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Calculating The Intrinsic Value Of Tandem Group plc (LON:TND)

In This Article:

Key Insights

  • Using the 2 Stage Free Cash Flow to Equity, Tandem Group fair value estimate is UK£2.37

  • Current share price of UK£2.00 suggests Tandem Group is potentially trading close to its fair value

  • The average premium for Tandem Group's competitorsis currently 41%

How far off is Tandem Group plc (LON:TND) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

See our latest analysis for Tandem Group

Is Tandem Group Fairly Valued?

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or 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) estimate

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

Levered FCF (£, Millions)

UK£200.0k

UK£340.1k

UK£508.5k

UK£687.3k

UK£859.8k

UK£1.02m

UK£1.15m

UK£1.26m

UK£1.35m

UK£1.43m

Growth Rate Estimate Source

Analyst x1

Est @ 70.04%

Est @ 49.52%

Est @ 35.16%

Est @ 25.10%

Est @ 18.06%

Est @ 13.14%

Est @ 9.69%

Est @ 7.27%

Est @ 5.58%

Present Value (£, Millions) Discounted @ 9.2%

UK£0.2

UK£0.3

UK£0.4

UK£0.5

UK£0.6

UK£0.6

UK£0.6

UK£0.6

UK£0.6

UK£0.6

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = UK£5.0m


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