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 : 

https://twitter.com/search?l=&q=DCF%20from%3Amichele_finance&src=typd&lang=en

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:

EV=[FCF16/(1+wacc)^1]+[FCF17/(1+wacc)^2]+[FCF18/(1+wacc)^3]+[FCF18*(1+g)/(wacc-g)]*[1/(1+wacc)^3]