Share Price vs. Fair Value

Below are the data sources, inputs and calculation used to determine the intrinsic value for Kri-Kri Milk Industry.

Data PointSourceValue
Valuation Model2 Stage Free Cash Flow to Equity
Levered Free Cash FlowUp to 1 Analyst Estimates on Average (S&P Global)See below
Discount Rate (Cost of Equity)See below10.8%
Perpetual Growth Rate5-Year Average of GR Long-Term Govt Bond Rate2.5%

An important part of a discounted cash flow is the discount rate, below we explain how it has been calculated.

Data PointCalculation/ SourceResult
Risk-Free Rate5-Year Average of GR Long-Term Govt Bond Rate2.5%
Equity Risk PremiumS&P Global10.5%
Food Unlevered BetaSimply Wall St/ S&P Global0.50
Re-levered Beta= 0.33 + [(0.66 * Unlevered beta) * (1 + (1 – tax rate) (Debt/Market Equity))]
= 0.33 + [(0.66 * 0.503) * (1 + (1 – 24.0%) (5.76%))]
0.682
Levered BetaLevered Beta limited to 0.8 to 2.0
(practical range for a stable firm)
0.8
Discount Rate/ Cost of Equity= Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
= 2.46% + (0.800 * 10.46%)
10.83%

Discounted Cash Flow Calculation for ATSE:KRI using 2 Stage Free Cash Flow to Equity

The calculations below outline how an intrinsic value for Kri-Kri Milk Industry is arrived at by discounting future cash flows to their present value using the 2 stage method. We use analyst’s estimates of cash flows going forward 10 years for the 1st stage, the 2nd stage assumes the company grows at a stable rate into perpetuity.

Levered FCF (EUR, Millions)SourcePresent Value
Discounted (@ 10.83%)
202433,84Analyst x130,53
202521,99Analyst x117,9
202616,14Est @ -26.62%11,85
202713,25Est @ -17.89%8,78
202811,69Est @ -11.79%6,99
202910,81Est @ -7.51%5,83
203010,32Est @ -4.52%5,03
203110,07Est @ -2.43%4,42
20329,97Est @ -0.96%3,95
20339,98Est @ 0.07%3,57
Present value of next 10 years cash flows€98,87
CalculationResult
Terminal ValueFCF2033 × (1 + g) ÷ (Discount Rate – g)
= €9,98 x (1 + 2.46%) ÷ (10.83% – 2.46% )
€122,2
Present Value of Terminal Value= Terminal Value ÷ (1 + r)10
€122 ÷ (1 + 10.83%)10
€43,71
CalculationResult
Total Equity Value= Present value of next 10 years cash flows + Terminal Value
= €99 + €44
€142,58
Equity Value per Share
(EUR)
= Total value / Shares Outstanding
= €143 / 33
€4,32
CalculationResult
Value per share (EUR)From above.€4.32
Current discountDiscount to share price of €9.8
= (€4.32 – €9.8) / €4.32
-126.8%