Sociedad Química y Minera de Chile's estimated fair value is US$60.62 based on 2 Stage Free Cash Flow to Equity
Sociedad Química y Minera de Chile's US$42.25 share price signals that it might be 30% undervalued
Our fair value estimate is 6.0% lower than Sociedad Química y Minera de Chile's analyst price target of US$64.49
In this article we are going to estimate the intrinsic value of Sociedad Química y Minera de Chile S.A. (NYSE:SQM) by taking the expected future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. It may sound complicated, but actually it is quite simple!
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.
Is Sociedad Química y Minera de Chile Fairly Valued?
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:
10-year free cash flow (FCF) forecast
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$1.19b
US$1.56b
US$1.30b
US$1.40b
US$1.44b
US$1.47b
US$1.51b
US$1.55b
US$1.59b
US$1.62b
Growth Rate Estimate Source
Analyst x5
Analyst x3
Analyst x1
Analyst x1
Est @ 2.59%
Est @ 2.52%
Est @ 2.48%
Est @ 2.45%
Est @ 2.43%
Est @ 2.41%
Present Value ($, Millions) Discounted @ 10.0%
US$1.1k
US$1.3k
US$975
US$959
US$895
US$834
US$777
US$724
US$674
US$628
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$8.8b
We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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 10.0%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$22b÷ ( 1 + 10.0%)10= US$8.5b
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$17b. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of US$42.3, the company appears quite good value at a 30% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.
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. 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 Sociedad Química y Minera de Chile 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 10.0%, which is based on a levered beta of 1.299. 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 Sociedad Química y Minera de Chile
Strength
Debt is well covered by earnings.
Dividend is in the top 25% of dividend payers in the market.
Dividend information for SQM.
Weakness
Earnings declined over the past year.
Opportunity
Annual earnings are forecast to grow faster than the American market.
Good value based on P/E ratio and estimated fair value.
Threat
Debt is not well covered by operating cash flow.
Paying a dividend but company has no free cash flows.
Annual revenue is forecast to grow slower than the American market.
Is SQM well equipped to handle threats?
Next Steps:
Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. Why is the intrinsic value higher than the current share price? For Sociedad Química y Minera de Chile, we've put together three fundamental items you should further research:
Risks: Take risks, for example - Sociedad Química y Minera de Chile has 3 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
Future Earnings: How does SQM'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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks 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
キーインサイト
Sociedad Química y Minera de Chileの推定公正価値は、2段階のフリーキャッシュフローに基づいて、US $ 60.62である
Sociedad Química y Minera de Chileの株価US $ 42.25は、株価が30%未評価である可能性を示しています
当社の公正価値の見積もりは、Sociedad Química y Minera de Chileのアナリスト価格目標であるUS $ 64.49の6.0%低いです
この記事では、将来のキャッシュフローを予想し、現在価値に割り引いたSociedad Química y Minera de Chile S.A.(NYSE:SQM)の内在価値を見積もろうとしています。このために割引キャッシュフロー(DCF)モデルを使用します。複雑に聞こえるかもしれませんが、実際には非常に単純です!
割引キャッシュフローの最も重要な入力は、割引率と実際のキャッシュフローです。これらの入力に同意する必要はありません。自分で計算をやり直して、それらと遊んでみることをお勧めします。DCFは、業界の可能性のある循環的な変動や企業の将来の資本需要を考慮していないため、企業の潜在的なパフォーマンスの完全な画像を提供していません。Sociedad Química y Minera de Chileを潜在的な株主として見ているため、割引率として資本コストではなくエクイティコストが使用されます。これには、負債を考慮しないレバレッジされたベータ値1.299が使用されています。ベータは、市場全体と比較して株式のボラティリティを示す尺度です。業界平均ベータから、0.8から2.0の範囲を設定して、グローバル競合企業の業界平均ベータから取得します。
Sociedad Química y Minera de ChileのSWOT分析
強み
債務が収益によって十分カバーされています。
配当は市場の配当支払い企業の上位25%に入ります。
SQmの配当情報。
弱み
過去1年間の収益は減少しました。
機会
年間売上高はアメリカ市場よりも急速に成長する見込みです。
P/E比と見積もり公正価値に基づいて、よい価値があります。
脅威
負債は営業キャッシュフローで充分にカバーされていない
配当を支払っていますが、自由現金流がありません。
年間売上高はアメリカ市場より遅い成長が予測されています。
SQmは脅威に対処するために十分な装備を持っていますか?
次のステップ:
会社の評価は重要ですが、それは会社を評価するために評価しなければならない多くの要因の1つに過ぎません。DC Fモデルで完璧な評価を得ることは不可能です。代わりに、DCFモデルの最良の用途は、会社が過小評価または過大評価される理論や仮定をテストすることです。たとえば、企業のエクイティコストや無リスク金利の変化がバリュエーションに大きな影響を与える可能性があります。なぜ内在価値が現在の株価よりも高いですか?Sociedad Química y Minera de Chileについて、さらに調査すべき3つの基本的なアイテムをまとめました:
リスク:たとえば、Sociedad Química y Minera de Chileには3つの警告サイン(1つは少し不快です)があります。よく考慮してください。
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オーストラリアでは、moomooの投資商品及びサービスはMoomoo Securities Australia Limitedによって提供され、オーストラリア証券投資委員会(ASIC)の管理を受けております(AFSL No. 224663)。「金融サービスガイド」、「利用規約」、「プライバシーポリシー」などの詳細は、Moomoo Securities Australia Limitedのウェブサイトhttps://www.moomoo.com/auでご確認いただけます。