Saturday, October 20, 2018

Servizi Italia S.p.A. : plain DCF and target price.

In the following image, we have an example of DCF valuation. 
The firm is Servizi Italia S.p.A. The valuation date was August 18, 2016 and the target was 6.06 EURO (plus a range with regard to the fair value, +/-5%). The target was achieved on November 23, 2017 (in this way, the holding period was about one year and 3 months or 462 days, exactly). For this purpose, consult the following link and see the second one image : 
The upside was about +73%, with regard to the current market price at the time of the coverage :
[6.06 - 3.50] / 3.50 = + 73.14 %

Let's look at the assumptions of the model :
  1. The revenues were the proxy of the model : it means that all the variables depended directly on sales as a percentage.
  2. For the estimation of the revenues of the next three years (2016-2017-2018), I assumed a CAGR of about 3% (the business of the firm is quite steady) ; I looked also at the trend of the past three years. 
  3. For the other items (D&A, NFC, net income, NWC, capex), as I said previously, I assumed a percentage of the revenues : 20%, 1.5%, 5%, 0.5%, 20%. I looked also at the past trend and I considered the evolution of the sector and of the firm, in the next years (for the formula, consult the notes). 
  4. For the estimation of the ERP and tax rate, I used the data source of A. Damodaran (ITA).
  5. For the risk-free rate, I assumed the weighted average yield of BTP 10 years.
  6. For the estimation of the beta, I used the regression between FTSE-mib and Servizi Italia with a time frame of 5 years and with monthly returns (I added a spread of 0.10 to consider the additional risk, due to the reduced liquidity of the stock). 
  7. For the cost of debt and for the financial structure, see the notes.
  8. For the growth rate (g), I assumed a conservative rate of 1% (see the litterature). 
  9. With regard to the calculation of the EV and of the fair value, see the following formula and consult the notes:

Sunday, October 14, 2018

INFINEON TECHNOLOGIES : chart framework.

From a uptrend beginned in the first half of the year 2013, the stock showed a correction in the year 2018. The chart framework is highlighted by the two trendlines (we speak about a long-term period), in particular by the break of the second one (see the gray circled area). 
The trend change is also marked by the crossing of the two EMAs (fast, 100 periods and slow, 200 periods). The slope of the EMAs shows the market direction. 
If we look at the FIBO retracements, we got another confirmation of that picture.
There is the break of the first FIBO level (23.60%, at 20.31 EURO). Then, we are at the test of the second FIBO level (38.20%, at 17.22 EURO). See the yellow circled areas. 

Chart from

The previous chart shows the graphic framework at a glance. We can reduce the objective with the aim to closely analyze the situation, in this way. 
The following chart shows an excess market. We can notice it trough the excess volatility from the BBs, the crossing of the two lines of the MACD (MACD and signal line) and the crossing of the RSI line, from overbought to a hypothetical oversold. How long this trend change/excess market will last ? It needs to monitor the next trading sessions to get a response (see also the test of the above named FIBO level). 

Chart from

Finally, with a monthly time frame, we come to the same conclusions : crossing of the zero line from above to below (MOM) and crossing of the level 80 (MFI) ; see the yellow ellipses, in this way.
The structure of the PSAR also shows the trend change : in the bullish trend the slope is very different from the last bearish trend. 
As I said previously, it needs to look at the next trading sessions to understand if the current bearish trend is still valid or not. 

Chart from

Of course, there is no fundamental consideration that would clearly complement the analysis, especially with regard to a long-term perspective.