A Look At The Fair Value Of SCHOTT Pharma AG & Co. KGaA (ETR:1SXP)

In This Article:

Key Insights

  • The projected fair value for SCHOTT Pharma KGaA is €30.45 based on 2 Stage Free Cash Flow to Equity

  • With €26.62 share price, SCHOTT Pharma KGaA appears to be trading close to its estimated fair value

  • Our fair value estimate is 12% lower than SCHOTT Pharma KGaA's analyst price target of €34.76

In this article we are going to estimate the intrinsic value of SCHOTT Pharma AG & Co. KGaA (ETR:1SXP) by taking the expected future cash flows and discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. 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. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

See our latest analysis for SCHOTT Pharma KGaA

Is SCHOTT Pharma KGaA 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. To begin with, we have to get estimates of the next ten years of cash flows. 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 need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) estimate

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF (€, Millions)

€40.7m

€92.6m

€135.7m

€156.0m

€170.4m

€182.0m

€191.1m

€198.4m

€204.2m

€209.1m

Growth Rate Estimate Source

Analyst x4

Analyst x3

Analyst x2

Analyst x1

Est @ 9.26%

Est @ 6.77%

Est @ 5.02%

Est @ 3.81%

Est @ 2.95%

Est @ 2.35%

Present Value (€, Millions) Discounted @ 4.8%

€38.8

€84.2

€118

€129

€135

€137

€137

€136

€134

€130

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

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (1.0%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 4.8%.


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