Does the share price for Lucas Bols NV (AMS:BOLS) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value by taking the expected future cash flows and discounting them to today’s value. I will use the Discounted Cash Flows (DCF) model. It may sound complicated, but actually it is quite simple! 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 October 2018 so be sure check out the updated calculation by following the link below.
View our latest analysis for Lucas Bols
Step by step through the calculation
I use what is known as a 2-stage model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the first stage is higher growth, and the second stage is a more stable growth phase. 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. I then discount this to its value today and sum up the total to get the present value of these cash flows.
5-year cash flow estimate
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| Levered FCF (€, Millions) | €19.97 | €21.55 | €17.82 | €18.30 | €18.80 |
| Source | Analyst x1 | Analyst x1 | Analyst x1 | Est @ 2.74% | Est @ 2.74% |
| Present Value Discounted @ 8.14% | €18.46 | €18.43 | €14.09 | €13.38 | €12.71 |
Present Value of 5-year Cash Flow (PVCF)= €77.1m
The second stage is also known as Terminal Value, this is the business’s cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of the GDP. In this case I have used the 10-year government bond rate (0.7%). In the same way as with the 5-year ‘growth’ period, we discount this to today’s value at a cost of equity of 8.1%.
Terminal Value (TV) = FCF2022 × (1 + g) ÷ (r – g) = €18.8m × (1 + 0.7%) ÷ (8.1% – 0.7%) = €254.8m
Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = €254.8m ÷ ( 1 + 8.1%)5 = €172.3m
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is €249.4m. In the final step we 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) or ADR then we use the equivalent number. This results in an intrinsic value of €19.99. Compared to the current share price of €16, the stock is about right, perhaps slightly undervalued at a 19.9% discount to what it is available for right now.