Today, we are going to travel a way of estimating the intrinsic value of Nine Entertainment Co. Holdings Limited (ASX: NEC) by projecting its future cash flows, then repressing them to the value of today. We will use the cash flow model at reduced prices (DCF) on this occasion. Before you think, you will not be able to understand it, just read the rest! It is actually much less complex than you imagine.
We warn that there are many ways to assess a business and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you still have burning questions about this type of evaluation, take a look at the Simply Wall St analysis model.
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We will use a DCF model in two steps which, like its name, takes into account two growth stages. The first step is generally a period of higher growth that goes towards the value of the terminal, captured during the second period of “regular growth”. To start, we need to obtain estimates of the next ten years of cash flow. As far as possible, we use analysts estimates, but when these are not available, we extrapolate the available cash flow (FCF) from the last estimate or the value reported. We assume that companies with the narrowing of available cash flows will slow their narrowing rate and that companies with free cash flows will see their slow growth rate during this period. We do so to reflect that growth tends to slow down more in the first years than in the following years.
A DCF is a question of the idea that a dollar in the future is less precious than a dollar today, so we must reduce the sum of these future cash flows to reach an estimate of the current value:
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
FCF Levé (A $, Millions)
At 180.9 million dollars
At $ 207.1 million
$ 222.9 million at
$ 157.6 million at
At $ 149.1 million
At $ 145.1 million
$ 143.6 million
At 143.9 million $
At $ 145.4 million
At $ 147.7 million
Source of growth rate estimation
Analyst X4
Analyst X4
Analyst X4
Analyst X1
Analyst X1
Is @ -2.69%
Is @ -1.00%
Is @ 0.19%
Is @ 1.02%
Is @ 1.60%
Current value (A $, millions) reduced to 7.1%
$ 169 at
At $ 181
At $ 181
$ 120 at
$ 106
At $ 96.1
At $ 88.8
$ 83.1 at
At $ 78.4
At $ 74.4
(“Is” = FCF growth rate estimated by simply Wall St) Current value of cash flow at 10 years (PVCF) = $ 1.2 B at
After having calculated the current value of future cash flows during the initial period of 10 years, we must calculate the terminal value, which represents all the future cash flows beyond the first step. For a number of reasons, a very conservative growth rate is used which cannot exceed that of the growth of a country’s GDP. In this case, we used the average at 5 years of the yield of state bonds at 10 years (2.9%) to estimate future growth. In the same way as with the “growth” period of 10 years, we reductions in future cash flows towards the value of today, using a capital cost of 7.1%.
Terminal value (TV)= FCF2034 × (1 + g) ÷ (r – g) = at $ 148 million × (1 + 2.9%) ÷ (7.1% – 2.9%) = 3.7 billion dollars
Current value of terminal value (PVTV)= TV / (1 + R)10= At 3.7 billion dollars ÷ (1 + 7.1%)10= $ 1.8 billion
Total value, or equity value, is then the sum of the current value of future cash flows, which in this case is $ 3.0 billion in. To obtain the intrinsic value by action, we divide it by the total number of actions in circulation. Compared to the current course of action of $ 1.6 at, the company appears about the fair value at a discount of 17% compared to the place where the course of the action is currently negotiated. Remember that it is just an approximate evaluation, and like any complex formula – garbage, garbage.
ASX: cash flow at reduced price Nec May 26, 2025
We point out that the most important inputs of a reduced cash flow are the discount rate and of course the real cash flows. If you do not agree with these results, try the calculation yourself and play with the hypotheses. The DCF also does not take into account the possible cyclicity of an industry or future capital requirements of a company, so it does not give a complete image of the potential performance of a company. Since we are considering nine entertainment assets as potential shareholders, the cost of equity is used as an discount rate, rather than the cost of capital (or the weighted average cost of capital, WACC) which represents debt. In this calculation, we used 7.1%, which is based on a beta version of 0.960. The beta version is a measure of the volatility of a stock, compared to the market as a whole. We obtain our beta version of the average beta version of the comparable business industry on a global scale, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.
The evaluation is only one side of the part in terms of construction of your investment thesis, and this is only one of the many factors that you must assess for a company. DCF models are not the promotion of investment to all and at the end. Preferably, you would apply different cases and hypotheses and see how they would have an impact on the business assessment. For example, changes in the company’s equity cost or the risk -free rate may have a significant impact on the evaluation. For Nine Entertainment Holdings, we have implemented three relevant aspects that you should consider:
Future income: How does the NEC growth rate compare to its peers and the wider market? Deepen the analyst’s consensus number for the coming years by interacting with our Graphic of the growth expectations of free analysts.
Ps. The Simply Wall St application proceeds to an assessment of cash flow at reduced prices for each stock of ASX every day. If you want to find the calculation of other actions search here.
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This article by simply Wall St is general. We provide comments based on historical data and analysts forecasts only using an impartial methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to purchase or sell stock and do not take into account your objectives or your financial situation. We aim to provide you with a long -term targeted analysis drawn by fundamental data. Note that our analysis may not take into account the latest ads of the company sensitive to prices or qualitative equipment. Simply Wall St has no position in the actions mentioned.
