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An Intrinsic Calculation For Sandfire Resources Limited (ASX:SFR) Suggests It's 27% Undervalued

In This Article:

Key Insights

  • The projected fair value for Sandfire Resources is AU$12.70 based on 2 Stage Free Cash Flow to Equity

  • Sandfire Resources is estimated to be 27% undervalued based on current share price of AU$9.25

  • Our fair value estimate is 36% higher than Sandfire Resources' analyst price target of US$9.31

How far off is Sandfire Resources Limited (ASX:SFR) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. There's really not all that much to it, even though it might appear quite complex.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

View our latest analysis for Sandfire Resources

What's The Estimated Valuation?

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. 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.

Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) forecast

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

Levered FCF ($, Millions)

US$40.3m

US$302.8m

US$280.2m

US$351.7m

US$308.1m

US$284.0m

US$270.4m

US$263.2m

US$260.0m

US$259.6m

Growth Rate Estimate Source

Analyst x5

Analyst x5

Analyst x4

Analyst x3

Analyst x2

Est @ -7.82%

Est @ -4.79%

Est @ -2.68%

Est @ -1.20%

Est @ -0.16%

Present Value ($, Millions) Discounted @ 8.0%

US$37.4

US$260

US$222

US$259

US$210

US$179

US$158

US$142

US$130

US$120

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$1.7b