Advertisement
U.S. markets close in 5 hours 18 minutes
  • S&P 500

    5,251.40
    +2.91 (+0.06%)
     
  • Dow 30

    39,738.49
    -21.59 (-0.05%)
     
  • Nasdaq

    16,395.60
    -3.93 (-0.02%)
     
  • Russell 2000

    2,121.50
    +7.15 (+0.34%)
     
  • Crude Oil

    82.35
    +1.00 (+1.23%)
     
  • Gold

    2,228.20
    +15.50 (+0.70%)
     
  • Silver

    24.76
    +0.01 (+0.03%)
     
  • EUR/USD

    1.0811
    -0.0019 (-0.17%)
     
  • 10-Yr Bond

    4.2020
    +0.0060 (+0.14%)
     
  • GBP/USD

    1.2643
    +0.0005 (+0.04%)
     
  • USD/JPY

    151.2220
    -0.0240 (-0.02%)
     
  • Bitcoin USD

    71,385.92
    +1,276.23 (+1.82%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • FTSE 100

    7,960.34
    +28.36 (+0.36%)
     
  • Nikkei 225

    40,168.07
    -594.66 (-1.46%)
     

Evolution Mining Limited (ASX:EVN) Is Trading At A 37.84% Discount To Its Intrinsic Value

Does the share price for Evolution Mining Limited (ASX:EVN) 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 December 2017 then I highly recommend you check out the latest calculation for Evolution Mining here.

Crunching the numbers

I use what is known as the 2-stage 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. Firstly, I pulled together the analyst consensus estimates of EVN’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 10.06%. 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 A$1,778.3M. Want to know how I arrived at this number? Check out our detailed analysis here.

ASX:EVN Intrinsic Value Dec 5th 17
ASX:EVN Intrinsic Value Dec 5th 17

The graph above shows how EVN’s earnings are expected to move in the future, which should give you an idea of EVN’s outlook. Secondly, I calculate the terminal value, which is the business’s cash flow after the first stage. I’ve decided 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. Discounting the terminal value back five years gives us a present value of A$4,865.3M.

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 A$6,643.5M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of A$3.93, which, compared to the current share price of A$2.44, we find that Evolution Mining is quite good value at a 37.84% 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. What is the reason for the share price to differ from the intrinsic value? For EVN, I’ve compiled three pertinent factors you should further examine:

PS. The Simply Wall St app conducts a discounted cash flow for every stock on the ASX every 6 hours. If you want to find the calculation for other stocks 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.

Advertisement