A Look At The Fair Value Of Supply Network Limited (ASX:SNL)

Simply Wall St.11:56

Key Insights The projected fair value for Supply Network is AU$31.90 based on 2 Stage Free Cash Flow to Equity With AU$32.93 share price, Supply Network appears to be trading close to its ...

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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\">\nA Look At The Fair Value Of Supply Network Limited (ASX:SNL)\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-12-23 11:56 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://finance.yahoo.com/news/look-fair-value-supply-network-035647159.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 Supply Network is AU$31.90 based on 2 Stage Free Cash Flow to Equity \n With AU$32.93 share price, Supply Network appears to be trading close to its ...</p>\n\n<a href=\"https://finance.yahoo.com/news/look-fair-value-supply-network-035647159.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":"BK7086","symbol_name":"经销商","start_time":0,"source_url":"https://finance.yahoo.com/news/look-fair-value-supply-network-035647159.html","article_id":"2493201088","we_media_id":null,"thumbnails":["https://s.yimg.com/uu/api/res/1.2/4Z2zABeV9DiesrFHRLjB2w--~B/aD00MzI7dz0xMTk0O2FwcGlkPXl0YWNoeW9u/https://media.zenfs.com/en/simply_wall_st__316/36c6840dc76edf99f4dd4c6af7e086b2"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2493201088","pubTimestamp":1734926207,"columns":[],"sourceInfo":{"source_id":"yahoofinance_au","name":"Yahoo Finance AU"},"weMediaInfo":null,"summary":"The projected fair value for Supply Network is AU$31.90 based on 2 Stage Free Cash Flow to Equity. With AU$32.93 share price, Supply Network appears to be trading close to its estimated fair value. The AU$34.24 analyst price target for SNL is 7.3% more than our estimate of fair value. Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Supply Network Limited  as an investment opportunity by taking the expected future cash flows and discounting them to their present value. The Discounted Cash Flow  model is the tool we will apply to do this. There's really not all that much to it, even though it might appear quite complex.We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.","collect":0,"end_time":0,"defaultTopTitle":"yahoo.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"BK7086":"经销商","TV":"墨西哥电视","FCF":"第一联邦金融","SNL.AU":"SUPPLY NETWORK LTD","DCF":"Dreyfus Alcentra Global Credit Income 2024 Target Term Fund, Inc","BK4100":"有线和卫星","BK4211":"区域性银行"},"translate_title":"Supply Network Limited(ASX：SNL)的公允价值一览","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"DCF":1,"FCF":1,"SNL.AU":1,"TV":1},"content_text":"Key Insights\n\n The projected fair value for Supply Network is AU$31.90 based on 2 Stage Free Cash Flow to Equity \n With AU$32.93 share price, Supply Network appears to be trading close to its estimated fair value \n  The AU$34.24 analyst price target for SNL is 7.3% more than our estimate of fair value \n\n Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Supply Network Limited (ASX:SNL) as an investment opportunity by taking the expected future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. There's really not all that much to it, even though it might appear quite complex. \n We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. \n View our latest analysis for Supply Network \n Step By Step Through The Calculation \n We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years. \n A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, so we discount the value of these future cash flows to their estimated value in today's dollars: \n 10-year free cash flow (FCF) estimate \n\n\n\n\n2025\n2026\n2027\n2028\n2029\n2030\n2031\n2032\n2033\n2034\n\n\n Levered FCF (A$, Millions) \nAU$22.5m\nAU$31.0m\nAU$39.3m\nAU$45.6m\nAU$51.0m\nAU$55.7m\nAU$59.7m\nAU$63.2m\nAU$66.2m\nAU$69.0m\n\n\nGrowth Rate Estimate Source\nAnalyst x2\nAnalyst x2\nAnalyst x2\nEst @ 15.99%\nEst @ 11.97%\nEst @ 9.15%\nEst @ 7.18%\nEst @ 5.80%\nEst @ 4.83%\nEst @ 4.16%\n\n\n Present Value (A$, Millions) Discounted @ 6.3% \nAU$21.1\nAU$27.4\nAU$32.7\nAU$35.7\nAU$37.6\nAU$38.6\nAU$38.9\nAU$38.7\nAU$38.2\nAU$37.4\n\n\n\n(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = AU$346m\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 2.6%. We discount the terminal cash flows to today's value at a cost of equity of 6.3%. \nTerminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = AU$69m× (1 + 2.6%) ÷ (6.3%– 2.6%) = AU$1.9b\nPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= AU$1.9b÷ ( 1 + 6.3%)10= AU$1.0b\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 AU$1.4b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of AU$32.9, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. \n\n\n\n  ASX:SNL Discounted Cash Flow December 23rd 2024\n \n\n The 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 Supply Network 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 6.3%, which is based on a levered beta of 0.905. 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 Supply Network\n\n\nStrength\n\nEarnings growth over the past year exceeded the industry.\n\n\nDebt is not viewed as a risk.\n\n\nBalance sheet summary for SNL.\n\n\n\nWeakness\n\nEarnings growth over the past year is below its 5-year average.\n\n\nDividend is low compared to the top 25% of dividend payers in the Retail Distributors market.\n\n\nExpensive based on P/E ratio and estimated fair value.\n\n\nShareholders have been diluted in the past year.\n\n\n\nOpportunity\n\nAnnual earnings are forecast to grow faster than the Australian market.\n\n\n\nThreat\n\nDividends are not covered by cash flow.\n\n\nRevenue is forecast to grow slower than 20% per year.\n\n\nSee SNL's dividend history.\n\n\n\n Looking Ahead: \n Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to \"what assumptions need to be true for this stock to be under/overvalued?\" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Supply Network, we've put together three pertinent factors you should assess: \n\n Risks: Consider for instance, the ever-present spectre of investment risk.   We've identified 3 warning signs  with Supply Network (at least 1 which shouldn't be ignored)  , and understanding them should be part of your investment process. \n Future Earnings: How does SNL'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 ASX 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":"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/2493201088"}