Does the share price for Telenet Group Holding NV (ENXTBR:TNET) 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 Telenet Group Holding here.
Is TNET fairly valued?
We are going to use a two-stage DCF model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the initial phase has higher growth rates that plateau over time. Firstly, I took the analyst consensus forecast of TNET’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 12.18%. This resulted in a present value of 5-year cash flow of €1.96B. Want to understand how I calculated this value? Read our detailed analysis here.
The infographic above illustrates how TNET’s top and bottom lines are expected to move in the future, which should give you an idea of TNET’s outlook. Then, I determine the terminal value, which accounts for all the future cash flows after the five years. I’ve decided to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is €3.56B.
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 €5.52B. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of €47.96, which, compared to the current share price of €49.88, we find that Telenet Group Holding is fair value, maybe slightly overvalued 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.
For TNET, there are three relevant aspects you should further research:
-
Financial Health: Does TNET 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.
-
Future Earnings: How does TNET’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.
-
Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of TNET? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!