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# Calculating The Intrinsic Value Of Jardine Cycle & Carriage Limited (SGX:C07)

How far off is Jardine Cycle & Carriage Limited (SGX:C07) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced by taking the foreast future cash flows of the company and discounting them back to todayâ€™s value. I will be using the Discounted Cash Flows (DCF) model. It may sound complicated, but actually it is quite simple! If you want to learn more about discounted cash flow, the basis for my calcs can be read in detail in the Simply Wall St analysis model. If you are reading this and its not November 2018 then I highly recommend you check out the latest calculation for Jardine Cycle & Carriage by following the link below.

### The calculation

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 â€˜steady growthâ€™ period. To begin with we have to get estimates of the next five years of cash flows. For this I used the consensus of the analysts covering the stock, as you can see below. I then discount this to its value today and sum up the total to get the present value of these cash flows.

#### 5-year cash flow forecast

 2019 2020 2021 2022 2023 Levered FCF (\$, Millions) \$764.00 \$768.00 \$750.51 \$733.42 \$716.71 Source Analyst x1 Analyst x1 Est @ -2.28% Est @ -2.28% Est @ -2.28% Present Value Discounted @ 8.51% \$704.07 \$652.24 \$587.38 \$528.98 \$476.38

Present Value of 5-year Cash Flow (PVCF)= US\$2.9b

The second stage is also known as Terminal Value, this is the businessâ€™s cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at an annual growth rate equal to the 10-year government bond rate of 2.6%. We discount this to todayâ€™s value at a cost of equity of 8.5%.

Terminal Value (TV) = FCF2022 Ã— (1 + g) Ã· (r â€“ g) = US\$717m Ã— (1 + 2.6%) Ã· (8.5% â€“ 2.6%) = US\$12b

Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = US\$12b Ã· ( 1 + 8.5%)5 = US\$8.2b

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US\$11b. 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 SGD38.82. Compared to the current share price of SGD34.78, the stock is about right, perhaps slightly undervalued at a 10% discount to what it is available for right now.

### The assumptions

Iâ€™d like to point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. You donâ€™t have to agree with my inputs, I recommend redoing the calculations yourself and playing with them. Because we are looking at Jardine Cycle & Carriage 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 Iâ€™ve used 8.5%, which is based on a levered beta of 0.800. 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 shouldnâ€™t be the only metric you look at when researching a company. For C07, there are three fundamental factors you should further examine:

1. Financial Health: Does C07 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 C07â€™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 C07? 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 SGX 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.