A Look At The Intrinsic Value Of Evolution Mining Limited (ASX:EVN)

In This Article:

Key Insights

  • The projected fair value for Evolution Mining is AU$4.01 based on 2 Stage Free Cash Flow to Equity

  • Evolution Mining's AU$4.62 share price indicates it is trading at similar levels as its fair value estimate

  • Analyst price target for EVN is AU$4.09, which is 1.9% above our fair value estimate

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Evolution Mining Limited (ASX:EVN) as an investment opportunity by taking the expected future cash flows and discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Models like these may appear beyond the comprehension of a lay person, but they're fairly easy to follow.

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. 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.

Check out our latest analysis for Evolution Mining

Step By Step Through 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 start off with, we need to estimate 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, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) forecast

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

Levered FCF (A$, Millions)

AU$435.3m

AU$569.3m

AU$681.7m

AU$562.3m

AU$476.5m

AU$456.8m

AU$446.8m

AU$443.3m

AU$444.0m

AU$447.7m

Growth Rate Estimate Source

Analyst x7

Analyst x6

Analyst x6

Analyst x3

Analyst x2

Est @ -4.14%

Est @ -2.17%

Est @ -0.80%

Est @ 0.16%

Est @ 0.84%

Present Value (A$, Millions) Discounted @ 7.4%

AU$405

AU$494

AU$550

AU$423

AU$333

AU$298

AU$271

AU$250

AU$234

AU$219

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = AU$3.5b