Does the share price for Pöyry PLC (HLSE:POY1V) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. 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 after May 2018 then I highly recommend you check out the latest calculation for Pöyry here.
What’s the value?
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 pulled together the analyst consensus estimates of POY1V’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 8.15%. This resulted in a present value of 5-year cash flow of €99.29M. Want to understand how I arrived at this number? Take a look at our detailed analysis here.
The infographic above illustrates how POY1V’s earnings are expected to move going forward, which should give you an idea of POY1V’s outlook. Then, I calculate the terminal value, which accounts for all the future cash flows after the five years. It’s appropriate to use the 10-year government bond rate of 2.8% as the stable 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 €267.58M.
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 €366.88M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of €6.14, which, compared to the current share price of €5.9, we see that Pöyry is about right, perhaps slightly undervalued at a 3.89% 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.
For POY1V, there are three essential factors you should look at:
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Financial Health: Does POY1V 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 POY1V’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 POY1V? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!