Does the share price for Sistema Public Joint Stock Financial Corporation (MISX:AFKS) 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. If you are reading this after April 2018 then I highly recommend you check out the latest calculation for Sistema Financial here.
Is AFKS fairly valued?
I will be using the 2-stage growth model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. Firstly, I use the analyst consensus forecast of AFKS’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 22.95%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of RUРУБ85.12B. Keen to know how I arrived at this number? Check out our detailed analysis here.
The infographic above illustrates how AFKS’s earnings are expected to move in the future, which should give you some color on AFKS’s outlook. Secondly, I determine the terminal value, which accounts for all the future cash flows after the five years. I think it’s suitable to use the 10-year government bond rate of 2.8% as the steady 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 RUРУБ67.33B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is RUРУБ152.45B. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of RUB16.15, which, compared to the current share price of RUB10.825, we see that Sistema Financial is quite undervalued at a 32.99% discount to what it is available for right now.
Next Steps:
Valuation is only one side of the coin in terms of building your investment thesis, and 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 AFKS, I’ve compiled three essential factors you should look at:
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Financial Health: Does AFKS 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.
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Future Earnings: How does AFKS’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.
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Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of AFKS? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!