In This Article:
How far off is HRnetGroup Limited (SGX:CHZ) from its intrinsic value? Using the most recent financial data, I am going to take a look at whether the stock is fairly priced using the discounted cash flows (DCF) model. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Also note that this article was written in March 2018 so be sure check the latest calculation for HRnetGroup here.
Is CHZ fairly valued?
I use what is known as the 2-stage 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. Firstly, I pulled together the analyst consensus estimates of CHZ’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 8.38%. This resulted in a present value of 5-year cash flow of S$242.34M. Want to know how I arrived at this number? Check out our detailed analysis here.
In the visual above, we see how how CHZ’s top and bottom lines are expected to move going forward, which should give you some color on CHZ’s outlook. Next, I determine the terminal value, which accounts for all the future cash flows after the five years. I’ve decided 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 S$728.01M.
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 S$970.34M. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of SGD0.96, which, compared to the current share price of SGD0.805, we find that HRnetGroup is about right, perhaps slightly undervalued at a 16.09% 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 CHZ, I’ve put together three key factors you should further research:
-
Financial Health: Does CHZ 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.
-
Future Earnings: How does CHZ’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.
-
Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of CHZ? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!