Is There An Opportunity With Delfi Limited's (SGX:P34) 42% Undervaluation?

Simply Wall St.05-06

Key Insights The projected fair value for Delfi is S$1.53 based on Dividend Discount Model Current share price of S$0.89 suggests Delfi is potentially 42% undervalued Analyst price target for ...

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Current share price of S$0.89 suggests Delfi is potentially 42% undervalued. Analyst price target for P34 is US$1.37 which is 11% below our fair value estimate. How far off is Delfi Limited  from its intrinsic value?Now 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 Delfi as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital  which accounts for debt. In this calculation we've used 5.8%, which is based on a levered beta of 0.800. Beta is a measure of a stock's volatil","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","BK6114":"包装食品与肉类","P34.SI":"DELFI LIMITED","BK6509":"食品和饮料股"},"translate_title":"德尔菲有限公司（SGX：P34）被低估42%还有机会吗？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DCF":1,"P34.SI":0.9},"content_text":"Key Insights\n\n The projected fair value for Delfi is S$1.53 based on Dividend Discount Model \n Current share price of S$0.89 suggests Delfi is potentially 42% undervalued \n  Analyst price target for P34 is US$1.37 which is 11% below our fair value estimate \n\n How far off is Delfi Limited (SGX:P34) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the forecast future cash flows of the company and discounting them back to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward. \n Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. 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 Delfi \n The Model \n We have to calculate the value of Delfi slightly differently to other stocks because it is a food company. In this approach dividends per share (DPS) are used, as free cash flow is difficult to estimate and often not reported by analysts. This often underestimates the value of a stock, but it can still be good as a comparison to competitors. 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 2.1%. We then discount this figure to today's value at a cost of equity of 5.8%. Relative to the current share price of S$0.9, the company appears quite undervalued at a 42% 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. \nValue Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)\n= US$0.04 / (5.8% – 2.1%)\n= S$1.5\n\n\n\n  SGX:P34 Discounted Cash Flow May 6th 2024\n \n\n Important Assumptions \n Now 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 Delfi 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 5.8%, which is based on a levered beta of 0.800. 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 Delfi\n\n\nStrength\n\nEarnings growth over the past year exceeded the industry.\n\n\nDebt is not viewed as a risk.\n\n\nDividend is in the top 25% of dividend payers in the market.\n\n\nDividend information for P34.\n\n\n\nWeakness\n\nEarnings growth over the past year is below its 5-year average.\n\n\n\nOpportunity\n\nAnnual revenue is forecast to grow faster than the Singaporean market.\n\n\nTrading below our estimate of fair value by more than 20%.\n\n\n\nThreat\n\nDividends are not covered by cash flow.\n\n\n Annual earnings are forecast to grow slower than the Singaporean market.\n\n\nSee P34's dividend history.\n\n\n\n Looking Ahead: \n Valuation is only one side of the coin in terms of building your investment thesis, and it is only one of many factors that you need to assess for a company. The DCF model is not a perfect stock valuation tool. 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. What is the reason for the share price sitting below the intrinsic value? For Delfi, we've compiled three important factors you should explore: \n\n Risks: Take risks, for example - Delfi has   2 warning signs  (and 1 which is a bit unpleasant)  we think you should know about. \nFuture Earnings: How does P34'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 High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing! \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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