Calculating The Fair Value Of CSC Holdings Limited (SGX:C06)

editorial-team@simplywallst.com (Simply Wall St)

Thu, Apr 17, 2025, 8:04 PM 6 min read

In this article we are going to estimate the intrinsic value of CSC Holdings Limited (SGX:C06) by taking the expected future cash flows and discounting them to their present value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

Our free stock report includes 3 warning signs investors should be aware of before investing in CSC Holdings. Read for free now.

The Model

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) forecast

	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034
Levered FCF (SGD, Millions)	S$3.68m	S$2.95m	S$2.57m	S$2.35m	S$2.22m	S$2.15m	S$2.12m	S$2.12m	S$2.13m	S$2.15m
Growth Rate Estimate Source	Est @ -29.25%	Est @ -19.79%	Est @ -13.17%	Est @ -8.54%	Est @ -5.30%	Est @ -3.03%	Est @ -1.44%	Est @ -0.33%	Est @ 0.45%	Est @ 1.00%
Present Value (SGD, Millions) Discounted @ 11%	S$3.3	S$2.4	S$1.9	S$1.5	S$1.3	S$1.2	S$1.0	S$0.9	S$0.8	S$0.8

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = S$15m

The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.3%. We discount the terminal cash flows to today's value at a cost of equity of 11%.

Terminal Value (TV)= FCF₂₀₃₄ × (1 + g) ÷ (r – g) = S$2.1m× (1 + 2.3%) ÷ (11%– 2.3%) = S$25m

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= S$25m÷ ( 1 + 11%)¹⁰= S$9.0m

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is S$24m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of S$0.008, the company appears around fair value at the time of writing. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.

dcf — SGX:C06 Discounted Cash Flow April 18th 2025

Important Assumptions

Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at CSC Holdings as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 11%, which is based on a levered beta of 2.000. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Check out our latest analysis for CSC Holdings

SWOT Analysis for CSC Holdings

Strength

Debt is well covered by earnings and cashflows.

Weakness

Current share price is above our estimate of fair value.

Opportunity

Has sufficient cash runway for more than 3 years based on current free cash flows.

Lack of analyst coverage makes it difficult to determine C06's earnings prospects.

Threat

No apparent threats visible for C06.

Looking Ahead:

Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For CSC Holdings, there are three fundamental factors you should assess:

Risks: For instance, we've identified 3 warning signs for CSC Holdings (2 are significant) you should be aware of.
Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
Other Top Analyst Picks: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook!

PS. Simply Wall St updates its DCF calculation for every Singaporean stock every day, so if you want to find the intrinsic value of any other stock just search here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.