Calculating the intrinsic value of XBS PRO-LOG SA (WSE:XBS)

Key findings

• The forecast fair value for XBS PRO-LOG is 124 zł based on the dividend discount model
• The current share price of PLN 104 suggests that XBS PRO-LOG may be trading close to its fair value
• Compared to the industry average discount to fair value of 41%, XBS PRO-LOG’s competitors appear to be trading at an even larger discount.

Does the XBS PRO-LOG SA (WSE:XBS) share price in July reflect its actual value? Today we will estimate the intrinsic value of the stock by projecting its future cash flows and then discounting them to today’s value. For this purpose, we will use the Discounted Cash Flow (DCF) model. There is actually not too much to it, even though it may seem quite complex.

We would like to point out that there are many ways to value a company and that each method, such as the DCF, has advantages and disadvantages in certain scenarios. For those who like to engage in stock analysis, the analysis model presented here by Simply Wall St might be of interest.

Check out our latest analysis for XBS PRO-LOG

Step by step through the calculation

Because XBS PRO-LOG operates in the logistics sector, we need to calculate intrinsic value a little differently. This approach uses dividends per share (DPS) because free cash flow is difficult to estimate and often not reported by analysts. This often underestimates a stock’s value, but it can still be a good comparison to competitors. We use the Gordon Growth Model, which assumes the dividend will grow at a sustainable rate over time. The dividend is expected to grow at an annual growth rate equal to the 5-year average 10-year government bond yield of 3.7%. We then discount this figure to today’s value at a cost of equity of 9.9%. Relative to the current share price of PLN 104, the company seems roughly fairly valued at a 16% discount to the current share price. The assumptions in any calculation have a big impact on the valuation, so it’s better to think of this as a rough estimate that isn’t accurate to the last cent.

Value per share = Expected dividend per share / (Discount rate – Perpetual growth rate)

= 7.6 PLN / (9.9% – 3.7%)

= 124 PLN

The assumptions

The main inputs to a discounted cash flow are the discount rate and of course the actual cash flows. If you don’t agree with these results, try the calculation yourself and play with the assumptions. DCF also doesn’t take into account the possible cyclicality of an industry or a company’s future capital needs and therefore doesn’t provide a complete picture of a company’s potential performance. Since we consider XBS PRO-LOG 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 takes debt into account. In this calculation, we used 9.9%, which is based on a leveraged beta of 1.053. Beta is a measure of a stock’s volatility relative to the overall market. We get our beta from the industry average beta of global peers with an imposed limit of between 0.8 and 2.0, which is a reasonable range for a stable company.

SWOT analysis for XBS PRO-LOG

Looking ahead:

Although the DCF calculation is important, it is only one of many factors you need to evaluate a company. The DCF model is not a perfect tool for stock valuation. Instead, the best use of a DCF model is to test certain assumptions and theories to see if they would lead to an undervaluation or overvaluation of the company. For example, changes in the company’s cost of equity or risk-free interest rate can significantly affect the valuation. For XBS PRO-LOG, there are three important aspects you should investigate further:

1. Risks: For example, we found 4 warning signals for XBS PRO-LOG (2 are concerning!) that you should know before investing here.
2. Other solid companies: Low debt, high returns on equity, and good past performance are the foundation of a strong company. Check out our interactive list of stocks with solid business fundamentals to see if there are any other companies you may not have considered!
3. Other environmentally friendly companies: Are you concerned about the environment and believe that consumers will increasingly buy environmentally friendly products? Browse through our interactive list of companies thinking about a greener future and discover some stocks you may not have thought of yet!

PS. Simply Wall St updates its DCF calculation for each Polish stock daily, so if you want to find out the intrinsic value of any other stock, just search here.

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This Simply Wall St article is of a general nature. We comment solely on the basis of historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

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