Yahoo Finance Estimating The Fair Value Of BCA Marketplace plc (LON:BCA)
Today I will be providing a simple run-through of the discounted cash flows (DCF) method to estimate the attractiveness of BCA Marketplace plc (LSE:BCA) as an investment opportunity. If you want to learn more about this method, the basis for my calculations can be found in detail in the Simply Wall St analysis model. If you are reading this after June 2018 then I highly recommend you check out the latest calculation for BCA Marketplace here.
What’s the value?
I’ve used the 2-stage growth model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. To begin, I pulled together the analyst consensus forecast of BCA’s levered free cash flow (FCF) over the next five years and discounted these values at the cost of equity of 8.28%. This resulted in a present value of 5-year cash flow of UK£391.06M. Keen to know how I calculated this value? Check out our detailed analysis here.
Above is a visual representation of how BCA’s earnings are expected to move in the future, which should give you an idea of BCA’s outlook. Next, I determine the terminal value, which is the business’s cash flow after the first stage. I think it’s suitable to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. Discounting the terminal value back five years gives us a present value of UK£1.32B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is UK£1.71B. In the final step we divide the equity value by the number of shares outstanding. This results in an intrinsic value of £2.15, which, compared to the current share price of £2.25, we see that BCA Marketplace is fair value, maybe slightly overvalued at the time of writing.
Next Steps:
Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company.
For BCA, there are three fundamental factors you should further examine:
Financial Health: Does BCA have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Future Earnings: How does BCA’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: Are there other high quality stocks you could be holding instead of BCA? 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 does a DCF calculation for every GB stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
