Enel Generación Chile S.A. is evaluated with a two-stage DCF model, estimating a fair value of CL$512 per share while trading at CL$416. Peers are priced at a 190% premium. The DCF analysis projected significant cash flows, revealing the company’s current state as undervalued. A SWOT analysis highlights strengths in dividend sustainability and low debt risk, offering insights for potential investors.
Enel Generación Chile S.A. (SNSE:ENELGXCH) is currently being evaluated using the two-stage Free Cash Flow to Equity model, which estimates its fair value at CL$512 per share. The current market share price stands at CL$416, implying that the stock is trading close to its fair valuation. In comparison, peers within the industry are trading at an average premium of 190%.
To ascertain if Enel Generación Chile is fairly priced, an analysis of its future cash flows and a discount to their present value were conducted using the Discounted Cash Flow (DCF) model. The DCF model, despite its inherent limitations, provides valuable insight into the company’s value based on future cash generation.
The two-stage DCF model consists of an initial high-growth phase followed by a period of stable growth. The first ten years require estimation of business cash flows. Given the absence of analyst estimates for future Free Cash Flow (FCF), past data was utilized, acknowledging that growth typically decelerates from early to later years.
In estimating future cash flows, values for the next ten years include levered FCF projections ranging from CL$354.8 billion in 2025 to CL$269.6 billion by 2034. These projections were then discounted to present value, resulting in a total discounted cash flow of CL$1.7 trillion over the ten-year span.
The second stage, or Terminal Value, reflects cash flows beyond this initial phase with conservative growth assumptions tied to the average government bond yield of 5.5% to avoid overestimating future potential. The Terminal Value was calculated at approximately CL$6.5 trillion, leading to a present value of CL$2.5 trillion when applying the 9.9% discount rate.
Summing both values yields a total equity value of CL$4.2 trillion. Dividing this by the shares outstanding indicates the share price appears fair, approximately 19% below current trading levels. The DCF employs crucial inputs such as discount rates and cash flow projections, emphasizing the importance of these factors.
A SWOT analysis further illuminates the financial landscape of Enel Generación Chile, highlighting strengths such as low perceived risk and consistent dividend coverage; weaknesses factor in recent earnings declines. Notably, there are no significant threats currently recognized.
Although the DCF analysis is critical, it should accompany broader financial scrutiny. Investors must consider risks associated with investment, particularly noting the one warning sign identified. Additionally, the exploration of other companies with solid fundamentals may present further investment opportunities.
Simply Wall St provides regular updates on the DCF valuations of Chilean stocks, catering to those seeking intrinsic value assessments. Investors are encouraged to engage with these resources to strengthen their financial acumen and investment decisions.
This article serves as a guide, presenting a comprehensive overview of Enel Generación Chile’s valuation without constituting financial advice or recommendations. Readers should weigh their circumstances alongside their investment objectives when interpreting this analysis.
In conclusion, Enel Generación Chile is estimated to be trading near its fair value of CL$512 per share at the current price of CL$416. The analysis utilized the two-stage DCF model, yielding valuable cash flow projections and terminal value considerations. Notably, despite recent earnings declines, the company displays strong dividend coverage and minimal perceived risks. Further evaluation of industry trends and fundamental analysis is essential for sound investment decisions.
Original Source: simplywall.st
