Estimating The Fair Value Of Gesundheitswelt Chiemgau AG (MUN:JTH)

editorial-team@simplywallst.com (Simply Wall St)

Sat, Aug 24, 2024, 1:29 AM 5 min read

The projected fair value for Gesundheitswelt Chiemgau is €16.38 based on Dividend Discount Model
Current share price of €13.50 suggests Gesundheitswelt Chiemgau is potentially trading close to its fair value
When compared to theindustry average discount to fair value of 52%, Gesundheitswelt Chiemgau's competitors seem to be trading at a greater discount

Today we will run through one way of estimating the intrinsic value of Gesundheitswelt Chiemgau AG (MUN:JTH) by taking the expected future cash flows and discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

See our latest analysis for Gesundheitswelt Chiemgau

What's The Estimated Valuation?

As Gesundheitswelt Chiemgau operates in the healthcare sector, we need to calculate the intrinsic value slightly differently. Instead of using free cash flows, which are hard to estimate and often not reported by analysts in this industry, dividends per share (DPS) payments are used. Unless a company pays out the majority of its FCF as a dividend, this method will typically underestimate the value of the stock. The 'Gordon Growth Model' is used, which simply assumes that dividend payments will continue to increase at a sustainable growth rate forever. For a number of reasons a very conservative growth rate is used that cannot exceed that of a company's Gross Domestic Product (GDP). In this case we used the 5-year average of the 10-year government bond yield (0.8%). The expected dividend per share is then discounted to today's value at a cost of equity of 4.1%. Relative to the current share price of €13.5, the company appears about fair value at a 18% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.

Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)

= €0.5 / (4.1% – 0.8%)

= €16.4

dcf — MUN:JTH Discounted Cash Flow August 24th 2024

The Assumptions

We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Gesundheitswelt Chiemgau as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 4.1%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

SWOT Analysis for Gesundheitswelt Chiemgau

Strength

Debt is well covered by earnings and cashflows.

Dividends are covered by earnings and cash flows.

Weakness

Earnings declined over the past year.

Dividend is low compared to the top 25% of dividend payers in the Healthcare market.

Opportunity

Current share price is below our estimate of fair value.

Lack of analyst coverage makes it difficult to determine JTH's earnings prospects.

Threat

No apparent threats visible for JTH.

Looking Ahead:

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. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Gesundheitswelt Chiemgau, we've compiled three pertinent aspects you should look at:

Risks: Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with Gesundheitswelt Chiemgau , and understanding these should be part of your investment process.
Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
Other Environmentally-Friendly Companies: Concerned about the environment and think consumers will buy eco-friendly products more and more? Browse through our interactive list of companies that are thinking about a greener future to discover some stocks you may not have thought of!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the MUN every day. If you want to find the calculation for other stocks just search here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.