In This Article:
Does the share price for Derichebourg (ENXTPA:DBG) 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 May 2018 then I highly recommend you check out the latest calculation for Derichebourg here.
Is DBG fairly valued?
I’ve used the 2-stage growth model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. To begin, I took the analyst consensus forecast of DBG’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 €400.47M. Want to understand how I arrived at this number? Check out our detailed analysis here.
Above is a visual representation of how DBG’s earnings are expected to move in the future, which should give you an idea of DBG’s outlook. Next, I calculate the terminal value, which is the business’s cash flow after the first stage. I think it’s suitable to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. Discounting the terminal value back five years gives us a present value of €1.03B.
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 €1.43B. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of €8.71, which, compared to the current share price of €7.22, we see that Derichebourg is about right, perhaps slightly undervalued at a 17.11% discount to what it is available for right now.
Next Steps:
Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company.
For DBG, I’ve compiled three pertinent aspects you should further examine:
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Financial Health: Does DBG 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 DBG’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 DBG? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!