Yahoo Finance Estimating The Intrinsic Value Of Ingenico Group – GCS (EPA:ING)
Today I will be providing a simple run-through of the discounted cash flows (DCF) method to estimate the attractiveness of Ingenico Group – GCS (ENXTPA:ING) as an investment opportunity. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Also note that this article was written in June 2018 so be sure check the latest calculation for Ingenico Group – GCS here.
Crunching the numbers
I will be using the 2-stage growth 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. Firstly, I use the analyst consensus forecast of ING’s levered free cash flow (FCF) over the next five years and discounted these values at the rate of 8.57%. This resulted in a present value of 5-year cash flow of €1.47B. Keen to know how I arrived at this number? Take a look at our detailed analysis here.
The infographic above illustrates how ING’s earnings are expected to move going forward, which should give you some color on ING’s outlook. Now we need to calculate the terminal value, which accounts for all the future cash flows after the five years. I’ve decided to use the 10-year government bond rate of 2.8% as the steady growth rate, which is rightly below GDP growth, but more towards the conservative side. The present value of the terminal value after discounting it back five years is €3.64B.
The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is €5.11B. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of €82.14, which, compared to the current share price of €68.22, we see that Ingenico Group – GCS is about right, perhaps slightly undervalued at a 16.95% discount to what it is available for right now.
Next Steps:
Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company.
For ING, there are three fundamental factors you should look at:
Financial Health: Does ING 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 ING’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 ING? 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 FR 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.
