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A Look At The Intrinsic Value Of Deutsche EuroShop AG (ETR:DEQ)

In This Article:

Key Insights

  • Deutsche EuroShop's estimated fair value is €18.05 based on 2 Stage Free Cash Flow to Equity

  • With €18.16 share price, Deutsche EuroShop appears to be trading close to its estimated fair value

  • The €22.83 analyst price target for DEQ is 26% more than our estimate of fair value

In this article we are going to estimate the intrinsic value of Deutsche EuroShop AG (ETR:DEQ) by taking the expected future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Believe it or not, it's not too difficult to follow, as you'll see from our example!

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

Check out our latest analysis for Deutsche EuroShop

Crunching The Numbers

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.

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) forecast

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF (€, Millions)

€125.2m

€132.9m

€123.9m

€118.4m

€115.1m

€113.3m

€112.4m

€112.1m

€112.3m

€112.8m

Growth Rate Estimate Source

Analyst x1

Analyst x1

Est @ -6.78%

Est @ -4.42%

Est @ -2.77%

Est @ -1.61%

Est @ -0.80%

Est @ -0.23%

Est @ 0.16%

Est @ 0.44%

Present Value (€, Millions) Discounted @ 9.0%

€115

€112

€95.5

€83.7

€74.7

€67.4

€61.3

€56.1

€51.5

€47.4

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = €764m

The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. 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 (1.1%) 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 9.0%.