In this article I am going to calculate the intrinsic value of MARR Sp.A. (BIT:MARR) 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. Also note that this article was written in May 2018 so be sure check the latest calculation for MARR here.
Crunching the numbers
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. To begin, I use the analyst consensus forecast of MARR’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 8.4%. This resulted in a present value of 5-year cash flow of €285.48M. Want to understand how I arrived at this number? Read our detailed analysis here.
Above is a visual representation of how MARR’s top and bottom lines are expected to move going forward, which should give you an idea of MARR’s outlook. Then, 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 €850.78M.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is €1.14B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of €17.08, which, compared to the current share price of €24.76, we see that MARR is quite expensive and not available at a discount at this time.
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 MARR, I’ve put together three important factors you should further research:
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Financial Health: Does MARR 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 MARR’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 MARR? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!