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Intrinsic Calculation For eDreams ODIGEO SA (BME:EDR) Shows Investors Are Overpaying

How far off is eDreams ODIGEO SA (BME:EDR) 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 estimating the company’s future cash flows and discounting them to their present value. I will be using the discounted cash flows (DCF) model. Don’t get put off by the jargon, the math behind it is actually quite straightforward. 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 June 2018 then I highly recommend you check out the latest calculation for eDreams ODIGEO by following the link below. Check out our latest analysis for eDreams ODIGEO

The method

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 ‘steady growth’ period. In the first stage we need to estimate the cash flows to the business over the next five years. Where possible I use analyst estimates, but when these aren’t available I have extrapolated the previous free cash flow (FCF) from the year before. For this growth rate I used the average annual growth rate over the past five years, but capped at a reasonable level. I then discount the sum of these cash flows to arrive at a present value estimate.

5-year cash flow estimate

2018

2019

2020

2021

2022

Levered FCF (€, Millions)

€40.87

€68.97

€77.47

€78.55

€79.71

Source

Analyst x3

Analyst x3

Analyst x3

Analyst x2

Extrapolated @ (1.48%)

Present Value Discounted @ 18.72%

€34.42

€48.94

€46.30

€39.55

€33.81

Present Value of 5-year Cash Flow (PVCF)= €203.01m

After calculating the present value of future cash flows in the intial 5-year period we need to calculate the Terminal Value, which accounts for all the future cash flows beyond 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 1.3%. We discount this to today’s value at a cost of equity of 18.7%.

Terminal Value (TV) = FCF2022 × (1 + g) ÷ (r – g) = €79.71m × (1 + 1.3%) ÷ (18.7% – 1.3%) = €463.16m

Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = €463.16m ÷ ( 1 + 18.7%)5 = €196.42m

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is €399.43m. 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 €3.68. Compared to the current share price of €4.7, the stock is fair value, maybe slightly overvalued at the time of writing.

BME:EDR Intrinsic Value June 26th 18
BME:EDR Intrinsic Value June 26th 18

The assumptions

I’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 don’t have to agree with my inputs, I recommend redoing the calculations yourself and playing with them. Because we are looking at eDreams ODIGEO 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 I’ve used 18.7%, which is based on a levered beta of 2. 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 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 EDR, I’ve compiled three fundamental aspects you should further research:

  1. Financial Health: Does EDR 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 EDR’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 EDR? 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 BME 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.

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