A Look At The Fair Value Of Meier Tobler Group AG (VTX:MTG)

November 13, 2018

I am going to run you through how I calculated the intrinsic value of Meier Tobler Group AG (VTX:MTG) by taking the foreast future cash flows of the company and discounting them back to today's value. I will be using the Discounted Cash Flows (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this and its not November 2018 then I highly recommend you check out the latest calculation for Meier Tobler Group by following the link below.

Check out our latest analysis for Meier Tobler Group

Is MTG fairly valued?

I'm 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 perpetual stable growth rate. To begin with we have to get estimates of the next five years of cash flows. For this I used the consensus of the analysts covering the stock, as you can see below. I then discount this to its value today and sum up the total to get the present value of these cash flows.

5-year cash flow forecast

	2019	2020	2021	2022	2023
Levered FCF (CHF, Millions)	CHF14.25	CHF19.25	CHF21.24	CHF23.43	CHF25.86
Source	Analyst x1	Analyst x1	Est @ 10.35%	Est @ 10.35%	Est @ 10.35%
Present Value Discounted @ 12.79%	CHF12.63	CHF15.13	CHF14.80	CHF14.48	CHF14.17

Present Value of 5-year Cash Flow (PVCF)= CHF71m

After calculating the present value of future cash flows in the intial 5-year period we need to calculate the Terminal Value, which accounts for all the future cash flows beyond the first stage. The Gordon Growth formula is used to calculate Terminal Value at an annual growth rate equal to the 10-year government bond rate of 3.7%. We discount this to today's value at a cost of equity of 12.8%.

Terminal Value (TV) = FCF₂₀₂₂ × (1 + g) ÷ (r – g) = CHF26m × (1 + 3.7%) ÷ (12.8% – 3.7%) = CHF296m

Present Value of Terminal Value (PVTV) = TV / (1 + r)⁵ = CHF296m ÷ ( 1 + 12.8%)⁵ = CHF162m

The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is CHF233m. In the final step we divide the equity value by the number of shares outstanding. If the stock is an depositary receipt (represents a specified number of shares in a foreign corporation) or ADR then we use the equivalent number. This results in an intrinsic value of CHF19.43. Compared to the current share price of CHF17.56, the stock is about right, perhaps slightly undervalued at a 9.6% discount to what it is available for right now.

SWX:MTG Intrinsic Value Export November 14th 18

Important assumptions

Now 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 my result, have a go at the calculation yourself and play with the assumptions. Because we are looking at Meier Tobler Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighed average cost of capital, WACC) which accounts for debt. In this calculation I've used 12.8%, which is based on a levered beta of 1.443. This is derived from the Bottom-Up Beta method based on comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Next Steps:

Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. For MTG, I've put together three relevant aspects you should look at:

Financial Health: Does MTG have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Future Earnings: How does MTG'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: Are there other high quality stocks you could be holding instead of MTG? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St does a DCF calculation for every CH stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.

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The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.