Valuation and Recommendation
Utilizing a Discounted Cash Flow (DCF) and Price to Earnings or P/E valuation, we arrived at an average price of $25.01 for Wisynco which represents an upside of 53.15% relative to the November 8, 2021, close price of $16.33. Given the company’s dividend yield of 1.83%, the total return from the stock is estimated at 54.98%.
DCF:
Our 5-year free cash flow to equity model assumes the company grows revenue at 14.50% over the next year, which reflects our expectation for continued growth as seen in the Q4’21 outturn of 17.1% and Q2’22 outturn of 14.1%, driven largely by improving economic activity, particularly in the tourism sector. Thereafter, we assume growth picks up to 17.1% in FY2023 and then subsequently taper, over time, to our long-term growth rate of 8.16% over time.
Operating Profit Margin is staggered upwards from 14.1% (consistent with Q1’22 results) in the first forecasted year to 17.1% in our terminal year, reflecting expectations for modest additional cost efficiencies going forward. Of note, Wisynco added 5.22% to its operating profit margin when we compare the September 2021 quarter operating profit margin to the June 2019 quarter (pre-pandemic).
Using the company’s present sales to capital ratio (3.17x) and revenue to determine reinvestment into the company, we then reduce operating income by this reinvestment to arrive at free cash flow to the firm. WACC was determined at 12.33%. Once the firm value was determined, we adjusted for the company’s total debt ($1.97 billion) and cash ($7.61 billion) to arrive at the firm’s equity value ($97.68 billion). These estimates resulted in a share price estimate of $26.00.
| Stock | WISYNCO |
|---|---|
| Close Price | J$16.33 |
| Estimated Fair Value | J$25.01 |
| Year to Date Return | -3.03% |
| Dividend Yield | 1.83% |
| Trailing P/E | 19.24x |
| Forward P/E | 16.25x |
| Potential Upside | 53.15% |
| Total Return | 54.98% |
| Recommendation | OVERWEIGHT |
As at November 8, 2021
Full Summary Analysis
