Valuation

Equity Valuation Models

1. Discounted Cash Flow (Intrinsic value)

Dividend Discount Models
Free Cash Flow to Equity.
2. Price multiples
3. Enterprise value /EBITDA (EV/EBITDA)
4. Asset-based models
What is intrinsic value?

Intrinsic value refers to an investor's perception of the inherent value of

an asset, such as a company, stock, option, or real estate. Knowing an
investment's intrinsic value is useful for value investors who have a goal
of buying stocks and other investments at a discount to this amount.
When do we buy a stock?

We buy a stock when its price is way below its intrinsic value.
How do you calculate the intrinsic value of stock?
In theory, the intrinsic value of a company is calculated by adding up all
its future operating cash flow to perpetuity and then discounting it to
the present value.
Step 1: Calculating Compound Annual
Growth(CAGR) operating cash flow growth rate
over the last 5 years as indication.
Yr 2011 $ 9,604m Yr 2014 $15,996m

Yr 2012 $ 10,269m Yr 2015 $15,044m

Yr 2013 $ 12,532m Yr 2016 $17,633m

Calculate Compound Annual Growth (CAGR)

Step 2: Projecting Operational Cash flow for the next 10 years

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

19,911 22,484 25,389 28,670 32,374 36,557 41,281 46,615 52,638 59,439

We assume that, the cash flows will continue to grow 12,92% for the next 10 years.
Step 3: Determining a discount rate

• Calculating WACC (Cost of the Capital).

 Step 4: Discounting all future cash flows to present value(DV)
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Cash
Flow 19,911 22,484 25,389 28,670 32,374 36,557 41,281 46,615 52,638 59,439
Discount
Factor 0.95 0.91 0.86 0.82 0.78 0.75 0.71 0.68 0.64 0.61
Discounte
d Value 18,916 20,461 21,835 23,509 25,252 27,418 29,309 31,698 33,688 36,258

Total value of the company: $268,344

Step 5: the intrinsic value of one stock before cash and
debt

• No of shares Outstanding: 4,188 millions.

247,689
• The intrinsic value of one stock before cash and debt = =
4,188
$59.14
Step 6: The intrinsic value of one stock after cash and debt

= the intrinsic value of one stock before cash and debt – debt per share
+ cash per share.