key insights
Koninklijke BAM Group has an estimated fair value of €2.66 based on a dividend discount model
Koninklijke BAM Group is estimated to be 27% undervalued based on the current share price of €1.96
Koninklijke BAM Group is currently trading at an average 30% premium to its peers
Does the August share price for Koninklijke BAM Group nv (AMS:BAMNB) reflect what it’s really worth? Today, we’ll estimate a stock’s intrinsic value by estimating its future cash flows and then discounting them to today’s value. Our analysis will employ the Discounted Cash Flow (DCF) model. Just read on before you think you won’t understand it! It’s actually a lot less complicated than you might imagine.
Remember, however, that there are many ways to estimate the value of a company, and DCF is just one method. If you want to learn more about discounted cash flow, the reasoning behind this calculation can be read in detail in The Simply Wall Cent Analysis Model.
View our latest analysis for Koninklijke BAM Group
Maths
We have to calculate Koninklijke BAM Group’s value a little differently from other stocks because it’s a manufacturing company. Dividends per share (DPS) are used in this approach, since free cash flow is difficult to estimate and is often not reported by analysts. This often undervalues a stock’s value, but it can still be good compared to competitors. The ‘Gordon Growth Model’ is used, which simply assumes that dividend payments will always increase at a sustainable growth rate. For several reasons a very conservative growth rate is used which cannot exceed the gross domestic product (GDP) of a company. In this case we used the 5-year average of the 10-year government bond yield (0.5%). The expected dividend per share is discounted to today’s value at a cost of equity of 6.4%. Compared to the current share price of €2.0, it appears undervalued at a 27% discount to where the company is currently trading at the stock price. The assumptions in any calculation have a big impact on the valuation, so it’s better to look at it as a rough estimate, not accurate down to the last cent.
Price per share = Expected dividend per share / (Discount rate – Sustainable growth rate)
= €0.2 / (6.4% – 0.5%)
= €2.7
DCF
Estimate
The above calculation is heavily dependent on two assumptions. The first is the discount rate and the second 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 doesn’t consider the potential cyclicality of an industry, or a company’s future capital requirements, so it doesn’t give a complete picture of a company’s potential performance. Given that we are looking at Koninklijke BAM 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 is used for debt. is responsible for. In this calculation we used 6.4%, which is based on a Lever Beta of 1.176. Beta is a measure of a stock’s volatility compared to the overall market. We derive our beta from the industry average beta of globally comparable companies, which has a range between 0.8 and 2.0, which is a reasonable range for a stable business.
SWOT analysis for Koninklijke BAM Group
Strength
weakness
opportunity
Threat
moving on:
Valuation is only one side of the coin in the context of building your investment thesis, and it ideally should not be the only piece of analysis you examine for a company. DCF models are not the be all and end all of investment valuation. Preferably you would apply various cases and assumptions and see how they would affect the valuation of the company. If a company grows at a different rate, or if its cost of equity or risk-free rate of return changes rapidly, the output can look very different. Can we find out why the company is trading at a discount to intrinsic value? For Koninklijke BAM Group, there are three relevant elements that you should consider:
riskFor example, we have 3 warning signs for Koninklijke BAM Group (1 makes us a little uneasy!) Here’s what you need to consider before investing.
future earnings: How does BAMNB’s growth rate compare to its competitors and the broader market? Get an in-depth look at the analyst consensus numbers for the upcoming years by interacting with our free Analyst Growth Expectations chart.
Other High Quality Alternatives: Do you like a good all-rounder? Check out our interactive list of high quality stocks to find out what else you might be missing!
PS. Simply Wall St updates its DCF calculation for each Dutch stock every day, so if you want to know the intrinsic value of another stock just search here.
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This article from Simply Wall St is general in nature. We only provide commentary based on historical data and analyst forecasts using unbiased methodologies and our articles are not intended to provide financial advice. It is not a recommendation to buy or sell any stock, and does not take into account 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 take into account the latest price-sensitive company announcements or qualitative material. Simply Wall St does not have any position in any of the stocks mentioned.
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