An Intrinsic Calculation For Food Empire Holdings Limited (SGX:F03) Suggests It's 49% Undervalued

Simply Wall St.

Nov 14

AdvertisementKey Insights Using the 2 Stage Free Cash Flow to Equity, Food Empire Holdings fair value estimate is S$5.06 Food Empire Holdings is estimated to be 49% undervalued based on current ...

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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.  Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation.  If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. The Model   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.  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.   Generally we assume that a dollar today is more valuable than a dollar in the future,  so we discount the value of these future cash flows to their estimated value in today's dollars:  10-year free cash flow (FCF) forecast  2026202720282029203020312032203320342035 Levered FCF ($, Millions) US$52.6mUS$56.4mUS$59.9mUS$69.7mUS$74.7mUS$79.0mUS$82.7mUS$86.1mUS$89.2mUS$92.1mGrowth Rate Estimate SourceAnalyst x3Analyst x3Analyst x1Analyst x1Est @ 7.17%Est @ 5.76%Est @ 4.77%Est @ 4.08%Est @ 3.60%Est @ 3.26% Present Value ($, Millions) Discounted @ 5.8% US$49.7US$50.4US$50.5US$55.5US$56.2US$56.2US$55.6US$54.7US$53.5US$52.2(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$535m 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 2.5%. We discount the terminal cash flows to today's value at a cost of equity of 5.8%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = US$92m× (1 + 2.5%) ÷ (5.8%– 2.5%) = US$2.8bPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= US$2.8b÷ ( 1 + 5.8%)10= US$1.6b 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$2.1b.  The last step is to then divide the equity value by the number of shares outstanding.  Relative to the current share price of S$2.6, the company appears   quite good value    at a 49% discount to where the stock price trades currently.   Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. SGX:F03 Discounted Cash Flow November 14th 2025  Important Assumptions  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 Food Empire Holdings 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 5.8%, which is based on a levered beta of 0.800. 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 Food Empire Holdings SWOT Analysis for Food Empire HoldingsStrength Debt is not viewed as a risk. Dividends are covered by earnings and cash flows.  Dividend information for F03. Weakness Earnings declined over the past year. Dividend is low compared to the top 25% of dividend payers in the Food market.Opportunity Annual earnings are forecast to grow faster than the Singaporean market. Trading below our estimate of fair value by more than 20%. Threat Revenue is forecast to grow slower than 20% per year.  What else are analysts forecasting for F03?  Looking Ahead:  Whilst important, the DCF calculation  is only one of many factors that you need to assess for a company.  The DCF model is not a perfect stock valuation tool.  Rather it should be seen as a guide to \"what assumptions need to be true for this stock to be under/overvalued?\"  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.   Can we work out why the company is trading at a discount to intrinsic value?   For Food Empire Holdings, there are three  relevant  elements  you should further examine:   Risks: You should be aware of the 2 warning signs for Food Empire Holdings we've uncovered before considering an investment in the company.  Future Earnings: How does F03's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart. 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!   PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the SGX every day. If you want to find the calculation for other stocks just search here.New: AI Stock Screener & AlertsOur new AI Stock Screener scans the market every day to uncover opportunities.• Dividend Powerhouses (3%+ Yield)• Undervalued Small Caps with Insider Buying• High growth Tech and AI CompaniesOr build your own from over 50 metrics.Explore Now for FreeHave 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.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":0,"need_auth":false,"code":"91000000","status":"200"}}}