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Calculating The Fair Value Of Caulis Inc. (TSE:153A)

Simply Wall St · 3d ago

Key Insights

  • Caulis' estimated fair value is JP¥1,114 based on 2 Stage Free Cash Flow to Equity
  • Current share price of JP¥1,303 suggests Caulis is potentially trading close to its fair value
  • Caulis' peers seem to be trading at a higher premium to fair value based onthe industry average of -324%

Today we will run through one way of estimating the intrinsic value of Caulis Inc. (TSE:153A) by estimating the company's future cash flows and discounting them to their present value. We will use the Discounted Cash Flow (DCF) model on this occasion. It may sound complicated, but actually it is quite simple!

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 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.

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What's The Estimated Valuation?

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. 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.

Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) forecast

2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Levered FCF (¥, Millions) JP¥369.1m JP¥391.5m JP¥408.8m JP¥422.2m JP¥432.6m JP¥440.9m JP¥447.6m JP¥453.1m JP¥457.9m JP¥462.1m
Growth Rate Estimate Source Est @ 8.40% Est @ 6.06% Est @ 4.42% Est @ 3.27% Est @ 2.47% Est @ 1.91% Est @ 1.52% Est @ 1.24% Est @ 1.05% Est @ 0.91%
Present Value (¥, Millions) Discounted @ 6.5% JP¥347 JP¥345 JP¥338 JP¥328 JP¥316 JP¥302 JP¥288 JP¥274 JP¥260 JP¥246

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = JP¥3.0b

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. 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 0.6%. We discount the terminal cash flows to today's value at a cost of equity of 6.5%.

Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = JP¥462m× (1 + 0.6%) ÷ (6.5%– 0.6%) = JP¥7.9b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= JP¥7.9b÷ ( 1 + 6.5%)10= JP¥4.2b

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is JP¥7.2b. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of JP¥1.3k, the company appears around fair value at the time of writing. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.

dcf
TSE:153A Discounted Cash Flow January 8th 2026

The Assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own 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 Caulis 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 6.5%, which is based on a levered beta of 1.125. 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.

Check out our latest analysis for Caulis

Looking Ahead:

Whilst important, the DCF calculation is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation. For Caulis, there are three pertinent factors you should consider:

  1. Risks: You should be aware of the 2 warning signs for Caulis (1 is a bit unpleasant!) we've uncovered before considering an investment in the company.
  2. Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
  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 TSE every day. If you want to find the calculation for other stocks just search here.