Relative to the current share price of €4.5, the company appears quite undervalued at a 47% discount to where the stock price trades currently. To get the intrinsic value per share, we divide this by the total number of shares outstanding. The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is €203m. 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 6.0%. In this case we have used the 5-year average of the 10-year government bond yield (0.2%) to estimate future growth. ![]() For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. 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) forecastĪfter 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. We do this to reflect that growth tends to slow more in the early years than it does in later years. 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. 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. To start off with, we need to estimate the next ten years of cash flows. 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. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. ![]() View our latest analysis for Exasol The Method
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