A Look At The Fair Value Of Mynews Holdings Berhad (KLSE:MYNEWS)
Key Insights
Mynews Holdings Berhad's estimated fair value is RM0.44 based on 2 Stage Free Cash Flow to Equity
Mynews Holdings Berhad's RM0.47 share price indicates it is trading at similar levels as its fair value estimate
Analyst price target for MYNEWS is RM0.58, which is 32% above our fair value estimate
How far off is Mynews Holdings Berhad (KLSE:MYNEWS) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. There's really not all that much to it, even though it might appear quite complex.
We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
View our latest analysis for Mynews Holdings Berhad
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. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) estimate
2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | |
Levered FCF (MYR, Millions) | -RM3.23m | RM23.7m | RM38.5m | RM31.0m | RM39.0m | RM42.6m | RM45.8m | RM48.7m | RM51.4m | RM53.9m |
Growth Rate Estimate Source | Analyst x3 | Analyst x3 | Analyst x3 | Analyst x1 | Analyst x1 | Est @ 9.23% | Est @ 7.53% | Est @ 6.34% | Est @ 5.51% | Est @ 4.93% |
Present Value (MYR, Millions) Discounted @ 14% | -RM2.8 | RM18.1 | RM25.8 | RM18.1 | RM20.0 | RM19.1 | RM17.9 | RM16.7 | RM15.4 | RM14.1 |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = RM162m
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 3.6%. We discount the terminal cash flows to today's value at a cost of equity of 14%.
Terminal Value (TV)= FCF_{2032} × (1 + g) ÷ (r – g) = RM54m× (1 + 3.6%) ÷ (14%– 3.6%) = RM518m
Present Value of Terminal Value (PVTV)= TV / (1 + r)^{10}= RM518m÷ ( 1 + 14%)^{10}= RM136m
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is RM298m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of RM0.5, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
The Assumptions
We would 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 these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Mynews Holdings Berhad as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 14%, which is based on a levered beta of 1.345. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
Moving On:
Whilst important, the DCF calculation shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Mynews Holdings Berhad, there are three essential items you should assess:
Risks: Be aware that Mynews Holdings Berhad is showing 1 warning sign in our investment analysis , you should know about...
Future Earnings: How does MYNEWS'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.
Other High Quality Alternatives: Do you like a good all-rounder? 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 valuation for every stock on the KLSE every day. If you want to find the calculation for other stocks just search here.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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