Does the share price for Public Joint Stock Company Magnit (MISX:MGNT) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Also note that this article was written in May 2018 so be sure check the latest calculation for Magnit here.
Crunching the numbers
We are going to use a two-stage DCF 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 use the analyst consensus forecast of MGNT’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 13.41%. This resulted in a present value of 5-year cash flow of US$2.58B. Keen to understand how I calculated this value? Take a look at our detailed analysis here.
In the visual above, we see how how MGNT’s earnings are expected to move in the future, which should give you an idea of MGNT’s outlook. Then, I calculate 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 US$11.53B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is US$14.11B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of RUB8,623.55, which, compared to the current share price of RUB5150, we find that Magnit is quite undervalued at a 40.28% discount to what it is available for right now.
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 MGNT, I’ve put together three essential factors you should further research:
- Financial Health: Does MGNT 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.
- Future Earnings: How does MGNT’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: Are there other high quality stocks you could be holding instead of MGNT? 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 MISX 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.