Key Insights The projected fair value for Magni-Tech Industries Berhad is RM1.80 based on Dividend Discount Model Magni-Tech Industries Berhad's RM2.13 share price indicates it is trading at similar levels as its fair value estimate When compared to the Magni-Tech Industries Berhad's competitors seem to be trading at a greater premium to fair value In this article we are going to estimate the intrinsic value of Magni-Tech Industries Berhad ( ) by projecting its future cash flows and then discounting them to today's value.
Our analysis will employ the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine. 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 may be something of interest to you. As Magni-Tech Industries Berhad operates in the luxury sector, we need to calculate the intrinsic value slightly differently. Instead of using free cash flows, which are hard to estimate and often not reported by analysts in this industry, dividends per share (DPS) payments are used.
Unless a company pays out the majority of its FCF as a dividend, this method will typically underestimate the value of the stock. The 'Gordon Growth Model' is used, which simply assumes that dividend payments will continue to increase at a sustainable growth rate forever. The dividend is expected to grow at an annual growth rate equal to the 5-year average of the 10-year government bond yield of 3.
6%. We then discount this figure to today's value at a cost of equity of 11%. Compared to the current share price of RM2.
1, the company appears around fair value at the time of writing. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.
Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate) = RM0.1 / (11% – 3.6%) = RM1.
8 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 Magni-Tech Industries Berhad 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 1.269.
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. Although the valuation of a company is important, it ideally won't be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation.
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 Magni-Tech Industries Berhad, there are three further factors you should assess: : Case in point, we've spotted you should be aware of.
: How does MAGNI'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 . : Do you like a good all-rounder? Explore 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 KLSE every day.
If you want to find the calculation for other stocks just ..
