Latest news with #Rotorkplc
Yahoo
17-05-2025
- Business
- Yahoo
Rotork plc (LON:ROR) Shares Could Be 23% Below Their Intrinsic Value Estimate
Rotork's estimated fair value is UK£4.07 based on 2 Stage Free Cash Flow to Equity Rotork's UK£3.12 share price signals that it might be 23% undervalued Our fair value estimate is 8.2% higher than Rotork's analyst price target of UK£3.76 Today we will run through one way of estimating the intrinsic value of Rotork plc (LON:ROR) by taking the expected 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. 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 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 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. Our free stock report includes 1 warning sign investors should be aware of before investing in Rotork. Read for free now. 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. In the first stage we need to estimate the cash flows to the business over the next ten years. 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: 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 Levered FCF (£, Millions) UK£107.4m UK£131.6m UK£155.6m UK£159.0m UK£184.0m UK£198.4m UK£210.6m UK£221.2m UK£230.5m UK£238.8m Growth Rate Estimate Source Analyst x7 Analyst x8 Analyst x4 Analyst x1 Analyst x1 Est @ 7.83% Est @ 6.17% Est @ 5.01% Est @ 4.20% Est @ 3.63% Present Value (£, Millions) Discounted @ 7.6% UK£99.8 UK£114 UK£125 UK£119 UK£128 UK£128 UK£126 UK£123 UK£119 UK£115 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = UK£1.2b 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 2.3%. 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) = UK£239m× (1 + 2.3%) ÷ (7.6%– 2.3%) = UK£4.6b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= UK£4.6b÷ ( 1 + 7.6%)10= UK£2.2b 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£3.4b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of UK£3.1, the company appears a touch undervalued at a 23% discount to where the stock price trades currently. 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. 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 Rotork 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 1.031. 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 Rotork Strength Debt is not viewed as a risk. Dividends are covered by earnings and cash flows. Weakness Earnings declined over the past year. 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 British market. Trading below our estimate of fair value by more than 20%. Threat Annual earnings are forecast to grow slower than the British market. Although the valuation of a company is important, it ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/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. Why is the intrinsic value higher than the current share price? For Rotork, we've compiled three essential elements you should further examine: Risks: Every company has them, and we've spotted 1 warning sign for Rotork you should know about. Future Earnings: How does ROR'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 LSE 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.
Business Insider
04-05-2025
- Business
- Business Insider
Rotork plc (ROR) Receives a Buy from Kepler Capital
Kepler Capital analyst Dylan Jones maintained a Buy rating on Rotork plc (ROR – Research Report) on May 2 and set a price target of p395.00. The company's shares closed last Friday at p306.00. Protect Your Portfolio Against Market Uncertainty Discover companies with rock-solid fundamentals in TipRanks' Smart Value Newsletter. Receive undervalued stocks, resilient to market uncertainty, delivered straight to your inbox. According to TipRanks, Jones is ranked #415 out of 9371 analysts. The word on The Street in general, suggests a Strong Buy analyst consensus rating for Rotork plc with a p391.67 average price target, implying a 28.00% upside from current levels. In a report released on May 2, Jefferies also maintained a Buy rating on the stock with a p440.00 price target. ROR market cap is currently £2.57B and has a P/E ratio of 25.23. Based on the recent corporate insider activity of 11 insiders, corporate insider sentiment is negative on the stock. This means that over the past quarter there has been an increase of insiders selling their shares of ROR in relation to earlier this year.
