@chad987,
Running a sensitivity analysis on Appen using a DCF model -- I arrive at the following:
The two main variables I am playing around with are:
- Growth (top line CAGR across the 2020-30F forecast period)
- Terminal EBITDA multiple
Across each scenario, I've held everything else constant:
- A corporate tax rate of 30%
- A weighted average cost of capital (WACC) of 9.9%. [This is based upon a cost of debt calculation that reflects i) the risk-free rate, ii) the country risk premium and iii) the sector’s (technology) specific cost of borrowing]
- Annual inflation rate of 2.40%
- Assumed total shares on issue remains constant at 122.35M
- Assumed the underlying EBITDA margin rises gradually (linearly) to 21% by 2030F (across 2015-2019, the EBITDA margin has ranged from 16% to 20%) [I think this is a very conservative assumption]
- Assumed the EBIT margin of 11% in 2020 rises gradually (linearly) to 16% by 2030F (across 2015-2019, the EBIT margin has ranged from 12% to 16%) [I also think this is a very conservative assumption]
What does this tell us?
- The market is currently valuing Appen as if it is likely to grow at a compounded annual growth rate (CAGR) of somewhere between 5-10% over the next decade. For example, a 10% annual growth rate across the next decade, with a 15x terminal EBITDA multiple leads to a fair value of circa $20.86 per share
- The industry is projected to grow at between 24% and 28% CAGR, so by buying Appen at current prices, in my view, one has a significant margin of safety.
On the 23.07.2020, I sold my Appen holding at $37.26 to lock in profit (see here: https://hotcopper.com.au/threads/ann-notification-of-earnings-release-and-conference-call.5495223/page-10?post_id=46038349).
I'm very grateful that the (irrational) market has given me this chance to rebuild my position at extremely low prices; it is the largest holding in my portfolio.
T.E.P.
APX Charts, page-1616
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Last
$1.55 |
Change
0.050(3.33%) |
Mkt cap ! $345.7M |
Open | High | Low | Value | Volume |
$1.54 | $1.60 | $1.46 | $32.96M | 21.40M |
Buyers (Bids)
No. | Vol. | Price($) |
---|---|---|
1 | 110249 | $1.55 |
Sellers (Offers)
Price($) | Vol. | No. |
---|---|---|
$1.56 | 74197 | 4 |
View Market Depth
No. | Vol. | Price($) |
---|---|---|
1 | 6493 | 1.545 |
2 | 10000 | 1.530 |
1 | 5245 | 1.525 |
1 | 50000 | 1.515 |
3 | 41029 | 1.505 |
Price($) | Vol. | No. |
---|---|---|
1.555 | 72224 | 3 |
1.560 | 5000 | 1 |
1.570 | 5480 | 3 |
1.575 | 5000 | 1 |
1.580 | 128219 | 6 |
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