Does the share price for EasyVista SA. (ENXTPA:ALEZV) reflect it’s really worth? Today, I will calculate the stock’s intrinsic value using the discounted cash flow (DCF) method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this after March 2018 then I highly recommend you check out the latest calculation for EasyVista here.
Is ALEZV fairly valued?
I use what is known as the 2-stage 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. Firstly, I pulled together the analyst consensus estimates of ALEZV’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 8.18%. 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 €17.36M. Want to understand how I arrived at this number? Check out our detailed analysis here.
In the visual above, we see how how ALEZV’s top and bottom lines are expected to move going forward, which should give you an idea of ALEZV’s outlook. Now we need to 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. The present value of the terminal value after discounting it back five years is €70.12M.
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 €87.48M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of €53.88, which, compared to the current share price of €37.6, we find that EasyVista is quite good value at a 30.21% discount to what it is available for right now.
Next Steps:
Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For ALEZV, I’ve put together three relevant aspects you should look at:
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Financial Health: Does ALEZV 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.
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Future Earnings: How does ALEZV’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.
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Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of ALEZV? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!