Estimating The Fair Value Of CSE Global Limited (SGX:544)

Simply Wall St.

Jan 30

AdvertisementKey Insights CSE Global's estimated fair value is S$1.09 based on 2 Stage Free Cash Flow to Equity With S$1.15 share price, CSE Global appears to be trading close to its estimated fair ...

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This will be done using the Discounted Cash Flow (DCF) model.  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.  For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. The Calculation   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.  To begin with, we have to get estimates of the next ten years of cash flows.   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 (SGD, Millions) S$60.9mS$66.0mS$83.7mS$67.2mS$58.2mS$53.2mS$50.4mS$48.9mS$48.3mS$48.2mGrowth Rate Estimate SourceAnalyst x3Analyst x3Analyst x1Analyst x1Est @ -13.35%Est @ -8.60%Est @ -5.28%Est @ -2.96%Est @ -1.33%Est @ -0.19% Present Value (SGD, Millions) Discounted @ 8.2% S$56.2S$56.3S$66.0S$49.0S$39.2S$33.1S$29.0S$26.0S$23.7S$21.8(\"Est\" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = S$400m The second stage is also known as Terminal Value, this is the business's cash flow after 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 8.2%. Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = S$48m× (1 + 2.5%) ÷ (8.2%– 2.5%) = S$855mPresent Value of Terminal Value (PVTV)= TV / (1 + r)10= S$855m÷ ( 1 + 8.2%)10= S$387m 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 S$787m.  To get the intrinsic value per share, we divide this by the total number of shares outstanding.  Compared to the current share price of S$1.2, the company appears   around fair value    at the time of writing.   Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out. SGX:544 Discounted Cash Flow January 29th 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 CSE Global 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 8.2%, which is based on a levered beta of 1.371. 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 CSE Global SWOT Analysis for CSE GlobalStrength Earnings growth over the past year exceeded its 5-year average. Debt is well covered by earnings. Balance sheet summary for 544. Weakness Earnings growth over the past year underperformed the IT industry. Dividend is low compared to the top 25% of dividend payers in the IT market.Opportunity Annual earnings are forecast to grow faster than the Singaporean market. Good value based on P/E ratio compared to estimated Fair P/E ratio. ThreatDebt is not well covered by operating cash flow. Paying a dividend but company has no free cash flows. Revenue is forecast to grow slower than 20% per year. Is 544 well equipped to handle threats?  Moving On:  Whilst important, the DCF calculation  shouldn't be the only metric you look at when researching a company.  The DCF model is not a perfect stock valuation tool.  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 example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation.  For CSE Global, we've put together three  further  elements  you should consider:   Risks: For example, we've discovered 1 warning sign for CSE Global that you should be aware of before investing here.  Future Earnings: How does 544'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. Simply Wall St updates its DCF calculation for every Singaporean stock every day, so if you want to find the intrinsic value of any other stock 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"}}}