The capex for this target company has been high in recent years is due to building a new facility(poultry production/processing), however its a rather "mature" business. If historically(last 3 years) has all been abnormally high capex, how should I incorporate this into my DCF? I was thinking I can stretch it to 7-10 yrs instead of 5, however would like some feedback from those in the industry. thanks!
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I would suggest just normalizing expenditures and capex instead of stretching the analysis to 7-10 years. However, it is necessary to consider what the capex is going towards to figure out if any significant cash flows would be generated from the investment to really understand because that could change revenue assumptions.
There are typically two types of Capex: Growth Capex and Maintenance Capex.
In your example, the Company used Growth Capex to build this new facility. Assuming the facility is up and operational, the only impact it will have going forward is potentially higher Maintenance Capex.
Unless there is a presumption that additional machinery will be needed, I would just focus on increasing Maintenance Capex by some amount, which will reduce FCF. It shouldn't have a dramatic effect though.
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