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Undervalue (DCF)

The document discusses techniques for valuing stocks, including discounted cash flow analysis and ratio analysis. It provides steps for conducting a DCF valuation, including estimating free cash flows, calculating the discount rate and terminal value, and determining the intrinsic value per share. An example case study applies these techniques to analyze a stock and determine it is undervalued.

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24 views

Undervalue (DCF)

The document discusses techniques for valuing stocks, including discounted cash flow analysis and ratio analysis. It provides steps for conducting a DCF valuation, including estimating free cash flows, calculating the discount rate and terminal value, and determining the intrinsic value per share. An example case study applies these techniques to analyze a stock and determine it is undervalued.

Uploaded by

dav3sworld
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Market Update

Cuan dari Undervalue

©Copyright PT Indo Premier Sekuritas 2020 All Rights


Reserved.
Undervalue = Stock Price < Intrinsic Value
Absolute Valuation Discounted Cash Flow (DCF)

Intrinsic Value Valuation

Relative Valuation Ratio Analysis


• Step 1 : Estimate The Free Cash Flows of Next 5/10 Years
• Step 2 : Calculating​ ​The​ ​Discount​ ​Rate
• Step 3 : Calculating The Company’s Perpetuity/Terminal Value
Discounted Cash Flow (DCF)
• Step 4 : Discounting The Cash Flows and Perpetuity Value
• Step 5 : Making Adjustments to The Enterprise Value
• Step 6 : Calculating The Intrinsic Value/Fair Value Per Share
Income Statement
Balance Sheet
Cash Flow Statement
Step 1 : Estimate The Free Cash Flows of Next 5/10 Years

Excess Return Period

• 5 Years : Solid company; has advantages such as strong marketing channels, brand
recognition and/or regulatory​ ​advantage
• 10 Years : Outstanding growth; operates with high barriers to entry, very dominant market
position or prospects.
Step 1 : Estimate The Free Cash Flows of Next 5/10 Years

Calculating Free Cash Flow


a) Revenue (Sales) Growth
b) Operating Margin
c) Tax Rate
d) Depreciation and Amortization
e) Capital Expenditure (Capex)
f) Changes in Operating Working Capital
g) Calculate The Free Cash Flow
Step 1 : Estimate The Free Cash Flows of Next 5/10 Years

a). Revenue (Sales) Growth


Step 1 : Estimate The Free Cash Flows of Next 5/10 Years

b). Operating Margin


Step 1 : Estimate The Free Cash Flows of Next 5/10 Years

c). Tax Rate


Step 1 : Estimate The Free Cash Flows of Next 5/10 Years

d). Depreciation and


Amortization
Step 1 : Estimate The Free Cash Flows of Next 5/10 Years

e). Capital Expenditure (Capex)


Step 1 : Estimate The Free Cash Flows of Next 5/10 Years

f). Changes in Operating


Working Capital
Step 1 : Estimate The Free Cash Flows of Next 5/10 Years

g). Calculate The Free Cash Flow


Step 2 : Calculating​ ​The​ ​Discount​ ​Rate

Formula

WACC : Weighted Average Cost of Capital


E : Market​ ​Value​ ​of​ ​Equity,​ ​i.e.,​ ​Market​ ​Capitalization.​
D : Book​ ​Value​ ​of​ ​the​ ​company’s​ ​debt ( Short Term and Long Term)
V : E+D
Re : Cost of Equity : Re=Rf +B(RP), Rf =Risk Free, B=Beta, RP=Risk Premium
Rd : Cost of Debt
Tc : Tax Rate
Step 2 : Calculating​ ​The​ ​Discount​ ​Rate
• Market Cap : 393 T
• Debt : 104 T
• Market Cap + Debt : 497 T
• Cost of Debt : 11%
• Risk Free : 7,10%
• Risk Premium : 8,03%
• Beta : 1.03
• Cost of equity : 7,10%+1,03*8,03%=15,37%
• Cost of Debt (1-Tax) : 11%*(1-27%)=8,01%
• WACC : (393,28/497,24)*15,37% +(103,96/497,24)*8,01%=13,83%
• Cash : 18 T
• Share Outstanding : 99,1 B
• Last Stock Price : 3,970
Step 3 : Calculating The Company’s Perpetuity

Formula

Perpetuity Value = ((Final Year Cash Flow x (1+ Terminal Growth rate))/((Discount rate-Terminal Growth rate)
Step 3 : Calculating The Company’s Perpetuity/Terminal Value

Final Year Cash Flow : 54 T


Terminal Growth Rate : 2%
Discount Rate/WACC : 13,83%
Perpetuity Value/Terminal Value : 54*(1+2%)/(13,83%-2%)=464 T
Step 4 : Discounting The Cash Flows and Perpetuity Value

Formula
Step 4 : Discounting The Cash Flows and Perpetuity Value

Year 1 : 46/(1+ 13,83%)^1 = 46/1,1383^1 = 47,44


Year 2 : 48/(1+13,83%)^2 = 48/1,1383^2 =45,53
Year 3 : 50/(1+13,83%)^3 = 50/1,1383^3 =43,39
Year 4 : 52/(1+13,83%)^4 = 52/1,1383^4 =41,10
Year 5 : 54/(1+13,83%)^5 = 54/1,1383^5 =43,91

Total FCFF : 221


PV Terminal Value : 464*(1,1383)^5=243
Step 5 : Making Adjustments to The Enterprise Value

Formula

Enterprice Value-Debt+Cash
Step 5 : Making Adjustments to The Enterprise Value

Enterprice Value-Debt+Cash=(PV FCFF+PV Terminal Value)-Debt+Cash


221+243-104+18 =378 T
Step 6 : Calculating The Intrinsic Value/Fair Value Per Share

Total Fair Value : 378 T


Number Share Outstanding : 99,1 B
Fair Value Per Share : 536/0,0991= 3.820
Overvalue Last Stock Price > Fair Value Per Share
3,970 > 3,820
1. Cross Sectional Approach
Ratio Analysis 2. Time Series Analysis
1. Price Earning Ratio (PER)
2. Price To Book Value (PBV)
Ratio Analysis
3. Enterprice Value/Earning Before Interest Tax and Depreciation
Amortization (EV/EBITDA)
1. EPS 2019 : 188
2. PER Average 5Yr : 21X
3. EPS Growth Projection : 10%
Study Case 4. Fair Value ?

EPS 2020 : 188*(1+10%) : 207


Fair Value : EPS 2020 x PER 5Yr : 207*21 = 4.340
Last Stock Price < Fair Value : 3,970 <4,340 = Under Value

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