Estimating The Fair Value Of Mondi plc (LON:MNDI)
Today I will be providing a simple run-through of the discounted cash flows (DCF) method to estimate the attractiveness of Mondi plc (LSE:MNDI) as an investment opportunity. 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 January 2018 then I highly recommend you check out the latest calculation for Mondi here.
Crunching the numbers
We are going to use a two-stage DCF model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. Firstly, I took the analyst consensus estimates of MNDI’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 10.22%. 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 €3,053.5M. Want to know how I calculated this value? Read our detailed analysis here.
In the visual above, we see how how MNDI’s top and bottom lines are expected to move going forward, which should give you an idea of MNDI’s outlook. Then, I calculate the terminal value, which accounts for all the future cash flows after the five years. 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. The present value of the terminal value after discounting it back five years is €7,273.4M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is €10,326.9M. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of £18.96, which, compared to the current share price of £19.305, we see that Mondi is fair value, maybe slightly overvalued at the time of writing.
Next Steps:
Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company.
For MNDI, I’ve compiled three key factors you should further research:
PS. Simply Wall St does a DCF calculation for every GB 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.
