How far off is Countryside Properties PLC (LSE:CSP) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced using the discounted cash flows (DCF) model. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after February 2018 then I highly recommend you check out the latest calculation for Countryside Properties here.

What’s the value?

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. To begin, I pulled together the analyst consensus estimates of CSP’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 8.3%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of £241.0M. Want to know how I calculated this value? Take a look at our detailed analysis here.

Above is a visual representation of how CSP’s earnings are expected to move going forward, which should give you some color on CSP’s outlook. Next, I calculate the terminal value, which accounts for all the future cash flows after the five years. It’s appropriate to use the 10-year government bond rate of 2.8% as the perpetual growth rate, which is rightly below GDP growth, but more towards the conservative side. Discounting the terminal value back five years gives us a present value of £1,059.4M.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is £1,300.3M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of £2.89, which, compared to the current share price of £3.182, we see that Countryside Properties is fair value, maybe slightly overvalued and not available at a discount at this time.

Next Steps:

Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company.

For CSP, I’ve compiled three relevant factors you should further examine:

• 1. Financial Health: Does CSP 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.

• 2. Future Earnings: How does CSP’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.

• 2. Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of CSP? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!