I am going to run you through how I calculated the intrinsic value of Ascopiave Sp.A. (BIT:ASC) using the discounted cash flow (DCF) method. 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 after June 2018 then I highly recommend you check out the latest calculation for Ascopiave here.
What’s the value?
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, I took the analyst consensus estimates of ASC’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 8.36%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of €187.65M. Want to know how I calculated this value? Take a look at our detailed analysis here.
In the visual above, we see how how ASC’s top and bottom lines are expected to move in the future, which should give you an idea of ASC’s outlook. Secondly, I calculate the terminal value, which is the business’s cash flow after the first stage. I think it’s suitable to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is €453.09M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is €640.74M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of €2.88, which, compared to the current share price of €2.945, we see that Ascopiave is fair value, maybe slightly overvalued and not available at a discount at this time.
Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company.
For ASC, I’ve compiled three essential factors you should further examine:
- Financial Health: Does ASC 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.
- Future Earnings: How does ASC’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: Are there other high quality stocks you could be holding instead of ASC? 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 does a DCF calculation for every IT stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.
To help readers see pass 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.