Estimating The Intrinsic Value Of Platzer Fastigheter Holding AB (publ) (STO:PLAZ B)

Key Insights

• Using the 2 Stage Free Cash Flow to Equity, Platzer Fastigheter Holding fair value estimate is kr59.37
• With kr55.40 share price, Platzer Fastigheter Holding appears to be trading close to its estimated fair value
• The average premium for Platzer Fastigheter Holding's competitorsis currently 113%

Does the October share price for Platzer Fastigheter Holding AB (publ) (STO:PLAZ B) 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. This will be done using the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

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.

See our latest analysis for Platzer Fastigheter Holding

What's The Estimated Valuation?

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 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.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, 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 (SEK, Millions)	kr686.4m	kr701.1m	kr712.9m	kr722.8m	kr731.3m	kr738.8m	kr745.5m	kr751.8m	kr757.7m	kr763.5m
Growth Rate Estimate Source	Est @ 2.76%	Est @ 2.13%	Est @ 1.69%	Est @ 1.39%	Est @ 1.17%	Est @ 1.02%	Est @ 0.92%	Est @ 0.84%	Est @ 0.79%	Est @ 0.75%
Present Value (SEK, Millions) Discounted @ 11%	kr620	kr572	kr526	kr482	kr440	kr402	kr367	kr334	kr304	kr277

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = kr4.3b

After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond 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 0.7%. We discount the terminal cash flows to today's value at a cost of equity of 11%.

Terminal Value (TV)= FCF₂₀₃₃ × (1 + g) ÷ (r – g) = kr763m× (1 + 0.7%) ÷ (11%– 0.7%) = kr7.7b

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= kr7.7b÷ ( 1 + 11%)¹⁰= kr2.8b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is kr7.1b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of kr55.4, the company appears about fair value at a 6.7% 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 Platzer Fastigheter Holding 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 11%, which is based on a levered beta of 2.000. 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.

SWOT Analysis for Platzer Fastigheter Holding

Next Steps:

Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. It's not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Platzer Fastigheter Holding, we've compiled three fundamental factors you should further research:

1. Risks: Case in point, we've spotted 2 warning signs for Platzer Fastigheter Holding you should be aware of, and 1 of them is a bit concerning.
2. Future Earnings: How does PLAZ B'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.
3. 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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the OM 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.