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Calculating The Fair Value Of Swisscom AG (VTX:SCMN)

I am going to run you through how I calculated the intrinsic value of Swisscom AG (SWX:SCMN) 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. Also note that this article was written in May 2018 so be sure check the latest calculation for Swisscom here.

Is SCMN fairly valued?

I use what is known as the 2-stage 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 use the analyst consensus estimates of SCMN’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 8.01%. This resulted in a present value of 5-year cash flow of CHF6.11B. Want to know how I calculated this value? Take a look at our detailed analysis here.

SWX:SCMN Future Profit May 18th 18
SWX:SCMN Future Profit May 18th 18

The infographic above illustrates how SCMN’s top and bottom lines are expected to move in the future, which should give you an idea of SCMN’s outlook. Now we need to 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 perpetual 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 CHF15.18B.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is CHF21.28B. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of CHF410.81, which, compared to the current share price of CHF454.2, we see that Swisscom is fair value, maybe slightly overvalued and not available at a discount at this time.

Next Steps:

Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company.

For SCMN, I’ve put together three pertinent aspects you should further research:

  1. Financial Health: Does SCMN 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 SCMN’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 SCMN? 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 CH 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.