In This Article:
Does the share price for Public Joint Stock Company Long-Distance and International Telecommunications Rostelecom (MISX:RTKM) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. 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 Long-Distance and International Telecommunications Rostelecom here.
What’s the value?
I’ve used 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 start off, I pulled together the analyst consensus forecast of RTKM’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 16.97%. This resulted in a present value of 5-year cash flow of RUРУБ103.95B. Want to know how I arrived at this number? Check out our detailed analysis here.
Above is a visual representation of how RTKM’s top and bottom lines are expected to move going forward, which should give you an idea of RTKM’s outlook. Now we need to determine the terminal value, which is the business’s cash flow after the first stage. I’ve decided 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 RUРУБ169.50B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is RUРУБ273.44B. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of RUB121.59, which, compared to the current share price of RUB65.59, we see that Long-Distance and International Telecommunications Rostelecom is quite undervalued at a 46.06% 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 RTKM, I’ve compiled three fundamental factors you should look at:
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Financial Health: Does RTKM 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 RTKM’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 RTKM? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!