SATS Ltd.'s (SGX:S58) Intrinsic Value Is Potentially 64% Above Its Share Price

Simply Wall St.04-23

Key Insights SATS' estimated fair value is S$4.01 based on 2 Stage Free Cash Flow to Equity SATS' S$2.44 share price signals that it might be 39% undervalued The S$3.19 analyst price target for...

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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSATS Ltd.'s (SGX:S58) Intrinsic Value Is Potentially 64% Above Its Share Price\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-23 08:13 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/sats-ltd-sgx-s58-intrinsic-001339894.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n SATS' estimated fair value is S$4.01 based on 2 Stage Free Cash Flow to Equity \n SATS' S$2.44 share price signals that it might be 39% undervalued \n  The S$3.19 analyst price target for...</p>\n\n<a href=\"https://finance.yahoo.com/news/sats-ltd-sgx-s58-intrinsic-001339894.html\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SG9999004360.SGD","symbol_name":"Nikko AM Shenton Thrift Fund SGD","start_time":0,"source_url":"https://finance.yahoo.com/news/sats-ltd-sgx-s58-intrinsic-001339894.html","article_id":"2429418600","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/YBqfr.0wiNe3u7_FPI8ehA--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/8a6e110a31c6069d708d7bc160393109"],"rights":{"source":"yahoofinance_sg","url":"https://finance.yahoo.com/news/sats-ltd-sgx-s58-intrinsic-001339894.html","rn_cache_url":null,"customStyle":"","selectors":"article, body","filters":"","directOrigin":true},"url":"https://stock-news.laohu8.com/highlight/detail?id=2429418600","pubTimestamp":1713831219,"sourceInfo":{"source_id":"yahoofinance_sg","name":"Yahoo Finance"},"weMediaInfo":null,"summary":"SATS' estimated fair value is S$4.01 based on 2 Stage Free Cash Flow to Equity. SATS' S$2.44 share price signals that it might be 39% undervalued. The S$3.19 analyst price target for S58 is 20% less than our estimate of fair value. Today we'll do a simple run through of a valuation method used to estimate the attractiveness of SATS Ltd.  as an investment opportunity by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow  model on this occasion. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SG9999004360.SGD":"Nikko AM Shenton Thrift Fund SGD","TV":"墨西哥电视","BK6519":"运输股","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","LU0082770016.USD":"HSBC GIF ASIA EX JAPAN SMALLER CO. \"AD\" INC","BK4089":"非传统电信运营商","FCF":"第一联邦金融","BK6084":"机场服务","BK4211":"区域性银行","BK4100":"有线和卫星","SATS":"回声星通信","SG9999000475.SGD":"Aberdeen Standard Singapore Equity SGD","S58.SI":"新翔集团有限公司"},"translate_title":"SATS Ltd.（SGX：S58）的内在价值可能比其股价高出64%","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DCF":1,"FCF":1,"SATS":1,"TV":1,"S58.SI":0.9},"content_text":"Key Insights\n\n SATS' estimated fair value is S$4.01 based on 2 Stage Free Cash Flow to Equity \n SATS' S$2.44 share price signals that it might be 39% undervalued \n  The S$3.19 analyst price target for S58 is 20% less than our estimate of fair value \n\n Today we'll do a simple run through of a valuation method used to estimate the attractiveness of SATS Ltd. (SGX:S58) as an investment opportunity by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow. \n We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. \n View our latest analysis for SATS \n Step By Step Through The Calculation \n We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. 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. 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. \n Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars: \n 10-year free cash flow (FCF) forecast \n\n\n\n\n2024\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n\n\n Levered FCF (SGD, Millions) \nS$251.2m\nS$543.5m\nS$656.2m\nS$581.0m\nS$570.0m\nS$571.0m\nS$556.6m\nS$550.2m\nS$549.2m\nS$551.8m\n\n\nGrowth Rate Estimate Source\nAnalyst x2\nAnalyst x2\nAnalyst x2\nAnalyst x1\nAnalyst x1\nAnalyst x1\nEst @ -2.52%\nEst @ -1.15%\nEst @ -0.19%\nEst @ 0.48%\n\n\n Present Value (SGD, Millions) Discounted @ 10.0% \nS$228\nS$449\nS$493\nS$397\nS$354\nS$323\nS$286\nS$257\nS$233\nS$213\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = S$3.2b\n 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. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.1%) to estimate future growth. 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 10.0%. \nTerminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = S$552m× (1 + 2.1%) ÷ (10.0%– 2.1%) = S$7.1b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= S$7.1b÷ ( 1 + 10.0%)10= S$2.7b\n The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is S$6.0b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of S$2.4, the company appears quite undervalued at a 39% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. \n\n\n\n  SGX:S58 Discounted Cash Flow April 23rd 2024\n \n\n The Assumptions \n 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 SATS 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 10.0%, which is based on a levered beta of 1.724. 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. \nSWOT Analysis for SATS\n\n\nStrength\n\n No major strengths identified for S58.\n\n\n\nWeakness\n\nInterest payments on debt are not well covered.\n\n\n\nOpportunity\n\nAnnual earnings are forecast to grow faster than the Singaporean market.\n\n\nTrading below our estimate of fair value by more than 20%.\n\n\nHave S58 insiders been buying lately?\n\n\n\nThreat\n\nDebt is not well covered by operating cash flow.\n\n\nRevenue is forecast to grow slower than 20% per year.\n\n\nIs S58 well equipped to handle threats?\n\n\n\n Moving On: \n 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. It's not possible to obtain a foolproof valuation with a DCF model. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. Why is the intrinsic value higher than the current share price? For SATS, we've put together three further items you should assess: \n\n Risks: For example, we've discovered 2 warning signs for SATS (1 is significant!) that you should be aware of before investing here. \nFuture Earnings: How does S58'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.\n Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! \n\n PS. Simply Wall St updates its DCF calculation for every Singaporean stock every day, so if you want to find the intrinsic value of any other stock just search here.\nHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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. 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