Are Investors Undervaluing Helios Towers plc (LON:HTWS) By 49%?

In This Article:

Key Insights

  • The projected fair value for Helios Towers is UK£2.55 based on 2 Stage Free Cash Flow to Equity

  • Helios Towers is estimated to be 49% undervalued based on current share price of UK£1.29

  • Our fair value estimate is 48% higher than Helios Towers' analyst price target of US$1.72

How far off is Helios Towers plc (LON:HTWS) 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 forecast future cash flows of the company and discounting them back to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. 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.

Check out our latest analysis for Helios Towers

Is Helios Towers Fairly Valued?

We are going to use a two-stage DCF 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. 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.

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)

US$94.7m

US$155.9m

US$198.2m

US$185.0m

US$177.8m

US$173.9m

US$172.1m

US$171.8m

US$172.5m

US$173.9m

Growth Rate Estimate Source

Analyst x2

Analyst x2

Analyst x2

Analyst x1

Est @ -3.91%

Est @ -2.20%

Est @ -1.01%

Est @ -0.18%

Est @ 0.41%

Est @ 0.82%

Present Value ($, Millions) Discounted @ 6.2%

US$89.2

US$138

US$166

US$146

US$132

US$121

US$113

US$107

US$101

US$95.7

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$1.2b