and Cash Equivalents: $547 million. Inventories: Increased to just above $2.7 billion. Capital Expenditures (CapEx): $80 million for Q2. Net Debt: $1.7 billion with leverage at 1.2 times. Warning! GuruFocus has detected 5 Warning Signs with MHK. Release Date: July 25, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Positive Points Mohawk Industries Inc (NYSE:MHK) reported net sales of $2.8 billion for the second quarter, maintaining stability despite challenging market conditions. The company generated approximately $125 million in free cash flow and repurchased about 393,000 shares for $42 million, with a new authorization to acquire $500 million of outstanding stock. Operational improvements and restructuring actions are on track, expected to deliver $100 million in annual cost savings by 2025. The commercial channel continues to outperform residential, with strong performance in the education and hospitality sectors. Mohawk Industries Inc (NYSE:MHK) is leveraging its strong domestic manufacturing footprint, with 85% of its US business produced in North America, to mitigate the impact of tariffs. Negative Points The company faces ongoing pricing pressure due to lower market volumes and increased input costs, impacting profitability. Residential remodeling and new construction demand remain weak, affected by geopolitical events, inflation, and low housing turnover. Higher input costs and plant shutdowns have negatively impacted gross margins, which decreased by approximately 70 basis points year-over-year. The European flooring market remains difficult with low demand and price pressures, requiring promotional activities to maximize volumes. Tariff uncertainties continue to pose a risk, with potential impacts on costs and pricing strategies yet to be fully determined. Q & A Highlights Q: Can you explain the pricing environment in Flooring North America and how it impacted your results? A: Paul De Cock, President of Flooring North America, explained that while segment sales were flat, hard surface categories performed well. Residential remodeling was slow, but commercial outperformed. Productivity initiatives and restructuring actions helped manage costs despite price pressure and inflation. James Brunk, CFO, added that favorable mix should minimize pricing pressures in the second half of the year. Q: How are the new tariffs expected to impact your business? A: CEO Jeffrey Lorberbaum noted that initial tariffs were about 10%, with potential increases up to 50%. The impact will depend on final negotiations, and any effects will likely be minimal in the short term. The company plans to adjust strategies as needed once tariffs are finalized. Q: Are you seeing competitive pricing pressures in the US market, and how are you responding? A: Paul De Cock stated that Mohawk has announced 8% price increases to counteract tariffs. The company is also optimizing its supply chain to mitigate tariff impacts. Competitive pricing pressures are being managed through strategic price adjustments and operational efficiencies. Q: How are your new product collections performing, and what impact do you expect them to have? A: Jeffrey Lorberbaum highlighted that new product introductions, including advanced digital printing in ceramics and new LVT and laminate offerings, are entering the market and positioning the company for recovery. These innovations are expected to drive share gains and enhance results in upcoming quarters. Q: What is your outlook for profitability in the second half of the year? A: Lorberbaum anticipates challenging conditions to persist, with no immediate market improvement. However, restructuring actions and productivity initiatives are expected to yield $100 million in benefits this year. The company expects fourth-quarter results to improve over the previous year, assuming no significant changes in current trends. For the complete transcript of the earnings call, please refer to the full earnings call transcript. This article first appeared on GuruFocus. Sign in to access your portfolio
Yahoo
5 days ago
- Business
- Yahoo
Estimating The Intrinsic Value Of adesso SE (ETR:ADN1)
Key Insights Using the 2 Stage Free Cash Flow to Equity, adesso fair value estimate is €97.33 With €87.10 share price, adesso appears to be trading close to its estimated fair value The €128 analyst price target for ADN1 is 31% more than our estimate of fair value Does the July share price for adesso SE (ETR:ADN1) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. 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. 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. Step By Step Through The Calculation 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. 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: 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Levered FCF (€, Millions) €26.5m €45.5m €45.5m €45.8m €46.1m €46.5m €47.0m €47.5m €48.0m €48.6m Growth Rate Estimate Source Analyst x1 Analyst x2 Est @ 0.17% Est @ 0.50% Est @ 0.73% Est @ 0.89% Est @ 1.01% Est @ 1.08% Est @ 1.14% Est @ 1.18% Present Value (€, Millions) Discounted @ 8.1% €24.5 €38.9 €36.0 €33.5 €31.2 €29.1 €27.2 €25.5 €23.8 €22.3 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = €292m 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 1.3%. We discount the terminal cash flows to today's value at a cost of equity of 8.1%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = €49m× (1 + 1.3%) ÷ (8.1%– 1.3%) = €721m Present Value of Terminal Value (PVTV)= TV / (1 + r)10= €721m÷ ( 1 + 8.1%)10= €331m The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is €623m. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of €87.1, the company appears about fair value at a 11% 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. Important Assumptions Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual 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 adesso 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 8.1%, which is based on a levered beta of 1.577. 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 adesso SWOT Analysis for adesso Strength Debt is well covered by cash flow. Dividends are covered by earnings and cash flows. Weakness Interest payments on debt are not well covered. Dividend is low compared to the top 25% of dividend payers in the IT market. Opportunity Annual earnings are forecast to grow faster than the German market. Current share price is below our estimate of fair value. Threat Revenue is forecast to grow slower than 20% per year. Looking Ahead: Although the valuation of a company is important, it shouldn't be the only metric you look at when researching 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 instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For adesso, there are three relevant aspects you should further research: Risks: To that end, you should be aware of the 1 warning sign we've spotted with adesso . Future Earnings: How does ADN1'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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the XTRA 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) 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
