Calculating The Intrinsic Value Of AT & S Austria Technologie & Systemtechnik Aktiengesellschaft (VIE:ATS)

Simply Wall St.

Thu, Nov 22, 2018, 12:58 AM

I am going to run you through how I calculated the intrinsic value of AT & S Austria Technologie & Systemtechnik Aktiengesellschaft (VIE:ATS) by taking the foreast future cash flows of the company and discounting them back to today’s value. I will be using the discounted cash flows (DCF) model. Don’t get put off by the jargon, the math behind it is actually quite straightforward. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Please also note that this article was written in November 2018 so be sure check out the updated calculation by following the link below.

View our latest analysis for AT & S Austria Technologie & Systemtechnik

Is ATS fairly valued?

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’ period. In the first stage we need to estimate the cash flows to the business over the next five years. For this I used the consensus of the analysts covering the stock, as you can see below. The sum of these cash flows is then discounted to today’s value.

5-year cash flow forecast

	2019	2020	2021	2022	2023
Levered FCF (€, Millions)	€32.15	€52.47	€81.03	€80.90	€88.50
Source	Analyst x2	Analyst x3	Analyst x3	Analyst x1	Analyst x1
Present Value Discounted @ 13.92%	€28.22	€40.43	€54.81	€48.03	€46.12

Present Value of 5-year Cash Flow (PVCF)= €218m

After calculating the present value of future cash flows in the intial 5-year period we need to calculate the Terminal Value, which accounts for all the future cash flows beyond the first stage. The Gordon Growth formula is used to calculate Terminal Value at an annual growth rate equal to the 10-year government bond rate of 0.9%. We discount this to today’s value at a cost of equity of 13.9%.

Terminal Value (TV) = FCF₂₀₂₂ × (1 + g) ÷ (r – g) = €89m × (1 + 0.9%) ÷ (13.9% – 0.9%) = €684m

Present Value of Terminal Value (PVTV) = TV / (1 + r)⁵ = €684m ÷ ( 1 + 13.9%)⁵ = €357m

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 €574m. The last step is to then divide the equity value by the number of shares outstanding. If the stock is an depositary receipt (represents a specified number of shares in a foreign corporation) then we use the equivalent number. This results in an intrinsic value of €14.78. Compared to the current share price of €17.46, the stock is fair value, maybe slightly overvalued at the time of writing.

WBAG:ATS Intrinsic Value Export November 22nd 18

Important assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don’t have to agree with my inputs, I recommend redoing the calculations yourself and playing with them. Because we are looking at AT & S Austria Technologie & Systemtechnik as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighed average cost of capital, WACC) which accounts for debt. In this calculation I’ve used 13.9%, which is based on a levered beta of 1.43. This is derived from the Bottom-Up Beta method based on comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Next Steps:

Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company. For ATS, there are three relevant aspects you should further examine:

Financial Health: Does ATS 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 ATS’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 ATS? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St does a DCF calculation for every AT stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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