Estimating The Fair Value Of Gielda Praw Majatkowych Vindexus Spolka Akcyjna (WSE:VIN)

Key Insights

• Using the 2 Stage Free Cash Flow to Equity, Gielda Praw Majatkowych Vindexus Spolka Akcyjna fair value estimate is zł7.72
• Gielda Praw Majatkowych Vindexus Spolka Akcyjna's zł9.26 share price indicates it is trading at similar levels as its fair value estimate
• Industry average of 255% suggests Gielda Praw Majatkowych Vindexus Spolka Akcyjna's peers are currently trading at a higher premium to fair value

How far off is Gielda Praw Majatkowych Vindexus Spolka Akcyjna (WSE:VIN) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to their present value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

Check out our latest analysis for Gielda Praw Majatkowych Vindexus Spolka Akcyjna

The Method

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last 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) estimate

	2024	2025	2026	2027	2028	2029	2030	2031	2032	2033
Levered FCF (PLN, Millions)	zł9.97m	zł8.45m	zł7.63m	zł7.20m	zł6.99m	zł6.93m	zł6.96m	zł7.05m	zł7.20m	zł7.38m
Growth Rate Estimate Source	Est @ -23.38%	Est @ -15.29%	Est @ -9.63%	Est @ -5.66%	Est @ -2.89%	Est @ -0.94%	Est @ 0.42%	Est @ 1.37%	Est @ 2.04%	Est @ 2.50%
Present Value (PLN, Millions) Discounted @ 10%	zł9.0	zł6.9	zł5.7	zł4.9	zł4.3	zł3.9	zł3.5	zł3.2	zł3.0	zł2.8

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = zł47m

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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 (3.6%) 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 10%.

Terminal Value (TV)= FCF₂₀₃₃ × (1 + g) ÷ (r – g) = zł7.4m× (1 + 3.6%) ÷ (10%– 3.6%) = zł114m

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= zł114m÷ ( 1 + 10%)¹⁰= zł43m

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is zł90m. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of zł9.3, 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

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. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. 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 Gielda Praw Majatkowych Vindexus Spolka Akcyjna 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%, which is based on a levered beta of 1.143. 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.

Looking Ahead:

Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. The DCF model is not a perfect stock valuation tool. 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. For Gielda Praw Majatkowych Vindexus Spolka Akcyjna, we've compiled three essential factors you should look at:

1. Risks: For instance, we've identified 2 warning signs for Gielda Praw Majatkowych Vindexus Spolka Akcyjna that you should be aware of.
2. 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!
3. Other Top Analyst Picks: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the WSE every day. If you want to find the calculation for other stocks just search here.

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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.