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Beasley Broadcast Group, Inc. (NASDAQ:BBGI) Is Trading At A 49.33% Discount

Dale Lombardi

In this article I am going to calculate the intrinsic value of Beasley Broadcast Group, Inc. (NASDAQ:BBGI) by taking the expected future cash flows and discounting them to today’s value. I will use the Discounted Cash Flows (DCF) model. It may sound complicated, but actually it is quite simple! Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this and its not January 2019 then I highly recommend you check out the latest calculation for Beasley Broadcast Group by following the link below.

See our latest analysis for Beasley Broadcast Group

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The model

I use what is known as a 2-stage model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the first stage is higher growth, and the second stage is a more stable growth phase. In the first stage we need to estimate the cash flows to the business over the next five years. For this I used the consensus of the analysts covering the stock, as you can see below. I then discount the sum of these cash flows to arrive at a present value estimate.

5-year cash flow estimate

2019 2020 2021 2022 2023
Levered FCF ($, Millions) $25.50 $28.50 $33.00 $37.00 $42.92
Source Analyst x2 Analyst x2 Analyst x1 Analyst x1 Est @ 16%, capped from 33.93%
Present Value Discounted @ 16.25% $21.94 $21.09 $21.01 $20.26 $20.22

Present Value of 5-year Cash Flow (PVCF)= US$105m

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 the GDP. In this case I have used the 10-year government bond rate (2.7%). In the same way as with the 5-year ‘growth’ period, we discount this to today’s value at a cost of equity of 16.2%.

Terminal Value (TV) = FCF2023 × (1 + g) ÷ (r – g) = US$43m × (1 + 2.7%) ÷ (16.2% – 2.7%) = US$326m

Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = US$326m ÷ ( 1 + 16.2%)5 = US$154m

The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is US$258m. To get the intrinsic value per share, we divide this by the total number of shares outstanding, or the equivalent number if this is a depositary receipt or ADR. This results in an intrinsic value of $9.39. Relative to the current share price of $4.76, the stock is quite good value at a 49% discount to what it is available for right now.

NasdaqGM:BBGI Intrinsic Value Export January 19th 19

Important assumptions

Now 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 my inputs, I recommend redoing the calculations yourself and playing with them. Because we are looking at Beasley Broadcast Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighed average cost of capital, WACC) which accounts for debt. In this calculation I’ve used 16.2%, which is based on a levered beta of 1.859. This is derived from the Bottom-Up Beta method based on comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Next Steps:

Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For BBGI, there are three pertinent factors you should further examine:

  1. Financial Health: Does BBGI have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
  2. Future Earnings: How does BBGI’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.
  3. Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of BBGI? 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 for every stock on the NASDAQ every 6 hours. If you want to find the calculation for other stocks just search here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.