Thryv Holdings' estimated fair value is US$25.58 based on 2 Stage Free Cash Flow to Equity
Thryv Holdings is estimated to be 26% undervalued based on current share price of US$19.01
The US$29.50 analyst price target for THRY is 15% more than our estimate of fair value
Today we will run through one way of estimating the intrinsic value of Thryv Holdings, Inc. (NASDAQ:THRY) by estimating the company's future cash flows and discounting them to their present value. This will be done using the Discounted Cash Flow (DCF) model. There's really not all that much to it, even though it might appear quite complex.
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
The Model
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) estimate
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF ($, Millions)
US$62.8m
US$72.0m
US$61.7m
US$56.0m
US$52.8m
US$51.0m
US$50.2m
US$50.0m
US$50.2m
US$50.7m
Growth Rate Estimate Source
Analyst x1
Analyst x1
Est @ -14.25%
Est @ -9.26%
Est @ -5.77%
Est @ -3.32%
Est @ -1.61%
Est @ -0.42%
Est @ 0.42%
Est @ 1.01%
Present Value ($, Millions) Discounted @ 7.3%
US$58.5
US$62.5
US$50.0
US$42.3
US$37.1
US$33.4
US$30.7
US$28.5
US$26.6
US$25.1
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$395m
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 2.4%. We discount the terminal cash flows to today's value at a cost of equity of 7.3%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$1.1b÷ ( 1 + 7.3%)10= US$522m
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 US$917m. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of US$19.0, the company appears a touch undervalued at a 26% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.
NasdaqCM:THRY Discounted Cash Flow June 14th 2024
The 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. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. 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 Thryv Holdings 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 7.3%, which is based on a levered beta of 1.069. 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 Thryv Holdings
Strength
Debt is well covered by cash flow.
Balance sheet summary for THRY.
Weakness
Interest payments on debt are not well covered.
Shareholders have been diluted in the past year.
What are analysts forecasting for THRY?
Opportunity
Expected to breakeven next year.
Has sufficient cash runway for more than 3 years based on current free cash flows.
Trading below our estimate of fair value by more than 20%.
Threat
No apparent threats visible for THRY.
Moving On:
Although the valuation of a company is important, it ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. What is the reason for the share price sitting below the intrinsic value? For Thryv Holdings, we've put together three further items you should consider:
Risks: We feel that you should assess the 1 warning sign for Thryv Holdings we've flagged before making an investment in the company.
Future Earnings: How does THRY'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 Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
PS. Simply Wall St updates its DCF calculation for every American 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
主要見解
基於兩階段自由現金流折現模型,Thryv Holdings的預估公允價值爲25.58美元。
根據當前股價19.01美元,Thryv Holdings被估值偏低達26%。
THRY的分析師目標價爲29.50美元,比我們的公允價值估計高出15%。
今天我們將通過估算公司未來現金流並將其折現至現值的方法來估算Thryv Holdings, Inc. (NASDAQ:THRY)的內在價值。這將使用折現現金流(DCF)模型完成。儘管可能看起來相當複雜,但實際上並不是那麼困難。