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Calculating The Fair Value Of Famur SA. (WSE:FMF)

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Does the share price for Famur SA. (WSE:FMF) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after April 2018 then I highly recommend you check out the latest calculation for Famur here.

Is FMF fairly valued?

I’ve used the 2-stage growth model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the initial phase has higher growth rates that plateau over time. To begin, I use the analyst consensus estimates of FMF’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 8.67%. This resulted in a present value of 5-year cash flow of ZŁ842.70M. Keen to know how I calculated this value? Check out our detailed analysis here.

WSE:FMF Future Profit Apr 11th 18
WSE:FMF Future Profit Apr 11th 18

The graph above shows how FMF’s earnings are expected to move going forward, which should give you some color on FMF’s outlook. Then, I determine the terminal value, which accounts for all the future cash flows after the five years. It’s appropriate 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. After discounting the terminal value back five years, the present value becomes ZŁ3.61B.

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 ZŁ4.45B. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of PLN7.96, which, compared to the current share price of PLN6.38, we see that Famur is about right, perhaps slightly undervalued at a 19.87% discount to what it is available for right now.

Next Steps:

Valuation is only one side of the coin in terms of building your investment thesis, and it shouldn’t be the only metric you look at when researching a company.

For FMF, there are three essential factors you should look at:

  1. Financial Health: Does FMF 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 FMF’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 FMF? 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 PL 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.