Estimating The Fair Value Of Continental Aerospace Technologies Holding Limited (HKG:232)

Simply Wall St.11-23

Key Insights Using the Dividend Discount Model, Continental Aerospace Technologies Holding fair value estimate is HK$0.096 Continental Aerospace Technologies Holding's HK$0.11 share price indicates ...

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We will take advantage of the Discounted Cash Flow (DCF) model for this purpose.  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.  Check out our latest analysis for Continental Aerospace Technologies Holding  The Calculation   As Continental Aerospace Technologies Holding operates in the aerospace & defense sector, we need to calculate the intrinsic value slightly differently.  Instead of using free cash flows, which are hard to estimate and often not reported by analysts in this industry, dividends per share (DPS) payments are used.  Unless a company pays out the majority of its FCF as a dividend, this method will typically underestimate the value of the stock.  The 'Gordon Growth Model' is used, which simply assumes that dividend payments will continue to increase at a sustainable growth rate forever.  For a number of reasons a very conservative growth rate is used that cannot exceed that of a company's Gross Domestic Product (GDP). In this case we used the 5-year average of the 10-year government bond yield (2.3%). The expected dividend per share is then discounted to today's value at a cost of equity of 6.4%.  Relative to the current share price of HK$0.1, the company appears   around fair value    at the time of writing.   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. Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)= HK$0.005 / (6.4% – 2.3%)= HK$0.1SEHK:232 Discounted Cash Flow November 22nd 2024  Important Assumptions  Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows.  Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions.  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 Continental Aerospace Technologies Holding 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 6.4%, which is based on a levered beta of 0.828. 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.  SWOT Analysis for Continental Aerospace Technologies HoldingStrength Earnings growth over the past year exceeded the industry. Debt is well covered by earnings. Balance sheet summary for 232. Weakness Earnings growth over the past year is below its 5-year average. Dividend is low compared to the top 25% of dividend payers in the Aerospace & Defense market. Current share price is above our estimate of fair value. Opportunity  232's financial characteristics indicate limited near-term opportunities for shareholders.Lack of analyst coverage makes it difficult to determine 232's earnings prospects.ThreatDebt is not well covered by operating cash flow. Paying a dividend but company has no free cash flows. Is 232 well equipped to handle threats?  Next Steps:  Valuation is only one side of the coin in terms of building your investment thesis, and it  shouldn't be the only metric you look at when researching a company.  The DCF model is not a perfect stock valuation tool.  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.  For Continental Aerospace Technologies Holding, we've compiled three  fundamental  items  you should further research:   Risks: Be aware that  Continental Aerospace Technologies Holding is showing  2 warning signs in our investment analysis , you should know about...    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!  Other Environmentally-Friendly Companies: Concerned about the environment and think consumers will buy eco-friendly products more and more? Browse through our interactive list of companies that are thinking about a greener future to discover some stocks you may not have thought of!   PS. Simply Wall St updates its DCF calculation for every Hong Kong stock every day, so if you want to find the intrinsic value of any other stock just search here.New: AI Stock Screener & AlertsOur new AI Stock Screener scans the market every day to uncover opportunities.• Dividend Powerhouses (3%+ Yield)• Undervalued Small Caps with Insider Buying• High growth Tech and AI CompaniesOr build your own from over 50 metrics.Explore Now for FreeHave 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":"highlight","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":"4.29.3","shortVersion":"4.29.3","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/2485249652"}