free cash – Freedominst http://freedominst.org/ Sun, 20 Mar 2022 03:55:24 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 http://freedominst.org/wp-content/uploads/2021/03/cropped-favicon-32x32.png free cash – Freedominst http://freedominst.org/ 32 32 Amcor stock: 4.4% return should be safe as Co. tackles inflation (NYSE:AMCR) http://freedominst.org/amcor-stock-4-4-return-should-be-safe-as-co-tackles-inflation-nyseamcr/ Sat, 19 Mar 2022 16:45:00 +0000 http://freedominst.org/amcor-stock-4-4-return-should-be-safe-as-co-tackles-inflation-nyseamcr/

NoDerog/iStock Unpublished via Getty Images

introduction

of Amcor (New York Stock Exchange: AMCR) the stock price is currently trading at almost exactly the same level as a year ago despite a nice double-digit increase in the stock price throughout the year. The packaging giant is now dealing with the impact of inflation on its profits and although it has been able to maintain a relatively stable net profit, margins are shrinking as it takes some time before the price increases can absorb the impact of rising raw material costs.

Amcor

Yahoo finance

Revenue is growing rapidly, but margins are shrinking

The company’s fiscal year ends in June, which means that the most recent results released by the company cover the first half of fiscal 2022, ending in December. Total revenue grew to exceed $6.9 billion in 2021, but as COGS grew at a faster rate, gross profit actually declined. While Amcor generated gross profit of $1.3 billion on revenue of $6.2 billion in 2020, gross profit was approximately $1.295 billion, or a gross margin of 18 .7%. That still looks good, but it’s a noticeable decrease from gross margin in the first half of fiscal 2021.

income statement

Amcor Investor Relations

The situation was a little worse in the second quarter with a gross margin of only 18.40%, but Amcor also saw a reduction in its SG&A expenses and restructuring expenses and these elements helped Amcor report a slight increase in the result of operating in the second quarter as well as the first half of 2021. Net interest expense is also declining and Amcor reported net income attributable to Amcor shareholders of $427 million, or $0.28 per share. This is a slight increase compared to the same period last year, but it is clear that the improvement was mainly fueled by a decrease in restructuring expenses.

Fortunately, Amcor’s capital expenditures tend to be lower than depreciation expenditures, which generally raises the free cash flow result to a level above reported net income.

In the first half of fiscal 2022, Amcor reported operating cash flow of $323 million, but that includes a $525 million investment in working capital and excludes $2 million in lease payments. . On an adjusted basis, operating cash flow in the first half was approximately $846 million. And with a total investment of $255 million, the underlying free cash flow result was $591 million.

Cash flow statement

Amcor Investor Relations

That’s higher than reported net income thanks to the $80 million difference between depreciation expense and actual capital requirement. Additionally, the income statement also included $31 million of non-cash stock-based compensation.

What does this mean for the dividend?

Amcor currently pays a quarterly dividend of $0.12 per share, which translates to a current dividend yield of approximately 4.4%. It’s very attractive and the dividend yield is fully covered by both earnings and the underlying free cash flow. Based on the current number of shares, total free cash flow per share in the first half of the current fiscal year was approximately $0.39, which means the payout ratio is just over 6 %.

Amcor also continues to repurchase its own shares and over the past six months the company has spent more than $400 million to repurchase and cancel its own shares. During the first half of the financial year, the company repurchased 25 million of its own shares while the Treasury bought an additional 11 million shares to compensate for the exercise of stock options.

Share redemption progress

Amcor Investor Relations

This means that the current net number of shares has fallen from 1.56 billion shares at the end of June 2020 to only 1.51 billion shares at present, because Amcor has repurchased 4% of its number of shares. . This reduces the need for cash to cover its dividend (the quarterly dividend now costs the company just over $180 million per quarter) and the ongoing buyback and cancellation plan will allow Amcor to increase its quarterly dividend without see its cash outflows increase.

Capital allocation

Amcor Investor Relations

Investment thesis

So while Amcor doesn’t look cheap given the EPS performance, revenue-focused shareholders shouldn’t worry about the dividend as it’s still largely covered by both earnings and cash flow. available. Amcor is using its excess free cash flow to buy back its shares, which will further improve the dividend coverage ratio.

I currently don’t have a long position in Amcor but I am watching option premiums to take advantage of higher levels of volatility while waiting for Amcor to pass on its higher operating costs to its customers.

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Calculation of the fair value of Control Print Limited (NSE: CONTROLPR) http://freedominst.org/calculation-of-the-fair-value-of-control-print-limited-nse-controlpr/ Sat, 19 Mar 2022 02:16:16 +0000 http://freedominst.org/calculation-of-the-fair-value-of-control-print-limited-nse-controlpr/

How far is Control Print Limited (NSE:CONTROLPR) from its intrinsic value? Using the most recent financial data, we will examine whether the stock price is fair by taking the company’s expected future cash flows and discounting them to the present value. We will use the Discounted Cash Flow (DCF) model for this purpose. Believe it or not, it’s not too hard to follow, as you’ll see in our example!

Remember though that there are many ways to estimate the value of a business and a DCF is just one method. Anyone interested in learning a little more about intrinsic value should read the Simply Wall St.

See our latest review for Control Print

What is the estimated valuation?

We use the 2-stage growth model, which simply means that we consider two stages of business growth. In the initial period, the company may have a higher growth rate, and the second stage is generally assumed to have a stable growth rate. In the first step, we need to estimate the company’s cash flow over the next ten years. Since no analyst estimates of free cash flow are available to us, we have extrapolated the previous free cash flow (FCF) from the company’s latest reported value. We assume that companies with decreasing free cash flow will slow their rate of contraction and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow more in early years than in later years.

A DCF is based on the idea that a dollar in the future is worth less than a dollar today, so we discount the value of these future cash flows to their estimated value in today’s dollars:

10-Year Free Cash Flow (FCF) Forecast

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Leveraged FCF (₹, million) ₹373.5 million ₹411.6 million ₹449.3 million ₹487.2 million ₹525.9 million ₹565.6 million ₹607.0 million ₹650.3 million ₹696.0 million ₹744.2m
Growth rate estimate Source Is at 11.7% Is at 10.21% Is at 9.17% Is at 8.43% Is at 7.92% Is at 7.57% Is at 7.31% Is at 7.14% Is at 7.02% Is at 6.93%
Present value (₹, million) discounted at 14% ₹328 ₹317 ₹304 ₹290 ₹274 ₹259 ₹244 ₹230 ₹216 ₹203

(“East” = FCF growth rate estimated by Simply Wall St)
10-year discounted cash flow (PVCF) = ₹2.7 billion

After calculating the present value of future cash flows over the initial 10-year period, we need to calculate the terminal value, which takes into account all future cash flows beyond the first stage. The Gordon Growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average 10-year government bond yield of 6.7%. We discount terminal cash flows to present value at a cost of equity of 14%.

Terminal value (TV)= FCF2031 × (1 + g) ÷ (r – g) = ₹744m × (1 + 6.7%) ÷ (14%–6.7%) = ₹11b

Present value of terminal value (PVTV)= TV / (1 + r)ten= ₹11b÷ ( 1 + 14%)ten= ₹3.0 billion

The total value is the sum of the cash flows for the next ten years plus the present terminal value, which gives the total equity value, which in this case is ₹5.7 billion. To get the intrinsic value per share, we divide it by the total number of shares outstanding. Compared to the current share price of ₹394, the company appears around fair value at the time of writing. Remember though that this is only a rough estimate, and like any complex formula – trash in, trash out.

NSEI: CONTROLPR Discounted Cash Flow March 19, 2022

Important assumptions

Now, the most important inputs to a discounted cash flow are the discount rate and, of course, the actual cash flows. If you disagree with these results, try the math yourself and play around with the assumptions. The DCF also does not take into account the possible cyclicality of an industry, nor the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we consider Control Print as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which takes debt into account. In this calculation, we used 14%, which is based on a leveraged beta of 1.116. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Next steps:

Valuation is only one side of the coin in terms of crafting your investment thesis, and it shouldn’t be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Preferably, you would apply different cases and assumptions and see their impact on the valuation of the business. If a company grows at a different pace, or if its cost of equity or risk-free rate changes sharply, output may be very different. For Control Print, we’ve compiled three important things you should consider:

  1. Risks: Take for example the ubiquitous specter of investment risk. We have identified 1 warning sign with Control Print, and understanding it should be part of your investment process.
  2. Management:Did insiders increase their shares to take advantage of market sentiment regarding CONTROLPR’s future prospects? View our management and board analysis with insights into CEO compensation and governance factors.
  3. Other high-quality alternatives: Do you like a good all-rounder? Explore our interactive list of high-quality actions to get an idea of ​​what you might be missing!

PS. Simply Wall St updates its DCF calculation for every Indian stock daily, so if you want to find the intrinsic value of any other stock, just search here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Apple Stock: Deleverage and Generate Growth (NASDAQ: AAPL) http://freedominst.org/apple-stock-deleverage-and-generate-growth-nasdaq-aapl/ Mon, 14 Mar 2022 16:57:26 +0000 http://freedominst.org/apple-stock-deleverage-and-generate-growth-nasdaq-aapl/

Nature/iStock via Getty Images

Thesis:

Apple (AAPL) is the largest company in the world with a market cap of $2.64 trillion and continues to deliver impressive growth in sales, earnings and free cash flow per share. Additionally, Apple’s use of debt is first in class, as the company’s return on invested capital is substantial relative to its weighted average cost of capital. Apple’s continued success in a volatile economy speaks to why it should be in your portfolio.

(Note: All financial data is sourced directly from ycharts.com under the symbol: AAPL.)

Apple’s earnings and free cash flow per share continue to grow at impressive rates:

Apple has proven to be an investment of a lifetime, delivering massive returns to shareholders and becoming the most valuable company in the world. What’s more impressive is that Apple’s 3-year earnings and free cash flow per share continue to grow at double-digit rates on an annual basis.

Apple EPS: $2.98 for FY2018. FY21 $5.61. 23.5% CAGR.

Apple free cash flow per share: FY18 $3.206. FY21 $5,512. CAGR of 19.8%.

Apple will produce FY24 EPS of $10.57 and free cash flow per share of $9.48 if it can produce similar results over the next three years. This would give Apple a forward P/E ratio of 14.64 and a forward P/FCF ratio of 16.32. These are still favorable valuation measures for Apple given that the average P/E and P/FCF ratios in the consumer electronics industry are 19.56 and 16.01, respectively. It’s also worth noting that Apple’s brand, market presence, and track record arguably deserve higher valuation metrics than its peers.

How did Apple manage to produce this level of growth?

Apple produced these numbers with impressive growth in sales and margins. FY21 revenue was $365.82 billion with a profit margin of 25.88%. Apple’s cost of goods sold (COGS) is at record highs due to chip shortages, but it still managed to grow revenue at a CAGR above its COGS.

Apple revenue: $265.60 billion in fiscal year 2018. FY21 $365.82 billion. CAGR of 11.26%.

Apple profit margin: FY18 22.41%. FY21 25.88%. CAGR of 4.91%

Apple COGS: $163.76 billion for fiscal year 2018. FY21 $212.98 billion. CAGR of 9.15%.

Apple has managed to grow revenue and profit throughout the Covid-19 pandemic, tracking the highest COGS the company has seen. The fact that Apple’s revenue growth outpaced COGS growth under the following economic conditions should be telling.

Apple also continues to nibble the global smartphone market. Apple’s products are obviously of high quality but are also quite expensive compared to competing smartphones. Apple led the global smartphone market in 4Q21 with a 22% market share. Apple was still behind Samsung overall in FY21 with a global market share of 16.8% compared to Samsung’s 20%. However, Apple increased its global market share in FY21 by 11.1%, beating Samsung’s market share growth of 7%. If these growth trends continue, we could see Apple overtake Samsung in terms of global market share. Either way, Apple’s market expansion has contributed and will continue to contribute to its impressive performance.

Apple’s use of debt is first in class:

I’ve seen negative articles and comments about Apple’s indebtedness. However, issuing and using Apple’s debt was nothing short of a brilliant move on the company’s part. As revenues began to grow exponentially, Apple diverted money to overseas subsidiaries. This was Apple’s strategy to minimize taxes as the company did not want to repatriate its treasure at the 35% tax rate at the time. Instead, Apple decided to begin issuing debt in fiscal 2013 to bolster its domestic cash position, as the company’s cash flow was sufficient to service debt. While many may worry about Apple’s indebtedness, they shouldn’t. Apple kept its cash reserves at work instead of paying 35% tax on them, knowing that the cash flow was more than enough to cover the newly issued debt. This strategy also allowed Apple to lower its weighted average cost of capital (WACC) to 9.15% today. While that number may not sound ideal, Apple’s return on investment (ROIC) currently stands at 51.80%. Thus, issuing debt allowed Apple to avoid paying a 35% tax on its foreign cash reserves and reduce its WACC to 9.51%, while producing an ROIC of 51.80%. Even better, in December 2017, the Tax Cuts and Jobs Act was passed, lowering the tax on repatriated income to 15.5% on liquid assets and 8% on non-cash assets. Apple has meanwhile produced impeccable results and can now repatriate foreign cash at a tax rate of 15.5%.

As of FY21, the company’s total debt was $287.91 billion. However, Apple’s total current liabilities for FY21 were $125.48 billion, which means that 43.58% of Apple’s total debt matures during the year. fiscal year 22. Apple produced double-digit growth with high debt levels that are now beginning to decline. As an Apple investor, I’m excited to see the numbers Apple can produce as debt levels come down.

Conclusion:

In conclusion, Apple always produces impressive financial results. Apple maintained solid growth in earnings and free cash flow per share amid unusually high COGS and the pandemic. Apple avoided a 35% tax on huge foreign cash reserves and produced an impressive return on investment compared to its WACC. The company has done a near perfect job of operating in the best interests of its shareholders and I am confident it will continue to do so. The effects of the pandemic will continue to wane, supply shortages should inevitably resolve and debt levels decline. Overall, Apple still has a promising path forward, especially if it can continue to absorb a larger share of the global smartphone market.

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2 Best Software Stocks to Buy in 2022 and Beyond http://freedominst.org/2-best-software-stocks-to-buy-in-2022-and-beyond/ Sat, 12 Mar 2022 15:41:00 +0000 http://freedominst.org/2-best-software-stocks-to-buy-in-2022-and-beyond/

The software industry in general has been struggling lately. In fact, the ETF iShares Expanded Tech Software Sector (IGV -3.06% )which closely tracks the returns of most US-traded software stocks, is down more than 25% in the past four months.

With this rapid industry-wide decline, many companies participated in the sale despite impressive financial results. Two in particular are Procore Technologies (PCOR -6.24% ) and Dropbox Inc. ( DBX -3.51% ). Let’s see why this recent turmoil offers good entry opportunities for these two companies.

Image source: Getty Images.

Procore

Procore provides cloud-based collaboration and workflow software to the construction industry. With the Procore platform, everyone on a project, from architects to general contractors, can stay connected whether they’re in the office or on the job site. The platform also spans the lifecycle of a construction project, from bid management and labor productivity to the company’s flagship project management solution. Overall, Procore ultimately serves as a unified digital system of record for the complex and fragmented construction industry.

Today, Procore has more than 12,000 customers, but its management team still believes the company is in its infancy. In fact, on Procore’s last quarterly conference call, CEO Tooey Courtemanche said that Procore’s current market share in the US general contractor space is only 25%, the rest of the market mainly relying on legacy solutions. Additionally, according to McKinsey’s Industry Digitization Index, construction is the second least digitized industry in the world, despite accounting for 7% of the global workforce and 13% of global output. .

But Procore isn’t just growing on new customers. It also brings increasing value to those that already exist. During the last quarter, the number of customers contributing $1 million or more in annual recurring revenue increased by 50% as usage of the full Procore product line increased. Additionally, Procore is constantly adding new products and integrations like it did with its recent acquisition of Levelset, which helps users stay compliant with privileges so they can get paid faster.

While Procore’s current enterprise value (market cap minus net cash) of approximately $7 billion might seem like a steep price to pay compared to its projected 2022 revenue of $661-666 million, the industries reliance on legacy systems provides a lot of green grass for Procore. As construction industry systems continue to become more digital, I expect Procore to be able to grow double-digit sales for many years to come.

drop box

Unlike Procore, Dropbox – which provides content collaboration and document workflow software for teams of all sizes – doesn’t seem to have as much customer growth potential ahead of it. Virtually every organization today uses some form of content collaboration system, whether it’s Google Drive or Microsoftit’s (MSFT -1.93% ) OneDrive. This means that there is not as much fruit at hand in terms of new customers for Dropbox as there is for Procore. However, this should in no way prevent investors from owning shares.

In fact, a closer look shows that Dropbox’s business model has been quite resilient. With the platform’s holistic suite of tools ranging from digital signatures to secure document sharing or even file searching, Dropbox has everything a team could need to work effectively together. This focus on adding value to team workflows also showed up in the bottom line. Not only are Dropbox customers staying, but overall they’ve also demonstrated a willingness to pay more for it. Indeed, this year, despite a price increase of almost 4%, the company has seen its churn rate decrease each quarter.

And since Dropbox doesn’t require a lot of additional costs for its new customers, the company has generated more and more cash as it has grown over the past few years. In the past 12 months, Dropbox generated $708 million in free cash flow, 80% more than it generated two years prior.

Along with all that excess cash, Dropbox also started returning capital to shareholders in the form of buyouts — and lots of them. Over the past year, Dropbox has reduced the total number of shares outstanding by 8%, which has helped increase total free cash flow per share by approximately 57% over the same period. But management isn’t slowing the pace of its takeover either. Last quarter, the board authorized an additional $1.2 billion share buyback program on top of the remaining $344 million. Together, this equates to 19% of the company’s current market cap.

Between the stability of Dropbox’s digital business and the significant headroom offered by the company’s buyout program, Dropbox looks poised to deliver attractive returns to shareholders over the next few years.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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AAPL Stock May Rise Significantly Due to Stellar Free Cash Flow http://freedominst.org/aapl-stock-may-rise-significantly-due-to-stellar-free-cash-flow/ Thu, 10 Mar 2022 16:33:39 +0000 http://freedominst.org/aapl-stock-may-rise-significantly-due-to-stellar-free-cash-flow/

Apple Inc. (NASDAQ:AAPL) produced exceptional profits on January 27 for its first fiscal quarter (Q1) ending on December 27. It also showed that the company’s free cash flow (FCF) was very powerful. As FCF rises this year, AAPL stock is expected to continue rising.

Source: See separately / Shutterstock.com

Over the past two months, Apple stock has fallen 10.47% from a high of $182.01 on January 3 to $162.95 on March 9. This may not seem like much, especially in the correction the market has been experiencing lately. But AAPL stock fell further in the fourth quarter of 2021 when it hit $139.20 on October 13. So in a way, it’s actually up 17% from its recent lows.

And why not? The company produced strong FCF results in the fourth quarter. Let’s look at this further.

Apple Free Cash Flow and Outlook

The company delivered exceptional revenue and earnings growth with revenue up 11% year-over-year (YOY) and net profit up 20.4% in the fourth quarter. But more importantly, the company’s FCF was also higher.

Apple generated $44.163 billion in free cash flow, which is the result of deducting $2.803 billion in capital expenditures from $46.966 billion in operating cash flow. Apple is one of the few companies that produces a quarterly cash flow statement, which is on page 3 of the financial statements, so it’s easy to calculate.

We can tell that this is a high level by comparing it to the company’s revenue level. So if we divide FCF’s $44.16 billion by its $123.9 billion in quarterly revenue, its FCF margin was 35.6%. This is an extremely high margin. It shows how incredibly profitable the company is right now.

Also, if we project this for the next year or two, we can derive a fair value for the AAPL stock. Let’s see how it works.

AAPL Stock Value Using FCF Analysis

For example, 40 analysts polled by Refinitiv have an average revenue forecast for 2022 of $395.79 billion. And for 2023, their estimate is $418 billion. This represents growth of 8.15% in 2022 compared to 2021 and growth of 5.6% in 2023. These are not particularly high growth rates. But the amount of FCF profit he generates from that revenue is huge.

For example, if we assume that 36% of revenue by 2023 will turn into free cash flow, that means it will generate $150 billion in FCF by 2023.

Then, assuming the market values ​​it at a yield of 5% FCF, which is equivalent to using a multiple of 20 times FCF, Apple should have a market value of $3 trillion. It is the result of dividing $150 billion of FCF by 5% or, alternatively, multiplying $150 billion by 20.

Therefore, given that the existing market capitalization is $2.659 billion, this leaves a 12.8% upside in the stock. But again, this assumes that its FCF yield will only be 5%.

For example, assuming a 3% FCF return, the market value will be $5 trillion (i.e. $150 billion / 0.3). This represents an 88% upside potential for AAPL stock.

What to do with AAPL shares

Thus, AAPL stock is worth somewhere between 12.8% and 88% more than the current price, depending on the market value for its strong free cash flow. Just taking the midpoint puts it 50.4% higher.

To be completely accurate, we need to adjust for the time value of money since we used two-year earnings estimates. Assuming a 10% discount rate for each year, the present value of earnings would be 82.64% of this number. This reduces the rise to 82.64% from the rise of 50.4%, or 41.65% more.

Therefore, the stock is worth 1.4165x its March 9 price of $162.85 per share. This means that its value, using FCF analysis, is $230.82 per share.

Another way to look at it is this: if it takes two years for the stock to rise by 41.65%, the average annual return will be 19% each year. As proof, take 1.1901 to the second power, and you get 1.4165.

Here is the bottom line. Apple’s free cash flow is so strong that it increases the stock’s valuation by almost 20% per year for the next two years. This despite the company’s expectations of slow sales growth.

As of the date of publication, Mark Hake did not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.

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Nutrien Stock: Strong Earnings, Plus 10% Buyback in 2022 (NYSE: NTR) http://freedominst.org/nutrien-stock-strong-earnings-plus-10-buyback-in-2022-nyse-ntr/ Tue, 08 Mar 2022 16:26:00 +0000 http://freedominst.org/nutrien-stock-strong-earnings-plus-10-buyback-in-2022-nyse-ntr/

VisualArtStudio/iStock via Getty Images

Investment thesis

Nutrien (NTR) is well positioned to take advantage of the large potash and nitrogen disruption in Europe. Here’s the backdrop, Russia’s invasion of Ukraine caused a huge logistical disruption in what was already a tight market, with low inventory and high prices.

Additionally, recent sanctions facing Russia have complicated how Russian companies could be paid for their potash and crops, not to mention Belarus’ ability to feasibly export potash out of the country.

Given this backdrop, as well as the fact that Nutrien is providing investors with compelling forecasts for 2022, this investment is very attractive.

Also, let’s not forget, Nutrien’s balance sheet is now very strong and the company is determined to buy back 10% of its shares this year.

In short, there is a very favorable investment here. Here’s why:

Investor sentiment is strengthening

Graphic
Data by YCharts

After years of seeing its shares trade sideways, Nutrien’s stock price has been soaring lately. The reason is that Russia’s invasion of Ukraine has greatly destabilized the crop market in Europe.

So even if there were no sanctions on the exit of potash in Belarus, the fact remains that it has become a logistical nightmare to get potash to Europe and other regions of the world.

This caused a spike in potash prices. No one knows how long this spike persists. But as you’ll read, there are plenty of reasons to consider Nutrien based on its own fundamentals, with distribution in Europe being an upside option.

How sustainable are Nutrien’s revenue growth rates?

Nutrien revenue growth rate

Nutrien revenue growth rate

As we know, the fourth quarter of 2021 saw Nutrien’s revenue jump 84% year-over-year in the fourth quarter. And this high rate of revenue growth is expected to persist into early 2022.

However, the big question is the murky overall picture as Nutrien enters the second half of 2022.

Nutrien Consensus Revenue Estimates

Nutrien Consensus Revenue Estimates

This is what we know at the moment, Nutrien’s end markets are very solid, while its input prices are reasonably contained, so the two aspects combined give Nutrien a very favorable image, at least short term.

However, the inescapable question remains what the 2022 exit rates will be and if there is lucky that this uncertainty is already widely taken into account.

For my part, I suspect that it can already be taken into account to a large extent.

Do profits really matter?

From 2020 to 2021, investors are becoming obsessed with growth-at-all-costs investment strategies. However, in 2022 it is a very different landscape. Investors are suddenly very concerned about bottom line profitability. That being said, I maintain that Nutrien is in good shape.

Indeed, Nutrien generated strong profitability in 2021.

Nutrien Q4 2021 Results

Nutrien Q4 2021 results

To illustrate, as you can see above, free cash flow, including changes in working capital, increased 10% year-on-year to $2.6 billion. This figure in itself is not bad. However, even more important is what Nutrien plans to do with that free cash flow through 2022.

However, before discussing Nutrien’s use of free cash flow, let me take a step back to remind readers that Nutrien’s net debt/EBITDA profile means that its leverage will end in 2022 below 1x.

Indeed, while it is difficult to have visibility on Nutrien’s free cash flow profile in 2022, management is guiding investors for approximately $10 billion to $11.2 billion in adjusted EBITDA.

Nutrien Q4 2021 results

Nutrien Q4 2021 Results

Additionally, as you can see above, Nutrien ended 2021 with approximately $7.1 billion in adjusted EBITDA. This implies that at the midpoint, Nutrien guides investors to grow its adjusted EBITDA by nearly 50% y/y in 2022.

In practical terms, I argue that most reasonable investors would expect much of this increase in Adjusted EBITDA to flow through Nutrien’s free cash flow. But let’s be super careful with our estimates to allow for a big margin of safety.

All things considered, I suspect Nutrien’s free cash flow, including working capital requirements, could be close to $3.5 billion. Note that for this, I estimate that the nearly 50% increase in Nutrien’s adjusted EBITDA forecast only results in a 35% year-over-year increase in actual free cash flow. Giving my estimate a large margin of error.

Now let’s move on to this use of free cash flow. Nutrien’s management openly states that in 2022, Nutrien expects to “purchase up to 10% of Nutrien’s outstanding common stock over a one-year period.”

Obviously, this is going to be very favorable for investors.

NTR Share Valuation – Very Reasonably Priced

Nutrien is valued at a market capitalization of approximately $55 billion (C$70 billion). That puts the stock price at about 16 times this year’s free cash flow.

Although there is uncertainty as to whether or not the recent spike in potash and nitrogen prices will persist, the fact remains that the current outlook is the best it has been in a while. time.

In the meantime, it’s hard to argue that Nutrien is expensive when everything is considered.

Also, keep in mind that Nutrien is expected to repurchase almost 10% of its market capitalization this year. This means that despite a favorable environment, with stronger free cash flow and a better balance sheet, investors will also benefit from increased share buybacks and increased dividends.

The essential

For a long time, commodities have been neglected by investors. But logistical issues in getting potash to Europe have recently reawakened investors to the attractive risk-reward profile that investors get in this space.

I think paying 16 times this year’s free cash flow, coupled with meaningful redemption, provides investors with an attractive investment profile. Whatever you decide, good luck and good investment.

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We think Great Wall Motor (HKG:2333) can manage debt with ease http://freedominst.org/we-think-great-wall-motor-hkg2333-can-manage-debt-with-ease/ Sun, 06 Mar 2022 00:26:04 +0000 http://freedominst.org/we-think-great-wall-motor-hkg2333-can-manage-debt-with-ease/

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Like many other companies Great Wall Motor Company Limited (HKG:2333) uses debt. But does this debt worry shareholders?

What risk does debt carry?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, many companies use debt to finance their growth, without any negative consequences. When we think about a company’s use of debt, we first look at cash and debt together.

See our latest analysis for Great Wall Motor

How much debt does Great Wall Motor have?

You can click on the graph below for historical figures, but it shows that in September 2021, Great Wall Motor had a debt of 21.3 billion Canadian yen, an increase from 16.4 billion Canadian yen , over one year. However, his balance sheet shows that he holds 31.1 billion yen in cash, so he actually has 9.73 billion yen in cash.

SEHK: 2333 Historical Debt to Equity March 6, 2022

A Look at Great Wall Motor’s Responsibilities

According to the last published balance sheet, Great Wall Motor had liabilities of 87.3 billion Canadian yen due within 12 months and liabilities of 20.4 billion national yen due beyond 12 months. On the other hand, it had a cash position of 31.1 billion Canadian yen and 53.2 billion national yen of receivables due within one year. Thus, its liabilities outweigh the sum of its cash and (short-term) receivables of 23.5 billion Canadian yen.

Of course, Great Wall Motor has a titanic market capitalization of 238.7 billion Canadian yen, so those liabilities are probably manageable. That said, it is clear that we must continue to monitor its record, lest it deteriorate. Despite its notable liabilities, Great Wall Motor has a net cash position, so it’s fair to say that it doesn’t have a lot of debt!

On top of that, Great Wall Motor has grown its EBIT by 31% over the last twelve months, and this growth will make it easier to manage its debt. The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Great Wall Motor’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, a company can only repay its debts with cold hard cash, not with book profits. Although Great Wall Motor has net cash on its balance sheet, it’s still worth looking at its ability to convert earnings before interest and taxes (EBIT) to free cash flow, to help us understand how fast it’s building (or erodes) this cash balance. Over the past three years, Great Wall Motor has actually produced more free cash flow than EBIT. This kind of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Abstract

We could understand if investors are worried about Great Wall Motor’s liabilities, but we can take comfort in the fact that it has a net cash position of 9.73 billion Canadian yen. The icing on the cake was to convert 108% of this EBIT into free cash flow, bringing in 12 billion Canadian yen. So is Great Wall Motor’s debt a risk? This does not seem to us to be the case. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example, we have identified 3 warning signs for Great Wall Motor of which you should be aware.

Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Garo Aktiebolag (publ) (STO:GARO) shares could be 20% above their estimated intrinsic value http://freedominst.org/garo-aktiebolag-publ-stogaro-shares-could-be-20-above-their-estimated-intrinsic-value/ Sat, 05 Mar 2022 08:28:40 +0000 http://freedominst.org/garo-aktiebolag-publ-stogaro-shares-could-be-20-above-their-estimated-intrinsic-value/

How far is Garo Aktiebolag (publ) (STO:GARO) from its intrinsic value? Using the most recent financial data, we will examine whether the stock price is fair by taking expected future cash flows and discounting them to their present value. This will be done using the discounted cash flow (DCF) model. There really isn’t much to do, although it may seem quite complex.

Remember though that there are many ways to estimate the value of a business and a DCF is just one method. If you want to know more about discounted cash flow, the rationale for this calculation can be read in detail in the Simply Wall St analysis template.

Discover our latest analysis for Garo Aktiebolag

The method

We use what is called a 2-stage model, which simply means that we have two different periods of company cash flow growth rates. Generally, the first stage is a higher growth phase and the second stage is a lower growth phase. In the first step, we need to estimate the company’s cash flow over the next ten years. Wherever possible, we use analysts’ estimates, but where these are not available, we extrapolate the previous free cash flow (FCF) from the latest estimate or reported value. We assume that companies with decreasing free cash flow will slow their rate of contraction and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow more in early years than in later years.

A DCF is based on the idea that a dollar in the future is worth less than a dollar today, so we need to discount the sum of these future cash flows to arrive at an estimate of present value:

Estimated free cash flow (FCF) over 10 years

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Leveraged FCF (SEK, millions) kr135.0 million 90.5 million kr kr185.0 million 215.0 million kr 239.5 million kr 258.9 million kr 273.8 million kr 285.1 million kr 293.6 million kr 300.0 million kr
Growth rate estimate Source Analyst x1 Analyst x2 Analyst x1 Is at 16.2% Is at 11.43% Is at 8.1% Is at 5.76% Is at 4.12% Is 2.98% Is at 2.18%
Present value (SEK, million) discounted at 5.3% 128 kr 81.6 kr 159kr 175 kr 185 kr 190 kr 191 kr 189 kr 185 kr 179 kr

(“East” = FCF growth rate estimated by Simply Wall St)
10-year discounted cash flow (PVCF) = kr1.7b

We now need to calculate the terminal value, which represents all future cash flows after this ten-year period. For a number of reasons, a very conservative growth rate is used which cannot exceed that of a country’s GDP growth. In this case, we used the 5-year average of the 10-year government bond yield (0.3%) to estimate future growth. Similar to the 10-year “growth” period, we discount future cash flows to present value, using a cost of equity of 5.3%.

Terminal value (TV)= FCF2031 × (1 + g) ÷ (r – g) = kr300m × (1 + 0.3%) ÷ (5.3%– 0.3%) = kr6.0b

Present value of terminal value (PVTV)= TV / (1 + r)ten= kr6.0b÷ ( 1 + 5.3%)ten= kr3.6b

The total value, or equity value, is then the sum of the present value of future cash flows, which in this case is 5.3 billion kr. The final step is to divide the equity value by the number of shares outstanding. Compared to the current share price of 127 kr, the company appears slightly overvalued at the time of writing. Remember though that this is only a rough estimate, and like any complex formula – trash in, trash out.

OM:GARO Cash Flow Update March 5, 2022

Important assumptions

The above calculation is highly dependent on two assumptions. One is the discount rate and the other is the cash flows. You don’t have to agree with these entries, I recommend that you redo the calculations yourself and play around with them. The DCF also does not take into account the possible cyclicality of an industry or the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we consider Garo Aktiebolag as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which takes debt into account. In this calculation, we used 5.3%, which is based on a leveraged beta of 1.173. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Next steps:

While important, the DCF calculation will ideally not be the only piece of analysis you look at for a business. The DCF model is not a perfect stock valuation tool. Instead, the best use of a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company’s cost of equity or the risk-free rate can have a significant impact on the valuation. What is the reason why the stock price exceeds the intrinsic value? For Garo Aktiebolag, we’ve put together three more things you should consider in more detail:

  1. Risks: Every business has them, and we’ve spotted 1 warning sign for Garo Aktiebolag you should know.
  2. Management:Did insiders increase their shares to take advantage of market sentiment about GARO’s future prospects? View our management and board analysis with insights into CEO compensation and governance factors.
  3. Other high-quality alternatives: Do you like a good all-rounder? Explore our interactive list of high-quality actions to get an idea of ​​what you might be missing!

PS. The Simply Wall St app performs an updated cash flow valuation for every stock on OM every day. If you want to find the calculation for other stocks, search here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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It may not be a good idea to buy Propel Funeral Partners Limited (ASX:PFP) for its upcoming dividend http://freedominst.org/it-may-not-be-a-good-idea-to-buy-propel-funeral-partners-limited-asxpfp-for-its-upcoming-dividend/ Sun, 27 Feb 2022 21:30:05 +0000 http://freedominst.org/it-may-not-be-a-good-idea-to-buy-propel-funeral-partners-limited-asxpfp-for-its-upcoming-dividend/

Propel Funeral Partners Limited (ASX:PFP) is set to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the latest date by which shareholders must be present on the books of the company to be eligible for payment of a dividend. The ex-dividend date is important because any stock transaction must have settled before the record date to be eligible for a dividend. So you can buy shares of Propel Funeral Partners before March 4 in order to receive the dividend, which the company will pay on April 7.

The company’s next dividend payment will be AU$0.06 per share. Last year, in total, the company distributed AU$0.12 to shareholders. Total dividend payouts from last year show that Propel Funeral Partners has a yield of 2.7% on the current share price of AU$4.39. Dividends are an important source of income for many shareholders, but the health of the company is essential to sustaining those dividends. Therefore, readers should always check whether Propel Funeral Partners was able to increase its dividend or if the dividend could be reduced.

Check out our latest analysis for Propel Funeral Partners

Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Propel Funeral Partners paid a dividend last year despite not being profitable. It may be a one-time event, but it is not a long-term sustainable situation. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Propel Funeral Partners did not generate enough cash to pay the dividend, it must have paid either from cash in the bank or by borrowing money, which is not sustainable in the long term. It paid out 100% of its free cash flow as dividends last year, which is outside the comfort zone for most companies. Businesses generally need cash more than revenue – expenses don’t pay for themselves – so it’s not great to see them paying so much out of their cash flow.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

historical-dividend

Have earnings and dividends increased?

Companies with consistently rising earnings per share tend to create the best dividend-paying stocks because they generally find it easier to increase dividends per share. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. Propel Funeral Partners was not profitable last year, but at least the general trend suggests that its earnings have improved over the past five years. Even so, an unprofitable company that does not recover quickly is generally not a good candidate for dividend investors.

Propel Funeral Partners has also issued more than 5% of its market capitalization in new shares over the past year, which we believe may hurt its long-term dividend outlook. Trying to increase the dividend while issuing large amounts of new stock reminds us of the ancient Greek story of Sisyphus – perpetually pushing a rock upwards.

Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Propel Funeral Partners has achieved an average annual increase of 16% per year in its dividend, based on the last four years of dividend payments. It’s exciting to see that earnings and dividends per share have grown rapidly over the past few years.

Remember, you can always get an overview of Propel Funeral Partners’ financial health by viewing our financial health visualization here.

Last takeaway

Should investors buy Propel Funeral Partners for the upcoming dividend? We are a little uncomfortable with the fact that it is paying a dividend while being loss-making, especially since the dividend has not been well covered by free cash flow. It’s not the most attractive proposition from a dividend perspective, and we’d probably pass this one up for now.

That being said, if you still consider Propel Funeral Partners as an investment, you will find it useful to know what risks this stock faces. Example: we have identified 2 warning signs for Propel Funeral Partners you should be aware.

If you are looking for good dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Estimated intrinsic value of Polski Koncern Naftowy ORLEN Spólka Akcyjna (WSE:PKN) http://freedominst.org/estimated-intrinsic-value-of-polski-koncern-naftowy-orlen-spolka-akcyjna-wsepkn/ Sun, 27 Feb 2022 07:51:26 +0000 http://freedominst.org/estimated-intrinsic-value-of-polski-koncern-naftowy-orlen-spolka-akcyjna-wsepkn/

In this article, we will estimate the intrinsic value of Polski Koncern Naftowy ORLEN Spólka Akcyjna (WSE:PKN) by taking the company’s expected future cash flows and discounting them to the present value. We will use the Discounted Cash Flow (DCF) model for this purpose. Before you think you can’t figure it out, just read on! It’s actually a lot less complex than you might imagine.

We draw your attention to the fact that there are many ways to value a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. For those who are passionate about stock analysis, the Simply Wall St analysis template here may interest you.

Check out our latest analysis for Polski Koncern Naftowy ORLEN Spólka Akcyjna

The model

We use what is called a 2-stage model, which simply means that we have two different periods of company cash flow growth rates. Generally, the first stage is a higher growth phase and the second stage is a lower growth phase. To begin with, we need to obtain cash flow estimates for the next ten years. Wherever possible, we use analysts’ estimates, but where these are not available, we extrapolate the previous free cash flow (FCF) from the latest estimate or reported value. We assume that companies with decreasing free cash flow will slow their rate of contraction and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow more in early years than in later years.

A DCF is based on the idea that a dollar in the future is worth less than a dollar today, so we need to discount the sum of these future cash flows to arrive at an estimate of present value:

Estimated free cash flow (FCF) over 10 years

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Leveraged FCF (PLN, Millions) 532.2 million zł -46.5 million zł 696.0 million zł 2.79 zł 3.45 zł 3.95 zł 4.38 zł 4.75 zł 5.07 zł 5.34 zł
Growth rate estimate Source Analyst x6 Analyst x6 Analyst x5 Analyst x5 Analyst x5 Is at 14.52% Is at 10.9% Is at 8.37% Is at 6.6% Is at 5.36%
Present value (PLN, millions) discounted at 11% 479 zł -37.6 zł 507 zł 1,800 zł zł2.0k zł2.1k zł2.1k zł2.0k zł2.0k 1,900 zł

(“East” = FCF growth rate estimated by Simply Wall St)
10-year discounted cash flow (PVCF) = zł15b

We now need to calculate the terminal value, which represents all future cash flows after this ten-year period. The Gordon Growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average 10-year government bond yield of 2.5%. We discount terminal cash flows to present value at a cost of equity of 11%.

Terminal value (TV)= FCF2031 × (1 + g) ÷ (r – g) = zł5.3b × (1 + 2.5%) ÷ (11%–2.5%) = zł63b

Present value of terminal value (PVTV)= TV / (1 + r)ten= zł63b÷ ( 1 + 11%)ten= zł22b

The total value is the sum of the cash flows for the next ten years plus the present terminal value, which gives the total equity value, which in this case is 37 billion zł. In the last step, we divide the equity value by the number of shares outstanding. Compared to the current share price of 69.9 zł, the company appears approximately at fair value at a 19% discount to the current share price. Remember though that this is only a rough estimate, and like any complex formula – trash in, trash out.

WSE: PKN Discounted Cash Flow February 27, 2022

The hypotheses

The above calculation is highly dependent on two assumptions. One is the discount rate and the other is the cash flows. Part of investing is coming up with your own assessment of a company’s future performance, so try the math yourself and check your own assumptions. The DCF also does not take into account the possible cyclicality of an industry or the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we consider Polski Koncern Naftowy ORLEN Spólka Akcyjna as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which takes into account the debt. In this calculation, we used 11%, which is based on a leveraged beta of 1.706. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Next steps:

While important, calculating DCF shouldn’t be the only metric to consider when researching a business. DCF models are not the be-all and end-all of investment valuation. Preferably, you would apply different cases and assumptions and see their impact on the valuation of the business. For example, changes in the company’s cost of equity or the risk-free rate can have a significant impact on the valuation. For Polski Koncern Naftowy ORLEN Spólka Akcyjna, there are three important things you should dig into:

  1. Risks: To this end, you should inquire about the 2 warning signs we spotted with Polski Koncern Naftowy ORLEN Spólka Akcyjna (including 1 which is concerning).
  2. Future earnings: How does PKN’s growth rate compare to its peers and the wider market? Dive deeper into the analyst consensus figure for the coming years by interacting with our free analyst growth forecast chart.
  3. Other strong companies: Low debt, high returns on equity and good past performance are essential to a strong business. Why not explore our interactive list of stocks with strong trading fundamentals to see if there are any other companies you may not have considered!

PS. The Simply Wall St app performs an updated cash flow valuation for every stock on the WSE every day. If you want to find the calculation for other stocks, search here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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