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Yahoo
3 days ago
- Business
- Yahoo
Is Avingtrans plc (LON:AVG) Trading At A 23% Discount?
The projected fair value for Avingtrans is UK£5.34 based on 2 Stage Free Cash Flow to Equity Avingtrans is estimated to be 23% undervalued based on current share price of UK£4.10 When compared to theindustry average discount to fair value of 8.4%, Avingtrans' competitors seem to be trading at a lesser discount Does the June share price for Avingtrans plc (LON:AVG) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the forecast future cash flows of the company and discounting them back to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. It may sound complicated, but actually it is quite simple! 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. 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, 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£6.57m UK£2.34m UK£3.98m UK£5.96m UK£8.09m UK£10.2m UK£12.1m UK£13.8m UK£15.2m UK£16.4m Growth Rate Estimate Source Analyst x2 Analyst x2 Est @ 70.19% Est @ 49.90% Est @ 35.69% Est @ 25.75% Est @ 18.78% Est @ 13.91% Est @ 10.50% Est @ 8.11% Present Value (£, Millions) Discounted @ 8.3% -UK£6.1 UK£2.0 UK£3.1 UK£4.3 UK£5.4 UK£6.3 UK£6.9 UK£7.2 UK£7.4 UK£7.4 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = UK£44m 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 (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 8.3%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = UK£16m× (1 + 2.5%) ÷ (8.3%– 2.5%) = UK£291m Present Value of Terminal Value (PVTV)= TV / (1 + r)10= UK£291m÷ ( 1 + 8.3%)10= UK£130m The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is UK£174m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of UK£4.1, the company appears a touch undervalued at a 23% 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. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. 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 Avingtrans 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 8.3%, which is based on a levered beta of 1.131. 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 Avingtrans 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 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 No apparent threats visible for AVG. Valuation is only one side of the coin in terms of building your investment thesis, and it 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. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. Can we work out why the company is trading at a discount to intrinsic value? For Avingtrans, we've put together three further items you should look at: Risks: For example, we've discovered 1 warning sign for Avingtrans that you should be aware of before investing here. Future Earnings: How does AVG'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 British 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.
Yahoo
4 days ago
- Business
- Yahoo
Calculating The Intrinsic Value Of Hwa Tai Industries Berhad (KLSE:HWATAI)
Hwa Tai Industries Berhad's estimated fair value is RM0.48 based on 2 Stage Free Cash Flow to Equity Hwa Tai Industries Berhad's RM0.51 share price indicates it is trading at similar levels as its fair value estimate Industry average of 503% suggests Hwa Tai Industries Berhad's peers are currently trading at a higher premium to fair value In this article we are going to estimate the intrinsic value of Hwa Tai Industries Berhad (KLSE:HWATAI) by projecting its future cash flows and then discounting them to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. 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. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. 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. In the first stage we need to estimate the cash flows to the business over the next ten years. 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 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 (MYR, Millions) RM454.8k RM733.2k RM1.06m RM1.39m RM1.72m RM2.02m RM2.29m RM2.52m RM2.74m RM2.93m Growth Rate Estimate Source Est @ 85.90% Est @ 61.22% Est @ 43.95% Est @ 31.86% Est @ 23.39% Est @ 17.47% Est @ 13.32% Est @ 10.41% Est @ 8.38% Est @ 6.96% Present Value (MYR, Millions) Discounted @ 8.7% RM0.4 RM0.6 RM0.8 RM1.0 RM1.1 RM1.2 RM1.3 RM1.3 RM1.3 RM1.3 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = RM10m 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 3.6%. We discount the terminal cash flows to today's value at a cost of equity of 8.7%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = RM2.9m× (1 + 3.6%) ÷ (8.7%– 3.6%) = RM59m Present Value of Terminal Value (PVTV)= TV / (1 + r)10= RM59m÷ ( 1 + 8.7%)10= RM26m The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is RM36m. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of RM0.5, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. 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 Hwa Tai Industries Berhad 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 8.7%, which is based on a levered beta of 0.861. 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 Hwa Tai Industries Berhad Although the valuation of a company is important, it 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. 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. For Hwa Tai Industries Berhad, there are three additional items you should look at: Risks: Be aware that Hwa Tai Industries Berhad is showing 2 warning signs in our investment analysis , you should know about... 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! Other Environmentally-Friendly Companies: Concerned about the environment and think consumers will buy eco-friendly products more and more? Browse through our interactive list of companies that are thinking about a greener future to discover some stocks you may not have thought of! PS. Simply Wall St updates its DCF calculation for every Malaysian 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.
Yahoo
26-05-2025
- Business
- Yahoo
A Look At The Intrinsic Value Of Solarvest Holdings Berhad (KLSE:SLVEST)
Solarvest Holdings Berhad's estimated fair value is RM2.05 based on 2 Stage Free Cash Flow to Equity Current share price of RM1.73 suggests Solarvest Holdings Berhad is potentially trading close to its fair value Analyst price target for SLVEST is RM2.31, which is 13% above our fair value estimate Does the May share price for Solarvest Holdings Berhad (KLSE:SLVEST) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by projecting its future cash flows and then discounting them to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. 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. 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'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. 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 (MYR, Millions) RM22.4m RM148.3m RM83.9m RM104.8m RM120.9m RM135.2m RM147.9m RM159.2m RM169.5m RM179.0m Growth Rate Estimate Source Analyst x2 Analyst x1 Analyst x2 Analyst x1 Est @ 15.36% Est @ 11.85% Est @ 9.38% Est @ 7.66% Est @ 6.45% Est @ 5.61% Present Value (MYR, Millions) Discounted @ 11% RM20.2 RM120 RM61.1 RM68.7 RM71.4 RM71.8 RM70.7 RM68.5 RM65.6 RM62.4 ("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = RM681m 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 (3.6%) 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 11%. Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = RM179m× (1 + 3.6%) ÷ (11%– 3.6%) = RM2.5b Present Value of Terminal Value (PVTV)= TV / (1 + r)10= RM2.5b÷ ( 1 + 11%)10= RM865m 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 RM1.5b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of RM1.7, the company appears about fair value at a 15% 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. 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 Solarvest Holdings Berhad 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 11%, which is based on a levered beta of 1.261. 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 Solarvest Holdings Berhad Strength Earnings growth over the past year exceeded the industry. Debt is well covered by earnings. Weakness No major weaknesses identified for SLVEST. Opportunity Annual earnings are forecast to grow faster than the Malaysian market. Current share price is below our estimate of fair value. Threat Debt is not well covered by operating cash flow. Revenue is forecast to grow slower than 20% per year. Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. 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 Solarvest Holdings Berhad, there are three fundamental aspects you should assess: Risks: Take risks, for example - Solarvest Holdings Berhad has 2 warning signs we think you should be aware of. Future Earnings: How does SLVEST'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 Malaysian 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.
