Geberit AG's (VTX:GEBN) Intrinsic Value Is Potentially 23% Below Its Share Price

In This Article:

Key Insights

  • The projected fair value for Geberit is CHF382 based on 2 Stage Free Cash Flow to Equity

  • Geberit's CHF498 share price signals that it might be 30% overvalued

  • Our fair value estimate is 13% lower than Geberit's analyst price target of CHF440

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Geberit AG (VTX:GEBN) as an investment opportunity by taking the forecast future cash flows of the company and discounting them back to today's 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. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

See our latest analysis for Geberit

The Method

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, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) estimate

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

Levered FCF (CHF, Millions)

CHF601.2m

CHF608.8m

CHF682.0m

CHF712.8m

CHF735.4m

CHF752.0m

CHF764.0m

CHF772.8m

CHF779.1m

CHF783.8m

Growth Rate Estimate Source

Analyst x6

Analyst x6

Analyst x2

Est @ 4.51%

Est @ 3.18%

Est @ 2.25%

Est @ 1.60%

Est @ 1.14%

Est @ 0.82%

Est @ 0.60%

Present Value (CHF, Millions) Discounted @ 5.9%

CHF568

CHF543

CHF574

CHF566

CHF552

CHF533

CHF511

CHF488

CHF464

CHF441

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = CHF5.2b