Is LiLAC Group (LILAK) Expensive For A Reason? A Look At The Intrinsic Value
Does the share price for LiLAC Group (NASDAQ:LILA.K) 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 LiLAC Group here.
Is LILA.K fairly valued?
I will be using the 2-stage growth 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. To start off, I pulled together the analyst consensus estimates of LILA.K’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 17.53%. This resulted in a present value of 5-year cash flow of $740.1M. Keen to know how I calculated this value? Read our detailed analysis here.
The graph above shows how LILA.K’s earnings are expected to move in the future, which should give you an idea of LILA.K’s outlook. Then, I determine the terminal value, which is the business’s cash flow after the first stage. It’s appropriate 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. Discounting the terminal value back five years gives us a present value of $2,099.6M.
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 $2,839.7M. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of $16.59, which, compared to the current share price of $21.02, we find that LiLAC Group 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. What is the reason for the share price to differ from the intrinsic value? For LILA.K, I’ve put together three important aspects you should look at:
PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NASDAQ 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.
