- Poland
- /
- Healthcare Services
- /
- WSE:ENE
Calculating The Fair Value Of Centrum Medyczne ENEL-MED S.A. (WSE:ENE)
Key Insights
- Using the 2 Stage Free Cash Flow to Equity, Centrum Medyczne ENEL-MED fair value estimate is zł14.49
- Centrum Medyczne ENEL-MED's zł14.20 share price indicates it is trading at similar levels as its fair value estimate
- Centrum Medyczne ENEL-MED's peers seem to be trading at a higher discount to fair value based onthe industry average of 14%
Today we will run through one way of estimating the intrinsic value of Centrum Medyczne ENEL-MED S.A. (WSE:ENE) by projecting its future cash flows and then discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.
We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.
See our latest analysis for Centrum Medyczne ENEL-MED
The Method
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. 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.
A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, 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
2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | |
Levered FCF (PLN, Millions) | zł6.20m | zł10.5m | zł19.0m | zł30.7m | zł33.6m | zł35.9m | zł37.9m | zł39.7m | zł41.4m | zł43.0m |
Growth Rate Estimate Source | Analyst x1 | Analyst x1 | Analyst x1 | Analyst x1 | Analyst x1 | Est @ 6.72% | Est @ 5.62% | Est @ 4.85% | Est @ 4.30% | Est @ 3.92% |
Present Value (PLN, Millions) Discounted @ 10.0% | zł5.6 | zł8.7 | zł14.3 | zł21.0 | zł20.9 | zł20.3 | zł19.5 | zł18.5 | zł17.6 | zł16.6 |
("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = zł163m
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 (3.0%) 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 10.0%.
Terminal Value (TV)= FCF2032 × (1 + g) ÷ (r – g) = zł43m× (1 + 3.0%) ÷ (10.0%– 3.0%) = zł639m
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= zł639m÷ ( 1 + 10.0%)10= zł247m
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 zł410m. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of zł14.2, the company appears about fair value at a 2.0% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.
Important 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. 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 Centrum Medyczne ENEL-MED 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 10.0%, which is based on a levered beta of 0.938. 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.
Moving On:
Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Centrum Medyczne ENEL-MED, there are three additional aspects you should further examine:
- Risks: For example, we've discovered 2 warning signs for Centrum Medyczne ENEL-MED that you should be aware of before investing here.
- Future Earnings: How does ENE'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: 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. Simply Wall St updates its DCF calculation for every Polish stock every day, so if you want to find the intrinsic value of any other stock just search here.
New: AI Stock Screener & Alerts
Our new AI Stock Screener scans the market every day to uncover opportunities.
• Dividend Powerhouses (3%+ Yield)
• Undervalued Small Caps with Insider Buying
• High growth Tech and AI Companies
Or build your own from over 50 metrics.
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.
About WSE:ENE
Mediocre balance sheet and slightly overvalued.