Estimating the Intrinsic Value of Cellnex Telecom

The projected fair value for Cellnex Telecom is estimated to be €45.26 based on a 2 Stage Free Cash Flow to Equity model. The current share price of €34.55 suggests that the stock is 24% undervalued. However, our fair value estimate is slightly lower than the analyst price target of €47.97.

To determine the intrinsic value of Cellnex Telecom, we use the Discounted Cash Flow (DCF) model. This model estimates the company’s future cash flows and discounts them to their present value. By doing this, we can determine whether the current share price accurately reflects the company’s worth.

In the DCF model, we use a 2-stage growth rate for the company’s cash flows. The first stage assumes higher growth, while the second stage assumes a lower growth phase. We gather the estimates of the next ten years of cash flows from analyst estimates or extrapolate from previous free cash flow values.

The future cash flows are then discounted to their estimated present value using a discount rate of 7.2%. This rate reflects the concept that a dollar in the future is less valuable than a dollar today. The present value of the 10-year cash flow is estimated to be €14 billion.

Next, we calculate the Terminal Value, which accounts for all future cash flows beyond the ten-year period. We use a conservative growth rate based on the 5-year average of the 10-year government bond yield (1.2%). The Terminal Value is estimated to be €18 billion.

Finally, to determine the total equity value, we sum the present value of the future cash flows and the present value of the Terminal Value. The equity value is calculated to be €32 billion. Dividing this value by the total number of shares outstanding gives an intrinsic value per share.

Based on this analysis, Cellnex Telecom appears to be slightly undervalued, trading at a 24% discount to its intrinsic value. However, it’s important to note that this is an approximate valuation, and other factors should be considered when making investment decisions.

Some important assumptions in this valuation include the discount rate and the cash flow estimates. It’s recommended to adjust these assumptions and perform the calculation yourself to customize the valuation. Additionally, the DCF model does not consider industry cyclicality or a company’s future capital requirements.

Overall, valuation is just one aspect to consider when evaluating a company, and it should be analyzed alongside other relevant factors.