Does the January share price for Le Bélier SA (EPA:BELI) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value by taking the foreast future cash flows of the company and discounting them back to today’s value. I will use the Discounted Cash Flows (DCF) model. It may sound complicated, but actually it is quite simple! 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 and its not January 2019 then I highly recommend you check out the latest calculation for Le Bélier by following the link below.
See our latest analysis for Le Bélier
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Step by step through the calculation
I use what is known as a 2-stage model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the first stage is higher growth, and the second stage is a more stable growth phase. In the first stage we need to estimate the cash flows to the business over the next five years. For this I used the consensus of the analysts covering the stock, as you can see below. I then discount the sum of these cash flows to arrive at a present value estimate.
5-year cash flow estimate
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| Levered FCF (€, Millions) | €21.63 | €21.60 | €23.60 | €25.79 | €28.19 |
| Source | Analyst x3 | Analyst x2 | Est @ 9.28% | Est @ 9.28% | Est @ 9.28% |
| Present Value Discounted @ 13.94% | €18.99 | €16.64 | €15.96 | €15.31 | €14.68 |
Present Value of 5-year Cash Flow (PVCF)= €82m
After calculating the present value of future cash flows in the intial 5-year period we need to calculate the Terminal Value, which accounts for all the future cash flows beyond the first stage. The Gordon Growth formula is used to calculate Terminal Value at an annual growth rate equal to the 10-year government bond rate of 0.7%. We discount this to today’s value at a cost of equity of 13.9%.
Terminal Value (TV) = FCF2023 × (1 + g) ÷ (r – g) = €28m × (1 + 0.7%) ÷ (13.9% – 0.7%) = €215m
Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = €215m ÷ ( 1 + 13.9%)5 = €112m
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 €194m. In the final step we divide the equity value by the number of shares outstanding. If the stock is an depositary receipt (represents a specified number of shares in a foreign corporation) or ADR then we use the equivalent number. This results in an intrinsic value of €29.57. Compared to the current share price of €35.9, the stock is fair value, maybe slightly overvalued at the time of writing.