How far off is lastminutecom NV (VTX:LMN) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to today’s value. This is done using the discounted cash flows (DCF) model. Don’t get put off by the jargon, the math behind it is actually quite straightforward. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Please also note that this article was written in October 2018 so be sure check out the updated calculation by following the link below.
View our latest analysis for lastminute.com
The method
I’m using the 2-stage growth model, which simply means we take in account two stages of company’s growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have perpetual stable growth rate. To begin with we have to get estimates of the next five years of cash flows. For this I used the consensus of the analysts covering the stock, as you can see below. I then discount this to its value today and sum up the total to get the present value of these cash flows.
5-year cash flow forecast
| 2019 | 2020 | 2021 | 2022 | 2023 | |
| Levered FCF (€, Millions) | €7.54 | €9.70 | €11.32 | €13.21 | €15.33 |
| Source | Analyst x1 | Analyst x1 | Est @ 16.73% | Est @ 16.73% | Est @ 16%, capped from 16.73% |
| Present Value Discounted @ 10.78% | €6.81 | €7.90 | €8.33 | €8.77 | €9.19 |
Present Value of 5-year Cash Flow (PVCF)= €41.0m
We now need to calculate the Terminal Value, which accounts for all the future cash flows after the five years. For a number of reasons a very conservative growth rate is used that cannot exceed that of the GDP. In this case I have used the 10-year government bond rate (3.7%). In the same way as with the 5-year ‘growth’ period, we discount this to today’s value at a cost of equity of 10.8%.
Terminal Value (TV) = FCF2022 × (1 + g) ÷ (r – g) = €15.3m × (1 + 3.7%) ÷ (10.8% – 3.7%) = €224.7m
Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = €224.7m ÷ ( 1 + 10.8%)5 = €134.7m
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 €175.7m. In the final step we divide the equity value by the number of shares outstanding. If the stock is an depositary receipt (represents a specified number of shares in a foreign corporation) or ADR then we use the equivalent number. This results in an intrinsic value in the company’s reported currency of €12.68. However, LMN’s primary listing is in Netherlands, and 1 share of LMN in EUR represents 1.134 ( EUR/ CHF) share of SWX:LMN, so the intrinsic value per share in CHF is CHF14.38. Relative to the current share price of CHF15.85, the stock is fair value, maybe slightly overvalued and not available at a discount at this time.