Below are the data sources, inputs and calculation used to determine the intrinsic value forFortescue Metals Group.
ASX:FMGDiscounted Cash Flow Data Sources Data Point Source Value Valuation Model Dividend Discount Model Dividend Per Share Company Filings (30/06/2019) inUSD $0.6179600000000001 Payout Ratio Company Filings (30/06/2019) 6209.6% Discount Rate (Cost of Equity) See below 8.5% Perpetual Growth Rate 10-YearAUGovernment Bond Rate 2.3% An important part of a discounted cash flow is the discount rate, below we explain how it has been calculated.
Calculation of Discount Rate/ Cost of Equity forASX:FMG Data Point Calculation/ Source Result Risk-Free Rate 10-YearAUGovt Bond Rate 2.3% Equity Risk Premium S&P Global 6.0% Metals and MiningUnlevered Beta Simply Wall St/ S&P Global 0.85 Re-levered Beta = 0.33 + [(0.66 * Unlevered beta) * (1 + (1 - tax rate) (Debt/Market Equity))]
= 0.33 + [(0.66 *0.852) * (1 + (1 -30.0%) (15.16%))]1.041 Levered Beta Levered Beta limited to 0.8 to 2.0
(practical range for a stable firm)1.041 Discount Rate/ Cost of Equity = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
=2.26%+ (1.041*6.01%)8.52%
Discounted Cash Flow Calculation forASX:FMGusingDividend Discount Model
The calculations below outline how an intrinsic value forFortescue Metals Groupis arrived at by discounting future dividends to their present value. This approach is used for finance firms where free cash flow is difficult to estimate (e.g. Banks/ Insurance firms).
If the firm does not pay the majority of its earnings out as a dividend this method will often arrive at a value significantly lower than the share price.
CalculationResult 1 Value per share = Expected dividends per share / (Discount Rate - Perpetual growth rate)
$0.62/ (8.52%-2.26%)$9.87
ASX:FMGDiscount to Share Price Calculation Result Exchange Rate USD/AUD
(Reporting currency to currency ofASX:FMG)1.536 Value per Share
(AUD)= Value per Share inUSDx Exchange Rate (USD/AUD)
=$9.87x1.54A$15.17 Value per share (AUD) From above. A$15.17 Current discount Discount to share price ofA$13.87
= -1 x (A$13.87-A$15.17) /A$15.178.6%
Below are the data sources, inputs and calculation used to...
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