The private equity firm led by former L Catterton Asia head Ravi Thakran will invest in the two brands, according to an announcement made at a New York roadshow by the Saudi Fashion Commission ahead of the inaugural edition of Riyadh Fashion Week later this month. 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.□□ Turmeric Capital invests in Saudi Arabian fashion brands Abadia and 1886. It's not possible to obtain a foolproof valuation with a DCF model. Valuation is only one side of the coin in terms of building your investment thesis, and it ideally won't be the sole piece of analysis you scrutinize for a company. 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. Beta is a measure of a stock's volatility, compared to the market as a whole. In this calculation we've used 6.3%, which is based on a levered beta of 0.992. Given that we are looking at Revolve Group 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. 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. ![]() You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. NYSE:RVLV Discounted Cash Flow February 2nd 2022 Important assumptions Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Relative to the current share price of US$52.1, the company appears a touch undervalued at a 28% discount to where the stock price trades currently. To get the intrinsic value per share, we divide this by the total number of shares outstanding. The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$5.2b. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 6.3%. In this case we have used the 5-year average of the 10-year government bond yield (2.0%) to estimate future growth. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. Present Value of 10-year Cash Flow (PVCF) = US$1.4bĪfter calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. ![]() ("Est" = FCF growth rate estimated by Simply Wall St) ![]() Present Value ($, Millions) Discounted 6.3% We do this to reflect that growth tends to slow more in the early years than it does in later years.Ī DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we need to discount the sum of these future cash flows to arrive at a present value estimate: 10-year free cash flow (FCF) forecast ![]() 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. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. In the first stage we need to estimate the cash flows to the business over the next ten years. 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. We're using the 2-stage growth model, which simply means we take in account two stages of company's growth.
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