The IPD Group’s estimated fair value is $ 4,90 based on 2 stage free cash flow to its own capital
The current share price of $ 3,06 suggests that the IPD group is potentially 38% undervalued
AU $ 4,24’s price pricing for IPG is 13% lower than our fair value estimate
Today we will simply move a method of evaluation used to evaluate the attractiveness of the IPD Group Limited (ASX: IPG) as an investment capability by designing its future cash flows and then we will give them up to today’s value. One way to achieve this is by using the discount model of cash flow (DCF). There really is not so much, though it can look quite complicated.
Companies can be evaluated in many ways, so we would point out that DCF is not perfect for any situation. Anyone interested in learning a little more about the internal value should read the Simply Wall St model.
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We use the two -stage growth model, which simply means that we take into account two stages of growth of the company. In the initial period, the company may have a higher growth rate and it is usually assumed that the second stage has a stable growth rate. To get started, we need to judge the next ten years of cash flows. Where possible, we use analysts’ estimates, but when they are not available, we extrapolate the previous free cash flow (FCF) from the latest assessment or reported value. We assume that free cash flow companies will slow down their shrink speed and that companies with a growing free cash flow will monitor the slow growth rate during this period. We do this to reflect that growth tends to slow down more in the early years than in the short years.
DCF is related to the idea that a dollar in the future is less valuable than a dollar today, so the sum of these future cash flows is then rejected to today’s value:
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
Levered FCF (A $, Millions)
At $ 30.0 million
At $ 23.0m
I’m $ 31.mm
At $ 30.2 million
AU $ 29.4 million
At $ 29.2 million
I 29.3 million dollars
I 29.6 million dollars
I’m $ 30.1 million
I $ 30.7 million
Source of growth rate assessment
Analyzer X4
Analyzer X4
Analyzer X3
Is @ -4.75%
Is @ -2.44%
Is @ -0.82%
Is @ 0.31%
Is @ 1.10%
Is @ 1.66%
Is @ 2.04%
The present value ($, millions) discount @ 7.8%
Au $ 27,8
AU $ 19.8
AU $ 25.3
Au $ 22.4
AU $ 20.2
AU $ 18.6
Au $ 17.3
AU $ 16.3
AU $ 15.3
AU $ 14.5
(“EST” = FCF growth rate calculated by just Wall ST) The present value of the 10-year cash flow (PVCF) = Au $ 198M
We must now calculate the value of the terminal, which reports all future cash flows after this ten -year period. The Gordon growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average of the 10-year return on government bonds of 2.9%. We give up with terminal cash flows to today’s value with a price of equity of 7.8%.
Terminal Value (TV)= FCF2034 × (1 + g) ÷ (r – g) = au $ 31m × (1 + 2.9%) ÷ (7.8% – 2.9%) = AU $ 656m
The present value of the terminal value (PVTV)= TV / (1 + r)10= AU $ 656m ÷ (1 + 7.8%)10= At $ 311m
The total value or value of equity is then the sum of the current value of future cash flows, which in this case is AU $ 508 million. In the last step, we divide the value of equity by the number of outstanding shares. Compared to the current $ 3.1 stock price, the company looks quite undervalued with a 38% discount to where the stock prices are currently trading. The assumptions of each calculation have a great influence on the assessment, so it is better to consider this as a rough assessment, not exactly to the last cent.
ASX: IPG discount cash flow 2 June 2025
We would say that the most important contribution to a discount in cash flow is discounting and, of course, actual cash flows. Part of the investment offers your own assessment of the company’s future performance, so try the calculation yourself and check your own assumptions. DCF also does not take into account the possible cyclicality of the industry or future capital requirements of the company, so it does not give a complete picture of the company’s potential results. Given that we consider the IPD Group as potential shareholders, the price of equity is used as a discount rate, not as the price of capital (or the weighted average capital price, WACC), which is a debt. In this calculation we used 7.8%, which is based on the beta of the lever of 1.112. Beta is a measure of shares instability compared to the market as a whole. We get our beta from the medium beta of the industry of worldwide comparable companies, with a limit between 0.8 and 2.0, which is a reasonable range for a stable business.
See our latest IPD Group analysis
Force
Weakness
Possibility
Threat
Although important, the calculation of DCF ideally will not be the only analysis you look at for a company. DCF models are not all and the end of investment assessment. Instead, the best use for the DCF model is to test certain assumptions and theories to see if they will lead to the fact that the company is undervalued or overestimated. For example, if the growth rate of the value of the terminal value is slightly adjusted, it can drastically change the overall result. Why is the inherent value higher than the current price of the shares? There are three suitable elements for the IPD Group that you should further consider:
Financial health: Is IPG a healthy balance? Take a look at our free balance analysis with six simple checks on key factors such as leverage and risk.
Future profit: How does IPG growth rate compare to his peers and wider market? Excavate deeper into the analyst’s consensus number for the coming years, interacting with our free diagram to anticipate the growth of the analyzer.
Other high quality alternatives: Do you like a good comprehensive? Take a look at our interactive list of high quality stocks to get an idea of what else is there, you may miss it!
PS. The Simply Wall ST app is evaluating a discount cash flow for each ASX stock every day. If you want to find the calculation for other stocks, just look here.
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This Simply Wall ST article is general. We provide comments based on historical data and forecasts for analysts only using impartial methodology and our articles are not intended to be financial advice. This is not a recommendation to buy or sell shares and do not take into account your goals or your financial status. We strive to provide you with a long -term focused analysis led by basic data. Note that our analysis may not be reported in the latest significant companies or quality materials. Just Wall ST has no position in the reserves mentioned.
