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.
關鍵見解
根據兩階段股本自由現金流計算,Topsports International Holdings的估計公允價值爲5.97港元
目前5.46港元的股價表明Topsports International Holdings的交易價格可能接近其公允價值
分析師對6110的目標股價爲7.60元人民幣,比我們的公允價值估計高出27%
Topsports International Holdings Limited(HKG: 6110)距離其內在價值有多遠?使用最新的財務數據,我們將通過預測未來的現金流,然後將其折現爲今天的價值,來研究股票的定價是否合理。在這種情況下,我們將使用折扣現金流(DCF)模型。信不信由你,這並不難理解,正如你將從我們的例子中看到的那樣!
但請記住,估算公司價值的方法有很多,而差價合約只是一種方法。任何有興趣進一步了解內在價值的人都應該讀一讀 Simply Wall St 分析模型。
上面的計算在很大程度上取決於兩個假設。第一個是貼現率,另一個是現金流。你不必同意這些輸入,我建議你自己重做計算然後試一試。DCF也沒有考慮一個行業可能的週期性,也沒有考慮公司未來的資本需求,因此它沒有全面反映公司的潛在表現。鑑於我們將Topsports International Holdings視爲潛在股東,因此使用股本成本作爲貼現率,而不是構成債務的資本成本(或加權平均資本成本,WACC)。在此計算中,我們使用了7.9%,這是基於1.061的槓桿測試版。Beta是衡量股票與整個市場相比波動性的指標。我們的測試版來自全球可比公司的行業平均貝塔值,設定在0.8到2.0之間,這是一個穩定的業務的合理範圍。
Topsports 國際控股公司的 SWOT 分析
力量
債務不被視爲風險。
股息由收益和現金流支付。
6110的股息信息。
弱點
在過去的一年中,收益有所下降。
與專業零售市場前25%的股息支付者相比,股息很低。
機會
預計年收入增長速度將快於香港市場。
目前的股價低於我們對公允價值的估計。
威脅
預計收入每年增長將低於20%。
分析師對6110還有什麼預測?
展望未來:
就建立投資論點而言,估值只是硬幣的一面,它只是公司需要評估的衆多因素之一。DCF模型並不是投資估值的萬能藥。取而代之的是,DCF模型的最佳用途是測試某些假設和理論,看看它們是否會導致公司被低估或高估。如果一家公司以不同的速度增長,或者其股本成本或無風險利率急劇變化,則產出可能會大不相同。對於Topsports International Holdings而言,我們彙總了您應該探索的三個相關方面:
風險:例如冒險——Topsports International Holdings有1個我們認爲你應該注意的警告信號。