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Is There An Opportunity With Mabion SA.’s (WSE:MAB) 46% Undervaluation?

Phillip Young

How far off is Mabion SA. (WSE:MAB) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced using the discounted cash flows (DCF) model. 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 June 2018 then I highly recommend you check out the latest calculation for Mabion here.

Is MAB fairly valued?

I’ve used the 2-stage growth model, which simply means we take in account two stages of company’s growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have perpetual stable growth rate. To begin, I pulled together the analyst consensus forecast of MAB’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 11.48%. This resulted in a present value of 5-year cash flow of ZŁ668.54M. Keen to know how I arrived at this number? Take a look at our detailed analysis here.

WSE:MAB Future Profit Jun 19th 18

In the visual above, we see how how MAB’s top and bottom lines are expected to move going forward, which should give you some color on MAB’s outlook. Secondly, 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. After discounting the terminal value back five years, the present value becomes ZŁ1.81B.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is ZŁ2.48B. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of PLN210.22, which, compared to the current share price of PLN113, we see that Mabion is quite good value at a 46.25% discount to what it is available for right now.

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 MAB, I’ve compiled three pertinent factors you should further research:

  1. Financial Health: Does MAB 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 MAB’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 MAB? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St does a DCF calculation for every PL 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.