key insights
-
Beyond Frames Entertainment's estimated fair value is €3.56 based on two-stage free cash flows into equity.
-
Beyond Frames Entertainment is estimated to be undervalued by 49% based on the current share price of €1.81
-
Beyond Frames Entertainment's peers are currently trading at an average premium of 53%
Does Beyond Frames Entertainment AB (publ) (FRA:8WP)'s March share price reflect its actual value? Today we'll get a forecast of the company's future cash flows and put it into today's value. Estimate the intrinsic value of the stock by discounting it. The discounted cash flow (DCF) model is the tool we apply to do this. Please read it before you think you don't understand it. It's actually much less complicated than you might imagine.
However, keep in mind that there are many ways to estimate a company's value, and a DCF is just one method. If you want to learn more about discounted cash flows, you can read more about the rationale behind this calculation in the Simply Wall St analytical model.
Check out our latest analysis for Beyond Frames Entertainment.
Method
We use a two-stage growth model. This means considering his two stages of company growth. In the initial stage, a company may have a higher growth rate, and in the second stage, it is usually considered to have a stable growth rate. The first step is to estimate the cash flow to the business over the next 10 years. 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 that companies with shrinking free cash flow will see their rate of shrinkage slow, and companies with growing free cash flow will see their growth rate slow over this period. This is to reflect that growth tends to be slower in the early years than in later years.
It is generally assumed that a dollar today is worth more than a dollar in the future, so the sum of these future cash flows is discounted to today's value.
Estimated 10-year free cash flow (FCF)
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
2031 |
2032 |
2033 |
|
Leverage FCF (SEK, million) |
1.00 m kronor |
16.0m kronor |
22.0m kronor |
26.5 m kronor |
30.4 m kronor |
33.5 m kronor |
36.0 m kronor |
37.9 m kronor |
39.4 m kronor |
40.5 m kronor |
Growth rate estimation source |
Analyst x 1 |
Analyst x 1 |
Analyst x 1 |
Estimated @ 20.52% |
Estimated @ 14.53% |
Estimated @ 10.34% |
Estimated @ 7.41% |
Estimated @ 5.35% |
Estimated @ 3.91% |
Estimated @ 2.91% |
Present value (SEK, million) discounted at 5.4% |
0.9 kronor |
14.4 kronor |
18.8 kronor |
21.5 kronor |
23.3 kroner |
24.4 kronor |
24.9 kronor |
24.9 kronor |
24.5 kronor |
23.9 kronor |
(“Est” = FCF growth rate estimated by Simply Wall St)
Present value of cash flows over 10 years (PVCF) = 202m kronor
The second stage is also called the terminal value, which is the cash flow of the business after the first stage. The Gordon Growth formula is used to calculate the terminal value with a future annual growth rate equal to his five-year average of 0.6% on the 10-year Treasury yield. The final cash flows are discounted to today's value at a cost of capital of 5.4%.
Terminal value (TV)=FCF2033 × (1 + g) ÷ (r – g) = KR41M × (1 + 0.6%) ÷ (5.4% – 0.6%) = KR840M
Present Value of Terminal Value (PVTV)= TV / (1 + r)Ten= KR840m÷ (1 + 5.4%)Ten= 495 yen
The total value, or capital value, is the sum of the present values of the future cash flows, which in this case is 697 million kronor. To get the intrinsic value per share, divide this by the total number of shares outstanding. Compared to the current share price of €1.8, the company appears to be significantly undervalued, at a 49% discount to its current share price. It is best to view this as a rough estimate, not accurate to the last cent, as the assumptions in the calculations have a significant impact on the valuation.
Important prerequisites
The above calculation relies heavily on two assumptions. One is the discount rate and the other is the cash flow. If you disagree with these results, try doing the calculations yourself and test your assumptions. Additionally, DCF does not give a complete picture of a company's potential performance because it does not take into account the cyclicality of the industry or the company's future capital requirements. Given that we are considering Beyond Frames Entertainment as a potential shareholder, the cost of equity is used as the discount rate, rather than the cost of equity taking into account debt (or weighted average cost of capital, WACC). For this calculation, we used 5.4% based on a leverage beta of 1.056. Beta is a measure of a stock's volatility in comparison to the market as a whole. Beta values are derived from industry average beta values for globally comparable companies and are constrained to a range of 0.8 to 2.0, which is a reasonable range for stable businesses.
SWOT analysis of Beyond Frames Entertainment
strength
Weakness
opportunity
threat
to the next:
Valuation is only one side of the coin when it comes to building an investment thesis, and is just one of many factors that need to be used to evaluate a company. It is not possible to obtain a reliable valuation with the DCF model. Rather, it should be viewed as a guide to “What assumptions need to hold true for this stock to be undervalued/overvalued?” For example, a small adjustment to the terminal value growth rate can dramatically change the overall result. Why is its intrinsic value higher than its current share price? We've put together 3 relevant factors to consider when it comes to Beyond Frames Entertainment.
-
risk: For example, I discovered the following: 3 warning signs for Beyond Frames Entertainment What you need to know before investing here.
-
future earnings: How does 8WP's growth rate compare to its peers and the broader market? Dive deeper into analyst consensus numbers for the coming years by interacting with the free Analyst Growth Expectations chart.
-
Other strong businesses: Low debt, high return on equity, and good past performance are the fundamentals of a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you haven't considered before?
PS. Simply Wall St updates DCF calculations for all German stocks daily, so if you want to know the intrinsic value of other stocks, search here.
Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our 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 using only unbiased methodologies, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.