In This Article:
Today I will be providing a simple run-through of the discounted cash flows (DCF) method to estimate the attractiveness of Orange Belgium SA. (ENXTBR:OBEL) as an investment opportunity. 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 April 2018 then I highly recommend you check out the latest calculation for Orange Belgium here.
Is OBEL fairly valued?
We are going to use a two-stage DCF model, which simply means we have two different periods of varying growth rates for the company’s cash flows. Generally the initial phase has higher growth rates that plateau over time. To start off, I pulled together the analyst consensus forecast of OBEL’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 8.19%. This resulted in a present value of 5-year cash flow of €357.08M. Want to know how I calculated this value? Check out our detailed analysis here.
Above is a visual representation of how OBEL’s top and bottom lines are expected to move in the future, which should give you an idea of OBEL’s outlook. Next, I determine the terminal value, which is the business’s cash flow after the first stage. It’s appropriate 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 €1.05B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is €1.41B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of €23.57, which, compared to the current share price of €15.76, we see that Orange Belgium is quite undervalued at a 33.15% 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. What is the reason for the share price to differ from the intrinsic value? For OBEL, I’ve compiled three relevant aspects you should look at:
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Financial Health: Does OBEL 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 OBEL’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 OBEL? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!