Endava plc's (NYSE:DAVA) Intrinsic Value Is Potentially 45% Above Its Share Price

Simply Wall St.10-29 22:48

Key Insights The projected fair value for Endava is US$35.65 based on 2 Stage Free Cash Flow to Equity Current share price of US$24.60 suggests Endava is potentially 31% undervalued Analyst ...

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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\">\nEndava plc's (NYSE:DAVA) Intrinsic Value Is Potentially 45% Above Its Share Price\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-29 22:48 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/endava-plcs-nyse-dava-intrinsic-144835107.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n The projected fair value for Endava is US$35.65 based on 2 Stage Free Cash Flow to Equity \n Current share price of US$24.60 suggests Endava is potentially 31% undervalued \n  Analyst ...</p>\n\n<a href=\"https://finance.yahoo.com/news/endava-plcs-nyse-dava-intrinsic-144835107.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":"FCF","symbol_name":"第一联邦金融","start_time":0,"source_url":"https://finance.yahoo.com/news/endava-plcs-nyse-dava-intrinsic-144835107.html","article_id":"2479282615","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/._HFmWFPcwt6muyT_tZE7g--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/b394072c431426666ba19d9f9857f297"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2479282615","pubTimestamp":1730213315,"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"The projected fair value for Endava is US$35.65 based on 2 Stage Free Cash Flow to Equity. Current share price of US$24.60 suggests Endava is potentially 31% undervalued. Analyst price target for DAVA is UK37.30, which is 4.6% above our fair value estimate. In this article we are going to estimate the intrinsic value of Endava plc  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  model. Believe it or not, it's not too difficult to follow, as you'll see from our example!Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.Present Value of Terminal Value = TV / 1","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"FCF":"第一联邦金融","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","BK4100":"有线和卫星","BK4211":"区域性银行","TV":"墨西哥电视","LU0648005311.SGD":"Natixis DNCA Emerging Europe Equity RA SGD","BK4134":"信息科技咨询与其它服务","DAVA":"Endava Ltd","LU0084288595.USD":"法储银新兴欧洲基金RA","NYSE":"纽交所"},"translate_title":"Endava plc（纽约证券交易所股票代码：DAVA）的内在价值可能比其股价高出45%","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DAVA":1,"DCF":1,"FCF":1,"NYSE":1,"TV":1},"content_text":"Key Insights\n\n The projected fair value for Endava is US$35.65 based on 2 Stage Free Cash Flow to Equity \n Current share price of US$24.60 suggests Endava is potentially 31% undervalued \n  Analyst price target for DAVA is UK£37.30, which is 4.6% above our fair value estimate \n\n In this article we are going to estimate the intrinsic value of Endava plc (NYSE:DAVA) 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. Believe it or not, it's not too difficult to follow, as you'll see from our example! \n Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. \n View our latest analysis for Endava \n What's The Estimated Valuation? \n We are going to use a two-stage DCF 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. To start off with, we need to estimate 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 A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today's value: \n 10-year free cash flow (FCF) forecast \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF (£, Millions) \nUK£42.0m\nUK£82.0m\nUK£91.0m\nUK£97.8m\nUK£103.6m\nUK£108.7m\nUK£113.3m\nUK£117.5m\nUK£121.4m\nUK£125.1m\n\n\nGrowth Rate Estimate Source\nAnalyst x1\nAnalyst x1\nAnalyst x1\nEst @ 7.45%\nEst @ 5.97%\nEst @ 4.93%\nEst @ 4.20%\nEst @ 3.69%\nEst @ 3.33%\nEst @ 3.08%\n\n\n Present Value (£, Millions) Discounted @ 8.3% \nUK£38.8\nUK£69.9\nUK£71.6\nUK£71.0\nUK£69.5\nUK£67.3\nUK£64.8\nUK£62.0\nUK£59.1\nUK£56.3\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = UK£630m\n The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.5%. We discount the terminal cash flows to today's value at a cost of equity of 8.3%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = UK£125m× (1 + 2.5%) ÷ (8.3%– 2.5%) = UK£2.2b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= UK£2.2b÷ ( 1 + 8.3%)10= UK£991m\n 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 UK£1.6b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of US$24.6, the company appears quite good value at a 31% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. \n\n\n\n  NYSE:DAVA Discounted Cash Flow October 29th 2024\n \n\n The Assumptions \n The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the 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 Endava 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 8.3%, which is based on a levered beta of 1.200. 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 Endava\n\n\nStrength\n\nDebt is not viewed as a risk.\n\n\nBalance sheet summary for DAVA.\n\n\n\nWeakness\n\nEarnings declined over the past year.\n\n\nShareholders have been diluted in the past year.\n\n\n\nOpportunity\n\nAnnual earnings are forecast to grow faster than the American market.\n\n\nTrading below our estimate of fair value by more than 20%.\n\n\n\nThreat\n\nRevenue is forecast to grow slower than 20% per year.\n\n\nWhat else are analysts forecasting for DAVA?\n\n\n\n Moving On: \n Whilst important, the DCF calculation shouldn't be the only metric you look at when researching a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or 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. Why is the intrinsic value higher than the current share price? For Endava, we've compiled three essential factors you should explore: \n\n Risks: Take risks, for example - Endava has   2 warning signs   we think you should be aware of. \nFuture Earnings: How does DAVA'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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the NYSE every day. If you want to find the calculation for other stocks 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. Simply Wall St has no position in any stocks mentioned.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2479282615"}