RTL Group S.A. (ETR:RRTL) Shares Could Be 37% Below Their Intrinsic Value Estimate

Simply Wall St.11-23

Key Insights Using the 2 Stage Free Cash Flow to Equity, RTL Group fair value estimate is €38.34 RTL Group's €24.10 share price signals that it might be 37% undervalued The €33.07 analyst price...

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(ETR:RRTL) Shares Could Be 37% Below Their Intrinsic Value Estimate","media":"Simply Wall St.","content":"<div>\n<p>Key Insights\n\n Using the 2 Stage Free Cash Flow to Equity, RTL Group fair value estimate is €38.34 \n RTL Group's €24.10 share price signals that it might be 37% undervalued \n  The €33.07 analyst price...</p>\n\n<a href=\"https://finance.yahoo.com/news/rtl-group-etr-rrtl-shares-060144524.html\">Source Link</a>\n\n</div>\n","source":"yahoofinance","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>RTL Group S.A. (ETR:RRTL) Shares Could Be 37% Below Their Intrinsic Value Estimate</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; 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\">\nRTL Group S.A. (ETR:RRTL) Shares Could Be 37% Below Their Intrinsic Value Estimate\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-23 14:01 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/rtl-group-etr-rrtl-shares-060144524.html><strong>Simply Wall St.</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Key Insights\n\n Using the 2 Stage Free Cash Flow to Equity, RTL Group fair value estimate is €38.34 \n RTL Group's €24.10 share price signals that it might be 37% undervalued \n  The €33.07 analyst price...</p>\n\n<a href=\"https://finance.yahoo.com/news/rtl-group-etr-rrtl-shares-060144524.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":"IE00BMG7P702.HKD","symbol_name":"FTGF CLEARBRIDGE GLOBAL INFRASTRUCTURE INCOME \"A\" (HKD) INC","start_time":0,"source_url":"https://finance.yahoo.com/news/rtl-group-etr-rrtl-shares-060144524.html","article_id":"2485922081","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/mIA2_Wi47DgUtr5an4Bm1A--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/9bb7f42aa828fe2adcd21c47fd9828f9"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2485922081","pubTimestamp":1732341704,"sourceInfo":{"source_id":"yahoofinance","name":"雅虎金融"},"weMediaInfo":null,"summary":"Using the 2 Stage Free Cash Flow to Equity, RTL Group fair value estimate is 38.34. RTL Group's 24.10 share price signals that it might be 37% undervalued. The 33.07 analyst price target for RRTL is 14% less than our estimate of fair value. Does the November share price for RTL Group S.A.  reflect what it's really worth?Today, we will estimate the stock's intrinsic value by projecting its future cash flows and then discounting them to today's value. Our analysis will employ the Discounted Cash Flow  model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. 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(ETR:RRTL) reflect what it's really worth? Today, we will estimate the stock's intrinsic value by projecting its future cash flows and then discounting them to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow. \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 RTL Group \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 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 A 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: \n 10-year free cash flow (FCF) estimate \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF (€, Millions) \n€897.5m\n€568.0m\n€405.1m\n€324.9m\n€280.8m\n€254.9m\n€239.2m\n€229.6m\n€223.8m\n€220.5m\n\n\nGrowth Rate Estimate Source\nAnalyst x2\nAnalyst x2\nEst @ -28.69%\nEst @ -19.79%\nEst @ -13.57%\nEst @ -9.21%\nEst @ -6.16%\nEst @ -4.02%\nEst @ -2.53%\nEst @ -1.48%\n\n\n Present Value (€, Millions) Discounted @ 5.4% \n€852\n€511\n€346\n€263\n€216\n€186\n€166\n€151\n€140\n€130\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = €3.0b\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. 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 1.0%. We discount the terminal cash flows to today's value at a cost of equity of 5.4%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = €220m× (1 + 1.0%) ÷ (5.4%– 1.0%) = €5.0b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= €5.0b÷ ( 1 + 5.4%)10= €3.0b\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 €5.9b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of €24.1, the company appears quite undervalued at a 37% 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  XTRA:RRTL Discounted Cash Flow November 23rd 2024\n \n\n Important Assumptions \n The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the 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 RTL 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. In this calculation we've used 5.4%, which is based on a levered beta of 1.076. 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 RTL Group\n\n\nStrength\n\nEarnings growth over the past year exceeded its 5-year average.\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 RRTL.\n\n\n\nWeakness\n\nEarnings growth over the past year underperformed the Media industry.\n\n\n\nOpportunity\n\nGood value based on P/E ratio and estimated fair value.\n\n\n\nThreat\n\nDividends are not covered by earnings and cashflows.\n\n\nAnnual earnings are forecast to decline for the next 3 years.\n\n\nSee RRTL's dividend history.\n\n\n\n Moving On: \n Whilst important, the DCF calculation is only one of many factors that you need to assess for 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 RTL Group, there are three important aspects you should consider: \n\n Risks: To that end, you should be aware of the   2 warning signs  we've spotted with RTL Group . \nFuture Earnings: How does RRTL'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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the XTRA 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. 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