A Look At The Intrinsic Value Of Advanced Bitcoin Technologies AG (DUSE:ABT)

Simply Wall St · 10/18 07:47

Key Insights

  • The projected fair value for Advanced Bitcoin Technologies is €0.14 based on 2 Stage Free Cash Flow to Equity
  • Current share price of €0.14 suggests Advanced Bitcoin Technologies is potentially trading close to its fair value
  • The average premium for Advanced Bitcoin Technologies' competitorsis currently 44%

How far off is Advanced Bitcoin Technologies AG (DUSE:ABT) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the expected future cash flows and discounting them to their present value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. There's really not all that much to it, even though it might appear quite complex.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

Check out our latest analysis for Advanced Bitcoin Technologies

What's The Estimated Valuation?

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. In the first stage we need to estimate the cash flows to the business over the next ten years. Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last 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 discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) estimate

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034
Levered FCF (€, Millions) €186.0k €160.5k €145.5k €136.4k €130.7k €127.2k €125.1k €124.0k €123.5k €123.5k
Growth Rate Estimate Source Est @ -19.93% Est @ -13.70% Est @ -9.35% Est @ -6.30% Est @ -4.17% Est @ -2.67% Est @ -1.63% Est @ -0.90% Est @ -0.39% Est @ -0.03%
Present Value (€, Millions) Discounted @ 5.0% €0.2 €0.1 €0.1 €0.1 €0.1 €0.1 €0.09 €0.08 €0.08 €0.08

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = €1.1m

After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 0.8%. We discount the terminal cash flows to today's value at a cost of equity of 5.0%.

Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = €123k× (1 + 0.8%) ÷ (5.0%– 0.8%) = €3.0m

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= €3.0m÷ ( 1 + 5.0%)10= €1.8m

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is €2.9m. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of €0.1, the company appears about fair value at a 1.9% 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.

dcf
DUSE:ABT Discounted Cash Flow October 18th 2024

The Assumptions

We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. 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 Advanced Bitcoin Technologies 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 5.0%, which is based on a levered beta of 1.008. 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.

Moving On:

Although the valuation of a company is important, it shouldn't be the only metric you look at when researching a company. It's not possible to obtain a foolproof valuation with a DCF model. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Advanced Bitcoin Technologies, there are three essential factors you should assess:

  1. Risks: Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Advanced Bitcoin Technologies , and understanding these should be part of your investment process.
  2. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!
  3. Other Environmentally-Friendly Companies: Concerned about the environment and think consumers will buy eco-friendly products more and more? Browse through our interactive list of companies that are thinking about a greener future to discover some stocks you may not have thought of!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the DUSE every day. If you want to find the calculation for other stocks just search here.