key insights
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The estimated fair value of Bridgemarq Real Estate Services is CA$14.86 based on free cash flow into two tiers of equity.
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Bridgemarq Real Estate Services’ stock price is C$12.00, and it appears to be trading close to its estimated fair value
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Bridgemarq Real Estate Services’ peers are currently trading at an average premium of 140%
How far is Bridgemarq Real Estate Services Inc. (TSE:BRE) from its intrinsic value? We use the latest financial data to discount a company’s forecast of its future cash flows to its current value. Find out if it’s a fair price. Our analysis uses a discounted cash flow (DCF) model. Believe it or not, as you can see from this example, it’s not that difficult to follow.
We generally think of a company’s value as the present value of all the cash it will generate in the future. However, DCF is just one metric among many, and it is not without its flaws. For those who are keen to learn stock analysis, the Simply Wall St analysis model here may be of interest.
Check out our latest analysis for Bridgemarq Real Estate Services.
What is the estimated valuation?
We use a two-stage growth model. This means considering his two stages of company growth. In the initial stage, a company may have a higher growth rate, and in the second stage, it is usually considered to have a stable growth rate. First, you need to obtain an estimate of your cash flows for the next 10 years. As analyst estimates for free cash flow are not available, we have extrapolated the previous free cash flow (FCF) from the company’s last reported value. We assume that companies with shrinking free cash flow will see their rate of shrinkage slow, and companies with growing free cash flow will see their growth rate slow over this period. This is to reflect that growth tends to be slower in the early years than in later years.
It is generally assumed that a dollar today is worth more than a dollar in the future, so the sum of these future cash flows is discounted to today’s value.
10-year free cash flow (FCF) forecast
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
2031 |
2032 |
2033 |
|
Leveraged FCF (CA$, million) |
12.8 million Canadian dollars |
12.6 million Canadian dollars |
12.6 million Canadian dollars |
12.6 million Canadian dollars |
12.7 million Canadian dollars |
12.9 million Canadian dollars |
13 million Canadian dollars |
13.2 million Canadian dollars |
13.4 million Canadian dollars |
13.7 million Canadian dollars |
Growth rate estimation source |
Forecast @ -2.89% |
Estimated @ -1.45% |
Estimated @ -0.43% |
Estimated @ 0.28% |
Estimated @ 0.77% |
Estimated @ 1.12% |
Estimated @ 1.36% |
Estimated @ 1.53% |
Estimated @ 1.65% |
Estimated @ 1.74% |
Present value (CA$, million) Discounted at 8.1% |
CA$11.9 |
CA$10.8 |
10.0 Canadian dollars |
9.2 Canadian dollar |
CA$8.6 |
CA$8.1 |
7.6 Canadian dollar |
7.1 Canadian dollar |
6.7 Canadian dollar |
6.3 Canadian dollar |
(“Est” = FCF growth rate estimated by Simply Wall St)
Present value of cash flows over 10 years (PVCF) = CAD 86 million
After calculating the present value of the first 10 years of future cash flows, you need to calculate the final value, which takes into account all future cash flows from the first stage onwards. For various reasons, a very conservative growth rate is used that cannot exceed the country’s GDP growth rate. In this case, we used the five-year average of the 10-year Treasury yield (1.9%) to estimate future growth rates. As with the 10-year “growth” period, we discount future cash flows to their current value using a cost of equity of 8.1%.
Terminal value (TV)=FCF2033 × (1 + g) ÷ (r – g) = CAD 14 million × (1 + 1.9%) ÷ (8.1% – 1.9%) = CAD 227 million
Present Value of Terminal Value (PVTV)= TV / (1 + r)Ten= CAD 227 million ÷ ( 1 + 8.1%)Ten= CAD 104 million
The total value, or capital value, is the sum of the present values of future cash flows, which in this case is CAD 190 million. The final step is to divide the stock value by the number of shares outstanding. Compared to the current share price of CA$12.0, the company appears to be at about fair value, which is a 19% discount to the current share price. It is best to view this as a rough estimate, not accurate to the last cent, as the assumptions in the calculations have a significant impact on the valuation.
Important prerequisites
It is important to point out that the most important input to discounted cash flows is the discount rate, which is, of course, the actual cash flows. If you disagree with these results, try doing the calculations yourself and test your assumptions. Additionally, DCF does not give a complete picture of a company’s potential performance because it does not take into account the cyclicality of the industry or the company’s future capital requirements. Given that we are considering Bridgemarq Real Estate Services as a potential shareholder, cost of equity is used as the discount rate, rather than cost of equity taking into account debt (or weighted average cost of capital, WACC). For this calculation, we used 8.1% based on a leverage beta of 1.230. Beta is a measure of a stock’s volatility compared to the market as a whole. Beta values are derived from industry average beta values for globally comparable companies and are constrained to a range of 0.8 to 2.0, which is a reasonable range for stable businesses.
SWOT analysis of Bridgemarq Real Estate Services
strength
Weakness
opportunity
threat
to the next:
A company’s valuation is important, but it shouldn’t be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Rather, the best use of DCF models is to test certain assumptions and theories to see if a company is undervalued or overvalued. For example, a small adjustment to the terminal value growth rate can dramatically change the overall result. We’ve put together three important aspects of Bridgemarq Real Estate Services that you should research further.
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risk: Case in point, we found 5 warning signs for Bridgemarq Real Estate Services Four of them are a little off-putting.
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Other high quality alternatives: Do you like good all-rounders? Explore our interactive list of quality stocks to figure out what else you’re missing.
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Other top analyst picks: Want to know what analysts are thinking? Check out our interactive list of analyst-picked top stocks to find stocks whose future outlook looks attractive.
PS. Simply Wall St updates DCF calculations for all Canadian stocks daily, so if you want to know the intrinsic value of other stocks, search here.
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This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.