【58 độ f bằng bao nhiêu độ c】Calculating The Fair Value Of Asanko Gold Inc. (TSE:AKG)

In this 58 độ f bằng bao nhiêu độ carticle we are going to estimate the intrinsic value of Asanko Gold Inc. (

TSE:AKG

) by projecting its future cash flows and then discounting them to today's value. I will use the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the

Simply Wall St analysis model

.

View our latest analysis for Asanko Gold

Is Asanko Gold fairly valued?

We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To start off with, we need to estimate the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

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

10-year free cash flow (FCF) estimate

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

Levered FCF ($, Millions)

US$49.0m

US$25.7m

US$26.7m

US$20.6m

US$17.4m

US$15.6m

US$14.5m

US$13.9m

US$13.5m

US$13.3m

Growth Rate Estimate Source

Analyst x3

Analyst x3

Analyst x3

Est @ -22.72%

Est @ -15.48%

Est @ -10.4%

Est @ -6.85%

Est @ -4.36%

Est @ -2.62%

Est @ -1.4%

Present Value ($, Millions) Discounted @ 6.0%

US$46.2

US$22.9

US$22.4

US$16.3

US$13.0

US$11.0

US$9.7

US$8.7

US$8.0

US$7.5

("Est" = FCF growth rate estimated by Simply Wall St)

Present Value of 10-year Cash Flow (PVCF)

= US$165m

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 10-year government bond rate (1.4%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 6.0%.

Story continues

Terminal Value (TV)

= FCF

2029

× (1 + g) ÷ (r – g) = US$13m× (1 + 1.4%) ÷ 6.0%– 1.4%) = US$299m

Present Value of Terminal Value (PVTV)

= TV / (1 + r)

10

= US$299m÷ ( 1 + 6.0%)

10

= US$168m

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$333m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Compared to the current share price of CA$1.6, the company appears a touch undervalued at a 24% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.

TSX:AKG Intrinsic value May 1st 2020

Important assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Asanko Gold 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 accounts for debt. In this calculation we've used 6.0%, which is based on a levered beta of 0.831. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

Next Steps:

Whilst important, DCF calculation shouldn’t be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. What is the reason for the share price to differ from the intrinsic value? For Asanko Gold, We've put together three pertinent aspects you should look at:

Risks

: Take risks, for example - Asanko Gold has

3 warning signs

(and 1 which is significant)

we think you should know about.

Future Earnings

: How does AKG's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our

free analyst growth expectation chart

.

Other High Quality Alternatives

: Do you like a good all-rounder? Explore

our interactive list of high quality stocks

to get an idea of what else is out there you may be missing!

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

search here

.

If you spot an error that warrants correction, please contact the editor at

[email protected]

. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.

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