Yahoo Finance Skellerup Holdings Limited (NZE:SKL) Is Trading At A 39% Discount
Does the share price for Skellerup Holdings Limited (NZSE:SKL) 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. Also note that this article was written in June 2018 so be sure check the latest calculation for Skellerup Holdings here.
What’s the value?
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 use the analyst consensus forecast of SKL’s levered free cash flow (FCF) over the next five years and discounted these figures at the rate of 9.1%. 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 NZ$112.87M. Keen to understand how I calculated this value? Take a look at our detailed analysis here.
Above is a visual representation of how SKL’s top and bottom lines are expected to move in the future, which should give you an idea of SKL’s outlook. Secondly, I determine the terminal value, which is the business’s cash flow after the first stage. I’ve decided to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is NZ$533.19M.
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 NZ$646.06M. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of NZ$3.35, which, compared to the current share price of NZ$2.04, we find that Skellerup Holdings is quite undervalued at a 39.12% discount to what it is available for right now.
Next Steps:
Valuation is only one side of the coin in terms of building your investment thesis, and 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 SKL, I’ve put together three relevant aspects you should further examine:
Financial Health: Does SKL 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 SKL’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 SKL? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. The Simply Wall St app conducts a discounted cash flow for every stock on the NZSE every 6 hours. If you want to find the calculation for other stocks just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
