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    Home » An Intrinsic Calculation For Adriatic Metals PLC (ASX:ADT) Suggests It’s 45% Undervalued
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    An Intrinsic Calculation For Adriatic Metals PLC (ASX:ADT) Suggests It’s 45% Undervalued

    userBy userApril 30, 2025No Comments7 Mins Read
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    • The projected fair value for Adriatic Metals is AU$7.68 based on 2 Stage Free Cash Flow to Equity

    • Current share price of AU$4.25 suggests Adriatic Metals is potentially 45% undervalued

    • Our fair value estimate is 32% higher than Adriatic Metals’ analyst price target of US$5.82

    In this article we are going to estimate the intrinsic value of Adriatic Metals PLC (ASX:ADT) by projecting its future cash flows and then discounting them to today’s value. Our analysis will employ the Discounted Cash Flow (DCF) model. Before you think you won’t be able to understand it, just read on! It’s actually much less complex than you’d imagine.

    We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

    We check all companies for important risks. See what we found for Adriatic Metals in our free report.

    We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company’s cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren’t available we extrapolate the previous free cash flow (FCF) from the last estimate or 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:

    2025

    2026

    2027

    2028

    2029

    2030

    2031

    2032

    2033

    2034

    Levered FCF ($, Millions)

    US$101.7m

    US$172.7m

    US$174.3m

    US$144.0m

    US$127.6m

    US$118.5m

    US$113.5m

    US$111.1m

    US$110.4m

    US$110.8m

    Growth Rate Estimate Source

    Analyst x5

    Analyst x5

    Analyst x3

    Analyst x1

    Est @ -11.40%

    Est @ -7.16%

    Est @ -4.19%

    Est @ -2.11%

    Est @ -0.66%

    Est @ 0.36%

    Present Value ($, Millions) Discounted @ 8.7%

    US$93.6

    US$146

    US$136

    US$103

    US$84.3

    US$72.0

    US$63.5

    US$57.2

    US$52.3

    US$48.3

    (“Est” = FCF growth rate estimated by Simply Wall St)
    Present Value of 10-year Cash Flow (PVCF) = US$857m

    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. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country’s GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.7%) to estimate future growth. In the same way as with the 10-year ‘growth’ period, we discount future cash flows to today’s value, using a cost of equity of 8.7%.

    Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = US$111m× (1 + 2.7%) ÷ (8.7%– 2.7%) = US$1.9b

    Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$1.9b÷ ( 1 + 8.7%)10= US$839m

    The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$1.7b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of AU$4.3, the company appears quite good value at a 45% discount to where the stock price trades currently. 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.

    ASX:ADT Discounted Cash Flow April 30th 2025

    Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual 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 Adriatic Metals 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 8.7%, which is based on a levered beta of 1.153. 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.

    See our latest analysis for Adriatic Metals

    Strength

    Weakness

    Opportunity

    Threat

    Whilst important, the DCF calculation ideally won’t be the sole piece of analysis you scrutinize for a company. DCF models are not the be-all and end-all of investment valuation. 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. What is the reason for the share price sitting below the intrinsic value? For Adriatic Metals, we’ve compiled three additional factors you should consider:

    1. Financial Health: Does ADT have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

    2. Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for ADT’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.

    3. 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!

    PS. Simply Wall St updates its DCF calculation for every Australian stock every day, so if you want to find the intrinsic value of any other stock just search here.

    Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

    This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.



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