Using the 2 Stage Free Cash Flow to Equity, Expro Group Holdings fair value estimate is US$21.97
With US$23.54 share price, Expro Group Holdings appears to be trading close to its estimated fair value
Analyst price target for XPRO is US$25.29, which is 15% above our fair value estimate
Does the July share price for Expro Group Holdings N.V. (NYSE:XPRO) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by estimating the company's future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. It may sound complicated, but actually it is quite simple!
Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
The Calculation
We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
10-year free cash flow (FCF) estimate
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF ($, Millions)
US$150.6m
US$123.1m
US$146.2m
US$164.2m
US$170.4m
US$176.1m
US$181.5m
US$186.7m
US$191.7m
US$196.8m
Growth Rate Estimate Source
Analyst x3
Analyst x1
Analyst x1
Analyst x1
Est @ 3.78%
Est @ 3.36%
Est @ 3.06%
Est @ 2.86%
Est @ 2.72%
Est @ 2.61%
Present Value ($, Millions) Discounted @ 8.4%
US$139
US$105
US$115
US$119
US$114
US$109
US$103
US$97.9
US$92.8
US$87.9
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$1.1b
The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.4%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.4%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$3.3b÷ ( 1 + 8.4%)10= US$1.5b
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$2.6b. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of US$23.5, 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.
The Assumptions
The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the 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 Expro Group 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 8.4%, which is based on a levered beta of 1.308. 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 Expro Group Holdings
Strength
Debt is not viewed as a risk.
Balance sheet summary for XPRO.
Weakness
Expensive based on P/S ratio and estimated fair value.
Shareholders have been diluted in the past year.
What are analysts forecasting for XPRO?
Opportunity
Expected to breakeven next year.
Has sufficient cash runway for more than 3 years based on current free cash flows.
Threat
No apparent threats visible for XPRO.
Moving On:
Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. It's not possible to obtain a foolproof valuation with a DCF model. 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 Expro Group Holdings, we've compiled three additional elements you should explore:
Risks: To that end, you should be aware of the 2 warning signs we've spotted with Expro Group Holdings .
Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for XPRO's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
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
主要见解
使用2阶段自由现金流估算出的,Expro Group Holdings的公允价值为21.97美元。
以23.54美元的股价计算,Expro Group Holdings的交易价格接近其估计的公允价值。
XPRO的分析师目标价为25.29美元,比我们的公允价值估计高15%。
7月份Expro Group Holdings N.V. (NYSE:XPRO)的股票价格反映了其真正的价值吗?今天,我们将通过估算公司未来的现金流并将其贴现到当前价值来估算股票的内在价值。折现现金流 (DCF) 模型是我们将应用的工具。它可能听起来很复杂,但实际上很简单!
上述计算非常依赖于两个假设:第一个是贴现率,第二个是现金流。您不必同意这些输入,我建议您重新计算并进行更改。DCF 也没有考虑行业可能的周期性,也没有考虑到公司未来的资本需求,因此不能给出公司潜在业绩的完整图片。鉴于我们正考虑成为Expro Group Holdings的潜在股东,我们使用股本成本作为贴现率,而不是资本成本(或加权平均资本成本,WACC),后者考虑了负债。在这个计算中,我们使用了8.4%,这是基于1.308的杠杆贝塔得出的。Beta 是衡量股票相对于整个市场波动性的指标。我们从全球可比公司的平均贝塔值中获得我们的贝塔值,并设定了0.8到2.0的范围限制,这是一个稳定经营企业的合理范围。
Expro Group Holdings 的SWOT分析
优势
债务不被视为风险。
XPRO的资产负债表摘要。
弱点
基于市销率和估算公允价值,IFF有些昂贵。
股东在过去一年中被稀释。
分析师们对XPRO的预测是什么?
机会
预计明年盈亏相抵。
根据当前自由现金流,财务运营资金足够支撑三年以上。
威胁
XPRO 没有明显的威胁可见。
接下来:
虽然公司的估值很重要,但是在研究公司时不应该只看这一项指标。使用 DCF 模型无法得到完全可靠的估值。最好应用不同的情况和假设,看看它们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都可能会对估值产生重大影响。对于 Expro Group Holdings,我们编制了另外三个应该探索的要素: