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.
主要見解
通過兩階段自由現金流向股東估值法,Peric Special Gases的公允價值估計爲CN¥23.61
Peric Special Gases的股價爲CN¥27.64,表明其交易價格與公允價值估計相似。
我們的公允價值估計比Peric特氣的分析師目標價低了24%,目標價爲31.00元人民幣。
在本文中,我們將通過對預期未來現金流的折現來估算Peric Special Gases Co.,Ltd. (SHSE:688146)的內在價值。我們的分析將採用折現現金流(DCF)模型。這可能聽起來很複雜,但實際上非常簡單!
我們指出折現現金流的最重要輸入是折現率和實際現金流。您不必同意這些輸入,我建議您重新計算並與它們進行娛樂。DCF也不考慮行業可能的週期性或公司未來的資本需求,因此它不能完整地反映公司的潛在業績。考慮到我們正在尋找Peric Special Gases作爲潛在股東,所以使用權益成本率而不是資本成本(或加權平均資本成本,WACC)作爲折現率。在這個計算中,我們使用的是8.3%,它是基於0.954的比槓桿貝塔。貝塔是股票相對於整個市場的波動率的一種度量。我們從全球可比公司業界平均貝塔中獲得我們的貝塔,設定爲0.8至2.0之間的合理範圍,這是一個穩定業務的合理範圍。
Peric Special Gases的SWOT分析
優勢
目前無債務。
688146的資產負債表摘要。
弱點
過去一年的收益下降了。
與化學品市場股息支付前25%相比,股息較低。
基於市銷率和預估公允價值過高。
機會
預計年度營業收入增長速度將比中國市場快。
威脅
股息不被現金流覆蓋。
預計年度收益增長速度將比中國市場慢。
查看688146的股息歷史。
接下來:
估值只是建立投資論點的一面,當研究公司時,它不應該是你關注的唯一度量標準。DCF模型並不是投資估值的全部,最好您應用不同的情況和假設,並查看它們會如何影響公司的估值。例如,公司的權益成本或無風險利率的變化可以顯着影響估值。對於Peric Special Gases,我們選擇了三個您應該進一步研究的相關項目: