Technically, SKM looks to have broken out of a very long downward channel with convincing volume on the daily charts. It’ll be interesting to see what comes from it. The 100 and 200 daily EMA are the next challenge.
Posts tagged Value Pickr
Important metrics to predict stock price (25-06-2024)
How nopat uses to determine the stock price
Net Operating Profit After Taxes (NOPAT) is a key metric used in financial analysis to determine the intrinsic value of a company’s stock. It provides a clearer view of a company’s operational profitability by excluding the impact of debt and non-operating income and expenses. Here’s how NOPAT can be used to determine the stock price:
Calculate NOPAT:
NOPAT = Operating Income × (1 - Tax Rate)Operating Income is derived from the company’s income statement.
Determine Free Cash Flow (FCF):
FCF is derived from NOPAT and considers capital expenditures (CapEx) and changes in working capital.FCF = NOPAT + Depreciation & Amortization - Change in Working Capital - CapEx
Estimate Growth Rates:
Determine the expected growth rate of FCF based on historical performance, industry trends, and company projections.
Determine the Discount Rate:
The discount rate (often the Weighted Average Cost of Capital or WACC) is used to discount future cash flows to present value.
Forecast Future Cash Flows:
Project FCF for a certain number of years into the future (typically 5-10 years).
Calculate the Terminal Value:
After the forecast period, estimate the terminal value, which represents the value of all future cash flows beyond the forecast period.Terminal Value = Final Year FCF × (1 + Long-term Growth Rate) / (Discount Rate - Long-term Growth Rate)
Discount Future Cash Flows and Terminal Value to Present Value:
Use the discount rate to bring all future cash flows and terminal value to present value.Present Value of FCFs = Sum of (FCF in each year / (1 + Discount Rate)^Year)Present Value of Terminal Value = Terminal Value / (1 + Discount Rate)^Final Year
Calculate Enterprise Value (EV):
EV = Present Value of FCFs + Present Value of Terminal Value
Determine Equity Value:
Subtract net debt (total debt - cash and cash equivalents) from the enterprise value to get the equity value.Equity Value = EV - Net Debt
Calculate Stock Price:
Divide the equity value by the number of outstanding shares to determine the stock price.Stock Price = Equity Value / Number of Outstanding Shares
Example Calculation
Let’s assume a hypothetical company with the following data:Operating Income: $100 Million Tax Rate: 30%Depreciation & Amortization: $10 million CapEx: $20 Million Change in Working Capital: $5 Million Expected FCF Growth Rate: 5%Discount Rate (WACC): 10%Long-term Growth Rate: 3%Net Debt: $50 Million Number of Outstanding Shares: 10 million
Calculate NOPAT:NOPAT = $100 million × (1 - 0.30) = $70 million
Determine Free Cash Flow (FCF):FCF = $70 million + $10 million - $5 million - $20 million = $55 million
Forecast Future Cash Flows (assuming a 5% growth rate for 5 years):Year 1 FCF = $55 million × 1.05 = $57.75 Million Year 2 FCF = $57.75 million × 1.05 = $60.64 Million Year 3 FCF = $60.64 million × 1.05 = $63.67 Million Year 4 FCF = $63.67 million × 1.05 = $66.85 Million Year 5 FCF = $66.85 million × 1.05 = $70.19 million
Calculate Terminal Value (at the end of Year 5):
Terminal Value = $70.19 million × (1 + 0.03) / (0.10 - 0.03) = $1.034 billion
Discount Future Cash Flows and Terminal Value:
Present Value of FCFs = $57.75M / 1.10 + $60.64M / (1.10^2) + $63.67M / (1.10^3) + $66.85M / (1.10^4) + $70.19M / (1.10^5) ≈ $236.6 Million Present Value of Terminal Value = $1.034 billion / (1.10^5) ≈ $642.3 million
Calculate Enterprise Value (EV):
EV = $236.6 million + $642.3 million ≈ $878.9 million
Determine Equity Value:
Equity Value = $878.9 million - $50 million = $828.9 million
Calculate Stock Price:Stock Price = $828.9 million / 10 million shares = $82.89 per share
By following these steps, you can use NOPAT to help determine the intrinsic value of a company’s stock.
Important metrics to predict stock price (25-06-2024)
How DCF used to predict stock price
Discounted Cash Flow (DCF) analysis is a valuation method used to estimate the value of an investment based on its expected future cash flows.
Here’s how DCF is used to predict stock prices:
Estimate Future Cash Flows:Free Cash Flow to the Firm (FCFF): This is the cash flow available to all investors (both debt and equity holders) in the company. It’s calculated as: [ \text{FCFF} = \text{EBIT} \times (1 - \text{Tax Rate}) + \text{Depreciation} - \text{Capital Expenditure} - \text{Change in Net Working Capital} ]
Free Cash Flow to Equity (FCFE): This is the cash flow available to equity shareholders. It’s calculated as: [ \text{FCFE} = \text{FCFF} - \text{Interest Expense} \times (1 - \text{Tax Rate}) + \text{Net Borrowing} ]
Project Future Cash Flows:
Forecast the FCFF or FCFE for a certain number of years into the future (typically 5-10 years). These projections are based on assumptions about revenue growth, profit margins, capital expenditures, changes in working capital, etc.
Determine the Discount Rate:Weighted Average Cost of Capital (WACC): For FCFF, the discount rate is usually the WACC, which reflects the company’s cost of equity and debt. [ \text{WACC} = \left(\frac{E}{V}\right) \times \text{Cost of Equity} + \left(\frac{D}{V}\right) \times \text{Cost of Debt} \times (1 - \text{Tax Rate}) ]
Cost of Equity: For FCFE, the discount rate is the cost of equity, calculated using models like the Capital Asset Pricing Model (CAPM). [ \text{Cost of Equity} = \text{Risk-Free Rate} + \beta \times (\text{Market Risk Premium}) ]
Calculate the Terminal Value: Since it’s not practical to project cash flows indefinitely, a terminal value is estimated to account for the value beyond the projection period. This can be done using the Gordon Growth Model: [ \text{Terminal Value} = \frac{\text{Final Year’s Cash Flow} \times (1 + g)}{r - g} ] where (g) is the perpetual growth rate of the cash flows, and (r) is the discount rate.
Discount Cash Flows to Present Value: Discount the projected cash flows and terminal value back to their present value using the discount rate. [ \text{Present Value of Cash Flows} = \sum \left( \frac{\text{Cash Flow in Year t}}{(1 + \text{Discount Rate})^t} \right) ] [ \text{Present Value of Terminal Value} = \frac{\text{Terminal Value}}{(1 + \text{Discount Rate})^{\text{Final Year}}} ]
Calculate the Intrinsic Value: Sum the present values of the projected cash flows and the terminal value to get the total enterprise value (for FCFF) or equity value (for FCFE). For enterprise value, subtract net debt to find the equity value.
Estimate the Stock Price: Divide the equity value by the number of outstanding shares to estimate the stock price. [ \text{Stock Price} = \frac{\text{Equity Value}}{\text{Number of Outstanding Shares}}
]Summary Example:
Forecast FCFF for 5 years: Year 1: $100M, Year 2: $110M, Year 3: $121M, Year 4: $133M, Year 5: $146M.
Determine WACC: Assume WACC is 8%.
Estimate Terminal Value:
Assume a perpetual growth rate of 3%.
Discount Cash Flows: [ \text{PV of Cash Flows} = \sum \left( \frac{\text{FCFF in Year t}}{(1 + 0.08)^t} \right) ] [ \text{PV of Terminal Value} = \frac{146M \times (1 + 0.03)}{0.08 - 0.03} / (1 + 0.08)^5 ]
Sum the Present Values to get the total enterprise value.
Subtract Net Debt (if using FCFF) to get equity value.
Divide by Outstanding Shares to estimate the stock price.
DCF provides a thorough valuation based on expected cash flows and appropriate discount rates, though it relies heavily on the accuracy of the projections and assumptions used.
Amoul Portfolio (25-06-2024)
I have been trying to change my portfolio over the last month. Identified 3 new opportunities and increased the stake in some of the stocks bought before.
Here is the snapshot of the new allocation.
Stock | Profit % | Protfolio % |
---|---|---|
Zomato | 82% | 15% |
NTSP | 37% | 21% |
Angel One | 9% | 19% |
DP Abhushan | 95% | 13% |
LT Foods | 29% | 11% |
TPCL Packaging | 18% | 5% |
Creative Newtech | 6% | 4% |
Bajaj Finance | 0% | 13% |
New Additions:
- TCPL Packaging and Creative Newtech are a part of the secondary portfolio (allocation <5%0 if they do good would invest more.
TCPL Packaging
- Consistently growing at a CAGR of around 48% for the last 3 years, they have also increased their operating profit margin to around 17% from 14 in the last 3-4 years.
- They have also successfully commissioned a new advanced offset printing line in Haridwar which should increase their top-line growth
- Their client list is quite good and with the increase in consumer demand and per capita income the demand for packaged goods will increase. So looks like a good industry to be in.
Creating Newtech
- The company’s profit is growing at a rate of more than 50% and is available at a PE of 21 which looks like a bargain.
- Their sales were down 25% but margins were up 3X because of a change in product mix. Due to this stock has corrected from PE of 37 to around 22. Revenue should pick up again as they have partnered with Cyberpower in the brand licencing business which is a higher margin play. Also their Honeywell licencing partnership is growing well.
Bajaj Finance
- This needs to introduction, Bajaj Finance has been through a consolidation cycle for more than 2 years and their PE is down to 30 which I felt is a great buy at this point.
Also increased my allocation in Zomato and Angel One. I had some cash, deployed more than 70% of it.
Sugar Cycles: 7-8 years of losses followed by 2-3 years of super gains! (25-06-2024)
Sugar quotas for all quarters have been slightly higher than last year - so sugar sales will be ok. Sugar stocks have built up due to ethanol ban. Ethanol sales will come down a lot. Even grain based distilleries didnt work for sometime as maize prices had shot up and maize-based ethanol price was increased only later (that too with a lot of uncertainty and delays).
Performance of all sugar companies will be lower - some will be less affected than others. Companies which have dual fuel ethanol will be affected lesser.
20% target cannot be met without sugarcane based ethanol - more than 60% of ethanol is from sugarcane. Many cane based ethanol plants are being converted to dual fuel. I dont know what will happen to maize prices - and whether maize based ethanol prices will be increased further to accommodate high maize price. Prices of all grains are going up due to maize going up.
For keeping the price of sugar low (which is not good for health !!) prices of all grains are going up.
Amara Raja Energy & Mobility Limited: Powering Ahead (25-06-2024)
I saw in a article, that Gotion owns around 8000 patents in EV battery domain. But is this the only reason stock is up 16% today? Or there is any other news as well?
Disc - invested
Steel Strips Wheels Limited – Attractive Valuations (25-06-2024)
Prepayment of debt is also a good sign.
Sona Comstar BLW – Direct EV Play (25-06-2024)
An article from Goldman Sachs regarding that topic.
HBL POWER SYSTEMS: Booting-up for the Race of the Century (25-06-2024)
Kavach 4.0 looks almost complete. Current version being used is 3.2. Ongoing development seems to reason for slow execution.
“The Ministry of Railways, on Friday, informed the Cabinet Secretary that the Indian Railways plans to implement the Kavach safety system across 44,000 km of track within the next five years.”
“During a review meeting focused on Kavach 4.0, Vaishnaw instructed officials to promptly equip all locomotives with the system once it is ready. According to the report, at present, three manufacturers are producing the Kavach system, while others are in different phases of development.”
Disc: invested
Shilchar Technologies – Power & Distribution Transformers – Sunrise Sector? (25-06-2024)
Developers are facing longer lead times for power #transformers as manufacturing capacity for this key component in large-scale #solar projects has failed to keep pace with demand, slowing solar deployment in #India https://t.co/ZJBfdHYmov
— Mercom India (@MercomIndia) June 25, 2024