A Look At The Intrinsic Value Of Casa de Bucovina - Club de Munte S.A. (BVB:BCM)

Key Insights

• Casa de Bucovina - Club de Munte's estimated fair value is RON0.15 based on 2 Stage Free Cash Flow to Equity
• Current share price of RON0.14 suggests Casa de Bucovina - Club de Munte is potentially trading close to its fair value
• Casa de Bucovina - Club de Munte's peers are currently trading at a premium of 426% on average

Does the October share price for Casa de Bucovina - Club de Munte S.A. (BVB:BCM) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by taking the expected future cash flows and discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. 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 Casa de Bucovina - Club de Munte

Step By Step Through The Calculation

We're 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 a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. 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, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) forecast

	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034
Levered FCF (RON, Millions)	RON1.31m	RON1.60m	RON1.89m	RON2.16m	RON2.41m	RON2.66m	RON2.90m	RON3.13m	RON3.37m	RON3.61m
Growth Rate Estimate Source	Est @ 29.77%	Est @ 22.70%	Est @ 17.76%	Est @ 14.29%	Est @ 11.87%	Est @ 10.17%	Est @ 8.98%	Est @ 8.15%	Est @ 7.57%	Est @ 7.16%
Present Value (RON, Millions) Discounted @ 14%	RON1.1	RON1.2	RON1.3	RON1.3	RON1.2	RON1.2	RON1.1	RON1.1	RON1.0	RON1.0

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = RON12m

The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 6.2%. We discount the terminal cash flows to today's value at a cost of equity of 14%.

Terminal Value (TV)= FCF₂₀₃₄ × (1 + g) ÷ (r – g) = RON3.6m× (1 + 6.2%) ÷ (14%– 6.2%) = RON48m

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= RON48m÷ ( 1 + 14%)¹⁰= RON13m

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is RON24m. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of RON0.1, the company appears about fair value at a 5.0% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.

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 Casa de Bucovina - Club de Munte 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 14%, which is based on a levered beta of 1.168. 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:

Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For Casa de Bucovina - Club de Munte, there are three further factors you should explore:

1. Risks: Take risks, for example - Casa de Bucovina - Club de Munte has 4 warning signs (and 2 which are potentially serious) we think you should know about.
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 BVB 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.