True value around $15-$18, page-43

Copilot says ....

:To perform a Discounted Cash Flow (DCF) analysis for Mineral Resources Limited (ASX: MIN), we need to estimate the future cash flows of the company and then discount them to their present value. Here’s a step-by-step breakdown:Step 1: Project Future Cash FlowsWe need to estimate the company’s free cash flows (FCF) for the next 5-10 years. Given the negative free cash flow in recent reports, we’ll use a conservative growth rate based on historical data and industry trends.Step 2: Calculate the Terminal ValueThe terminal value represents the value of the company’s cash flows beyond the forecast period. This can be calculated using the perpetuity growth model or the exit multiple method.Step 3: Determine the Discount RateThe discount rate is typically the company’s Weighted Average Cost of Capital (WACC). This accounts for the cost of equity and the cost of debt.Step 4: Discount the Cash FlowsDiscount the projected cash flows and the terminal value back to their present value using the discount rate.Step 5: Sum the Present ValuesAdd the present values of the projected cash flows and the terminal value to get the total enterprise value (EV).Step 6: Calculate the Equity ValueSubtract net debt from the enterprise value to get the equity value. Divide by the number of shares outstanding to get the intrinsic share price.Example CalculationLet’s assume the following simplified inputs for Mineral Resources Limited:Free Cash Flow (FCF) Growth Rate: 5% annuallyTerminal Growth Rate: 2%WACC: 8%Net Debt: AUD 1 billionShares Outstanding: 200 millionProjected Free Cash Flows (in AUD millions)TableYearFCF110021053110.254115.765121.55Terminal Value CalculationUsing the perpetuity growth model: [ \text{Terminal Value} = \frac{\text{FCF}_5 \times (1 + \text{Terminal Growth Rate})}{\text{WACC} - \text{Terminal Growth Rate}} ] [ \text{Terminal Value} = \frac{121.55 \times 1.02}{0.08 - 0.02} = 2,065.43 ]Discounted Cash Flows[ \text{PV of FCF}_1 = \frac{100}{(1 + 0.08)^1} = 92.59 ] [ \text{PV of FCF}_2 = \frac{105}{(1 + 0.08)^2} = 90.02 ] [ \text{PV of FCF}_3 = \frac{110.25}{(1 + 0.08)^3} = 87.50 ] [ \text{PV of FCF}_4 = \frac{115.76}{(1 + 0.08)^4} = 85.05 ] [ \text{PV of FCF}_5 = \frac{121.55}{(1 + 0.08)^5} = 82.66 ] [ \text{PV of Terminal Value} = \frac{2,065.43}{(1 + 0.08)^5} = 1,409.27 ]Total Enterprise Value (EV)[ \text{EV} = 92.59 + 90.02 + 87.50 + 85.05 + 82.66 + 1,409.27 = 1,847.09 ]Equity Value[ \text{Equity Value} = \text{EV} - \text{Net Debt} = 1,847.09 - 1,000 = 847.09 ]Intrinsic Share Price[ \text{Intrinsic Share Price} = \frac{\text{Equity Value}}{\text{Shares Outstanding}} = \frac{847.09}{200} = 4.24 ]ConclusionBased on this simplified DCF analysis, the intrinsic share price of Mineral Resources Limited would be approximately AUD 4.24. However, this is a very conservative estimate and actual values can vary significantly based on more accurate inputs and assumptions.Would you like to refine any of these inputs or explore another aspect of the analysis?