Base Free Cash Flow



The above figure presenting the Free Cash Flow for APOLLO for T4Q and Last 10 Financial Years. It show that the FCF have been growth from 10,639 to 36,611 with a growth rate of 244.12% or a CAGR of 13.15%.

In view of the FCF is very lumpy, I am using the average of latest  5 years FCF - 21,216 as the base FCF for the DCF valuation.

Growth Rate

The growth rate can be estimated based on the CAGR over multiple short term periods and then calculate the median of all those values.





I will use the average of 5 Year and 10 Year Multi Year Growth Rate as my base growth rate, i.e. average(12.30%, 6.69%) = 9.49%

The company will go through several distinct phases, starting with a "growth" phase where earnings are increasing at a predictable rate, followed by a "mature" phase where earnings level off to a constant level.






I will assume the FCF will growth with the base growth rate of 9.49% on Year 1 - Year 3, apply a decar rate of 15% to the base growt rate on Year 4 - Year 7 and make the growth rate to be 8.07%, and further decay 20% on Year 8 - Year 10 to make the growth rate to 6.456%. After that, I apply a 3% as terminal growth rate for the rest of the year, in accordance to the inflation rate.

Discount Rate

Discount Rate is the Cost of Equity, which equal to Risk Free Rate + Equity Premium. Based on today context, the interest rate for 1 year FD is around 3.2% and I will use it as my risk free rate. I would required a premium of 8% in order to risk my money in the equity market. But in view of the clean balance sheet and company was involve in consumer staple sector, I perform some adjustments to my risk premium.




And, my required discount rate is 3.20% + 6.48% = 9.68%

Intrinsic Value based on DCF



Based on the above assumpation of Initial Cash Flow (21,216), Growth Rate (9.49%), and Discount Rate (9.68%), the intrinsic value is 6.656

Should I invest in APOLLO?



Based on APOLLO stock price of 4.980, the Margin of Safety provided by the intrinsic value of 6.656 is 25.18%; and this is lower than my Required MOS of 30%. In view of this, I will not invest in this company.

References:-

• Discounted Cash Flow Analysis & Reverse Discounted Cash Flow
• APOLLO (6432) Quarterly Result
• APOLLO (6432) Annual Result

Posted by Intelligent Investor at 14:51

 

Labels: APOLLO, DCF