DCF - value is less than net assets - still useful / alternatives?
Hi all!
Just done a DCF & the equity value (26.9m perpetuity / 41.3m exit EBITDA) is significantly less than net assets (52.5m). The perpetuity itself is worth less than just the fixed assets (29.3m). What ways/multiples might be more useful to value a business in a case such as this?
Thanks all!
assets are at fair value i take?
Book value/carrying value - which I suppose answers my question in that the fair value is the DCF outcome - hence no conundrum! Right? (Still learning all this).
I don’t think it necessarily means the valuation is wrong — if a firm is simply unprofitable or has razor thin margins and the equipment to make their products is expensive, then the intrinsic value of the business (DCF) could be less than that of their assets (e.g. their WACC>ROIC, thus operating as a going concern is destroying value, as opposed to increasing firm value).
In a case like this, maybe a liquidation valuation makes sense, where the company decides to sell their assets as opposed to be a going concern.
If the purpose of your question is simply trying to get a higher value, then a higher growth rate / multiple / lower WACC / higher margins all would make it go up, but the model would obviously lose credibility.
Edit: Also, your perpetuity and exit multiple greatly differ. You should do a sanity check on the growth rate implied from the exit multiple value to make sure it’s not something crazy.
Does the company belong to Energy or Real Estate?
My guess is that company / industry has had poor recent data and short term forecast, leading the P/B & P/NAV
RIP Micron
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