Topsports International Holdings' estimated fair value is HK$5.97 based on 2 Stage Free Cash Flow to Equity
Current share price of HK$5.46 suggests Topsports International Holdings is potentially trading close to its fair value
Analyst price target for 6110 is CN¥7.60, which is 27% above our fair value estimate
How far off is Topsports International Holdings Limited (HKG:6110) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by projecting its future cash flows and then discounting them to today's value. We will use the Discounted Cash Flow (DCF) model on this occasion. Believe it or not, it's not too difficult to follow, as you'll see from our example!
Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
What's The Estimated Valuation?
We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. 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.
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:
10-year free cash flow (FCF) estimate
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
Levered FCF (CN¥, Millions)
CN¥3.26b
CN¥2.76b
CN¥3.03b
CN¥2.60b
CN¥2.35b
CN¥2.21b
CN¥2.13b
CN¥2.09b
CN¥2.08b
CN¥2.08b
Growth Rate Estimate Source
Analyst x2
Analyst x2
Analyst x2
Est @ -14.36%
Est @ -9.44%
Est @ -5.99%
Est @ -3.58%
Est @ -1.90%
Est @ -0.72%
Est @ 0.11%
Present Value (CN¥, Millions) Discounted @ 7.9%
CN¥3.0k
CN¥2.4k
CN¥2.4k
CN¥1.9k
CN¥1.6k
CN¥1.4k
CN¥1.3k
CN¥1.1k
CN¥1.1k
CN¥976
("Est" = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = CN¥17b
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. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.0%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 7.9%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= CN¥36b÷ ( 1 + 7.9%)10= CN¥17b
The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is CN¥34b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of HK$5.5, the company appears about fair value at a 8.6% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.
The Assumptions
The calculation above is very dependent on two assumptions. The first is the discount rate and the other 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 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 Topsports International Holdings 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 7.9%, which is based on a levered beta of 1.061. 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 Topsports International Holdings
Strength
Debt is not viewed as a risk.
Dividends are covered by earnings and cash flows.
Dividend information for 6110.
Weakness
Earnings declined over the past year.
Dividend is low compared to the top 25% of dividend payers in the Specialty Retail market.
Opportunity
Annual earnings are forecast to grow faster than the Hong Kong market.
Current share price is below our estimate of fair value.
Threat
Revenue is forecast to grow slower than 20% per year.
What else are analysts forecasting for 6110?
Looking Ahead:
Valuation is only one side of the coin in terms of building your investment thesis, and it 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. For Topsports International Holdings, we've put together three relevant aspects you should explore:
Risks: Take risks, for example - Topsports International Holdings has 1 warning sign we think you should be aware of.
Future Earnings: How does 6110'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 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!
PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SEHK 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.
关键见解
根据两阶段股本自由现金流计算,Topsports International Holdings的估计公允价值为5.97港元
目前5.46港元的股价表明Topsports International Holdings的交易价格可能接近其公允价值
分析师对6110的目标股价为7.60元人民币,比我们的公允价值估计高出27%
Topsports International Holdings Limited(HKG: 6110)距离其内在价值有多远?使用最新的财务数据,我们将通过预测未来的现金流,然后将其折现为今天的价值,来研究股票的定价是否合理。在这种情况下,我们将使用折扣现金流(DCF)模型。信不信由你,这并不难理解,正如你将从我们的例子中看到的那样!
但请记住,估算公司价值的方法有很多,而差价合约只是一种方法。任何有兴趣进一步了解内在价值的人都应该读一读 Simply Wall St 分析模型。
上面的计算在很大程度上取决于两个假设。第一个是贴现率,另一个是现金流。你不必同意这些输入,我建议你自己重做计算然后试一试。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Topsports International Holdings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7.9%,这是基于1.061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。
Topsports 国际控股公司的 SWOT 分析
力量
债务不被视为风险。
股息由收益和现金流支付。
6110的股息信息。
弱点
在过去的一年中,收益有所下降。
与专业零售市场前25%的股息支付者相比,股息很低。
机会
预计年收入增长速度将快于香港市场。
目前的股价低于我们对公允价值的估计。
威胁
预计收入每年增长将低于20%。
分析师对6110还有什么预测?
展望未来:
就建立投资论点而言,估值只是硬币的一面,它只是公司需要评估的众多因素之一。DCF模型并不是投资估值的万能药。取而代之的是,DCF模型的最佳用途是测试某些假设和理论,看看它们是否会导致公司被低估或高估。如果一家公司以不同的速度增长,或者其股本成本或无风险利率急剧变化,则产出可能会大不相同。对于Topsports International Holdings而言,我们汇总了您应该探索的三个相关方面:
风险:例如冒险——Topsports International Holdings有1个我们认为你应该注意的警告信号。