Using the 2 Stage Free Cash Flow to Equity, Peric Special Gases fair value estimate is CN¥23.61
Peric Special Gases' CN¥27.64 share price indicates it is trading at similar levels as its fair value estimate
Our fair value estimate is 24% lower than Peric Special Gases' analyst price target of CN¥31.00
In this article we are going to estimate the intrinsic value of Peric Special Gases Co., Ltd. (SHSE:688146) by taking the expected future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. It may sound complicated, but actually it is quite simple!
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.
Is Peric Special Gases Fairly Valued?
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. In the first stage we need to estimate the cash flows to the business over the next ten years. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last 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) forecast
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF (CN¥, Millions)
CN¥322.2m
CN¥424.3m
CN¥522.0m
CN¥610.8m
CN¥688.8m
CN¥756.4m
CN¥814.9m
CN¥866.1m
CN¥911.7m
CN¥953.3m
Growth Rate Estimate Source
Est @ 44.01%
Est @ 31.68%
Est @ 23.04%
Est @ 17.00%
Est @ 12.77%
Est @ 9.81%
Est @ 7.74%
Est @ 6.29%
Est @ 5.27%
Est @ 4.56%
Present Value (CN¥, Millions) Discounted @ 8.3%
CN¥298
CN¥362
CN¥411
CN¥444
CN¥463
CN¥470
CN¥467
CN¥459
CN¥446
CN¥431
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = CN¥4.3b
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 2.9%. We discount the terminal cash flows to today's value at a cost of equity of 8.3%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥18b÷ ( 1 + 8.3%)10= CN¥8.2b
The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is CN¥12b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of CN¥27.6, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.
SHSE:688146 Discounted Cash Flow May 27th 2024
Important Assumptions
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Peric Special Gases as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.3%, which is based on a levered beta of 0.954. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
SWOT Analysis for Peric Special Gases
Strength
Currently debt free.
Balance sheet summary for 688146.
Weakness
Earnings declined over the past year.
Dividend is low compared to the top 25% of dividend payers in the Chemicals market.
Expensive based on P/E ratio and estimated fair value.
Opportunity
Annual revenue is forecast to grow faster than the Chinese market.
Threat
Dividends are not covered by cash flow.
Annual earnings are forecast to grow slower than the Chinese market.
See 688146's dividend history.
Moving On:
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. DCF models are not the be-all and end-all of investment valuation. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Peric Special Gases, we've put together three pertinent items you should further examine:
Risks: Case in point, we've spotted 2 warning signs for Peric Special Gases you should be aware of.
Future Earnings: How does 688146'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: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St updates its DCF calculation for every Chinese stock every day, so if you want to find the intrinsic value of any other stock just search here.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
主要见解
通过两阶段自由现金流向股东估值法,Peric Special Gases的公允价值估计为CN¥23.61
Peric Special Gases的股价为CN¥27.64,表明其交易价格与公允价值估计相似。
我们的公允价值估计比Peric Special Gases的分析师价值目标CN¥31.00低24%。
在本文中,我们将通过对预期未来现金流的折现来估算Peric Special Gases Co.,Ltd. (SHSE:688146)的内在价值。我们的分析将采用折现现金流(DCF)模型。这可能听起来很复杂,但实际上非常简单!
我们指出折现现金流的最重要输入是折现率和实际现金流。您不必同意这些输入,我建议您重新计算并与它们进行娱乐。DCF也不考虑行业可能的周期性或公司未来的资本需求,因此它不能完整地反映公司的潜在业绩。考虑到我们正在寻找Peric Special Gases作为潜在股东,所以使用权益成本率而不是资本成本(或加权平均资本成本,WACC)作为折现率。在这个计算中,我们使用的是8.3%,它是基于0.954的比杠杆贝塔。贝塔是股票相对于整个市场的波动率的一种度量。我们从全球可比公司业界平均贝塔中获得我们的贝塔,设定为0.8至2.0之间的合理范围,这是一个稳定业务的合理范围。
Peric Special Gases的SWOT分析
优势
目前无债务。
688146的资产负债表摘要。
弱点
过去一年的收益下降了。
与化学品市场股息支付前25%相比,股息较低。
基于市销率和预估公允价值过高。
机会
预计年度营业收入增长速度将比中国市场快。
威胁
股息不被现金流覆盖。
预计年度收益增长速度将比中国市场慢。
查看688146的股息历史。
接下来:
估值只是建立投资论点的一面,当研究公司时,它不应该是你关注的唯一度量标准。DCF模型并不是投资估值的全部,最好您应用不同的情况和假设,并查看它们会如何影响公司的估值。例如,公司的权益成本或无风险利率的变化可以显着影响估值。对于Peric Special Gases,我们选择了三个您应该进一步研究的相关项目: