# Calculating The Intrinsic Value Of Seino Holdings Co., Ltd. (TSE:9076)

Simply Wall St · 08/30 21:13

### Key Insights

• Seino Holdings' estimated fair value is JP¥1,933 based on Dividend Discount Model
• Current share price of JP¥2,316 suggests Seino Holdings is potentially trading close to its fair value
• The JP¥2,380 analyst price target for 9076 is 23% more than our estimate of fair value

Today we will run through one way of estimating the intrinsic value of Seino Holdings Co., Ltd. (TSE:9076) by taking the expected future cash flows and discounting them to their present value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. It may sound complicated, but actually it is quite simple!

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

Check out our latest analysis for Seino Holdings

## What's The Estimated Valuation?

We have to calculate the value of Seino Holdings slightly differently to other stocks because it is a transportation company. In this approach dividends per share (DPS) are used, as free cash flow is difficult to estimate and often not reported by analysts. Unless a company pays out the majority of its FCF as a dividend, this method will typically underestimate the value of the stock. The 'Gordon Growth Model' is used, which simply assumes that dividend payments will continue to increase at a sustainable growth rate forever. The dividend is expected to grow at an annual growth rate equal to the 5-year average of the 10-year government bond yield of 0.3%. We then discount this figure to today's value at a cost of equity of 5.7%. Compared to the current share price of JP¥2.3k, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.

Value Per Share = Expected Dividend Per Share / (Discount Rate - Perpetual Growth Rate)

= JP¥105 / (5.7% – 0.3%)

= JP¥1.9k

## The Assumptions

Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the 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 Seino Holdings 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 5.7%, which is based on a levered beta of 1.094. 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.

### SWOT Analysis for Seino Holdings

Strength
• Debt is not viewed as a risk.
• Dividend is in the top 25% of dividend payers in the market.
Weakness
• Earnings declined over the past year.
• Expensive based on P/E ratio and estimated fair value.
Opportunity
• Annual earnings are forecast to grow faster than the Japanese market.
Threat
• Dividends are not covered by earnings.
• Revenue is forecast to grow slower than 20% per year.