The projected fair value for CapitaLand India Trust is S$1.27 based on Dividend Discount Model
CapitaLand India Trust's S$1.06 share price indicates it is trading at similar levels as its fair value estimate
Our fair value estimate is 2.1% lower than CapitaLand India Trust's analyst price target of S$1.29
In this article we are going to estimate the intrinsic value of CapitaLand India Trust (SGX:CY6U) by taking the expected future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.
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.
See our latest analysis for CapitaLand India Trust
Is CapitaLand India Trust Fairly Valued?
As CapitaLand India Trust operates in the real estate 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. This often underestimates the value of a stock, but it can still be good as a comparison to competitors. We use the Gordon Growth Model, which assumes dividend will grow into perpetuity at a rate that can be sustained. The dividend is expected to grow at an annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.0%. We then discount this figure to today's value at a cost of equity of 8.9%. Relative to the current share price of S$1.1, the company appears about fair value at a 16% 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.
Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)
= S$0.09 / (8.9% – 2.0%)
= S$1.3
Important Assumptions
Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the 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 CapitaLand India Trust 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 8.9%, which is based on a levered beta of 1.370. 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 CapitaLand India Trust
Strength
Debt is well covered by earnings.
Dividends are covered by earnings and cash flows.
Dividend is in the top 25% of dividend payers in the market.
Dividend information for CY6U.
Weakness
Earnings declined over the past year.
Shareholders have been diluted in the past year.
Opportunity
Annual earnings are forecast to grow faster than the Singaporean market.
Good value based on P/E ratio and estimated fair value.
Threat
Debt is not well covered by operating cash flow.
Revenue is forecast to grow slower than 20% per year.
Is CY6U well equipped to handle threats?
Moving On:
Although the valuation of a company is important, it is only one of many factors that you need to assess 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?" 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 CapitaLand India Trust, we've put together three fundamental factors you should consider:
Risks: To that end, you should learn about the 5 warning signs we've spotted with CapitaLand India Trust (including 1 which makes us a bit uncomfortable) .
Future Earnings: How does CY6U'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.
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!
PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SGX every day. If you want to find the calculation for other stocks just search here.
Have 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.
由于CapitaLand India Trust在房地产领域开展业务,因此我们需要以略有不同的方式计算内在价值。没有使用自由现金流,因为自由现金流难以估计,而且该行业的分析师通常不报告,而是使用每股股息(DPS)支付。这通常低估了股票的价值,但与竞争对手相比,它仍然可以很好地发挥作用。我们使用戈登增长模型,该模型假设股息将以可以持续的速度永久增长。预计股息将以相当于10年期国债收益率2.0%的5年平均增长率的年增长率增长。然后,我们将这个数字折现为今天的价值,股本成本为8.9%。相对于目前1.1新元的股价,该公司的公允价值似乎比目前的股价折扣了16%。但是,估值是不精确的工具,就像望远镜一样——移动几度,最终进入另一个星系。请记住这一点。
每股价值 = 每股预期股息/(折现率-永久增长率)
= 0.09 新元/(8.9% — 2.0%)
= S$1.3
重要假设
现在,贴现现金流的最重要输入是贴现率,当然还有实际现金流。如果你不同意这些结果,那就自己计算一下,试一试假设。DCF也没有考虑一个行业可能的周期性,也没有考虑公司未来的资本需求,因此它没有全面反映公司的潜在表现。鉴于我们将CapitaLand India Trust视为潜在股东,因此使用股本成本作为贴现率,而不是构成债务的资本成本(或加权平均资本成本,WACC)。在此计算中,我们使用了8.9%,这是基于1.370的杠杆测试版。Beta是衡量股票与整个市场相比波动性的指标。我们的测试版来自全球可比公司的行业平均贝塔值,设定在0.8到2.0之间,这是一个稳定的业务的合理范围。