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Share Price vs. Fair Value

Below are the data sources, inputs and calculation used to determine the intrinsic value for Lake Resources.

ASX:LKE Discounted Cash Flow Data Sources

Data Point	Source	Value
Valuation Model		2 Stage Free Cash Flow to Equity
Levered Free Cash Flow	Average of 2 Analyst Estimates (S&P Global)	See below
Discount Rate (Cost of Equity)	See below	6.4%
Perpetual Growth Rate	5-Year Average of AU Long-Term Govt Bond Rate	1.8%

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 for ASX:LKE

Data Point	Calculation/ Source	Result
Risk-Free Rate	5-Year Average of AU Long-Term Govt Bond Rate	1.8%
Equity Risk Premium	S&P Global	4.2%
Metals and Mining Unlevered Beta	Simply Wall St/ S&P Global	1.11
Re-levered Beta	= 0.33 + [(0.66 * Unlevered beta) * (1 + (1 - tax rate) (Debt/Market Equity))] = 0.33 + [(0.66 * 1.115) * (1 + (1 - 30.0%) (0%))]	1.077
Levered Beta	Levered Beta limited to 0.8 to 2.0 (practical range for a stable firm)	1.077
Discount Rate/ Cost of Equity	= Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium) = 1.83% + (1.077 * 4.24%)	6.40%

Discounted Cash Flow Calculation forASX:LKEusing2 Stage Free Cash Flow to Equity

The calculations below outline how an intrinsic value for Lake Resources is arrived at by discounting future cash flows to their present value using the 2 stage method. We use analyst's estimates of cash flows going forward 10 years for the 1st stage, the 2nd stage assumes the company grows at a stable rate into perpetuity.

ASX:LKE DCF 1st Stage: Next 10 years cash flow forecast

	Levered FCF (AUD, Millions)	Source	Present Value Discounted (@ 6.40%)
2023	-580	Analyst x1	-545.14
2024	-401	Analyst x1	-354.24
2025	625	Analyst x1	518.93
2026	1,120.32	Est @ 79.25%	874.28
2027	1,747.97	Est @ 56.02%	1,282.1
2028	2,443.07	Est @ 39.77%	1,684.23
2029	3,136.55	Est @ 28.39%	2,032.33
2030	3,776.99	Est @ 20.42%	2,300.2
2031	4,337.58	Est @ 14.84%	2,482.82
2032	4,812.04	Est @ 10.94%	2,588.83
Present value of next 10 years cash flows			A$12,864

ASX:LKE DCF 2nd Stage: Terminal Value

	Calculation	Result
Terminal Value	FCF2032× (1 + g) ÷ (Discount Rate – g) = A$4,812.043 x (1 + 1.83%) ÷ (6.40% - 1.83% )	A$107,333.2
Present Value of Terminal Value	= Terminal Value ÷ (1 + r)10 A$107,333 ÷ (1 + 6.40%)10	A$57,744.27

ASX:LKE Total Equity Value

	Calculation	Result
Total Equity Value	= Present value of next 10 years cash flows + Terminal Value = A$12,864 + A$57,744	A$70,608.27
Equity Value per Share (AUD)	= Total value / Shares Outstanding = A$70,608 / 1,350	A$52.31

ASX:LKE Discount to Share Price

	Calculation	Result
Value per share (AUD)	From above.	A$52.31
Current discount	Discount to share price of A$0.89 = (A$52.31 - A$0.89) / A$52.31	98.3%

Learn more about our DCF calculations in Simply Wall St’sanalysis model.