DUG Technology Ltd (ASX:DUG) Shares Could Be 44% Below Their Intrinsic Value Estimate

In This Article:

Key Insights

  • The projected fair value for DUG Technology is AU$3.35 based on 2 Stage Free Cash Flow to Equity

  • DUG Technology is estimated to be 44% undervalued based on current share price of AU$1.89

  • Analyst price target for DUG is US$3.13 which is 6.7% below our fair value estimate

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of DUG Technology Ltd (ASX:DUG) as an investment opportunity by taking the forecast future cash flows of the company and discounting them back to today's value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

View our latest analysis for DUG Technology

What's The Estimated Valuation?

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) estimate

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF ($, Millions)

-US$3.37m

US$10.5m

US$11.8m

US$12.7m

US$13.5m

US$14.2m

US$14.8m

US$15.3m

US$15.9m

US$16.3m

Growth Rate Estimate Source

Analyst x4

Analyst x3

Analyst x4

Est @ 7.90%

Est @ 6.25%

Est @ 5.10%

Est @ 4.29%

Est @ 3.73%

Est @ 3.33%

Est @ 3.06%

Present Value ($, Millions) Discounted @ 7.0%

-US$3.2

US$9.2

US$9.6

US$9.7

US$9.6

US$9.4

US$9.2

US$8.9

US$8.6

US$8.3

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$79m