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A Look At The Intrinsic Value Of Vonovia SE (ETR:VNA)

In This Article:

Key Insights

  • The projected fair value for Vonovia is €29.75 based on 2 Stage Free Cash Flow to Equity

  • Vonovia's €28.46 share price indicates it is trading at similar levels as its fair value estimate

  • Our fair value estimate is 20% lower than Vonovia's analyst price target of €37.04

How far off is Vonovia SE (ETR:VNA) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

Check out our latest analysis for Vonovia

The Calculation

We're 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 a stable growth rate. 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 discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) estimate

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF (€, Millions)

€1.96b

€1.82b

€1.98b

€2.06b

€2.10b

€2.13b

€2.16b

€2.19b

€2.22b

€2.24b

Growth Rate Estimate Source

Analyst x3

Analyst x3

Analyst x1

Analyst x1

Est @ 1.92%

Est @ 1.63%

Est @ 1.43%

Est @ 1.29%

Est @ 1.19%

Est @ 1.12%

Present Value (€, Millions) Discounted @ 9.2%

€1.8k

€1.5k

€1.5k

€1.4k

€1.4k

€1.3k

€1.2k

€1.1k

€1.0k

€930

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = €13b

After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 1.0%. We discount the terminal cash flows to today's value at a cost of equity of 9.2%.