A Look At The Fair Value Of MYT Netherlands Parent B.V. (NYSE:MYTE)

Key Insights

• MYT Netherlands Parent B.V's estimated fair value is US$3.42 based on 2 Stage Free Cash Flow to Equity

• MYT Netherlands Parent B.V's US$3.18 share price indicates it is trading at similar levels as its fair value estimate

• Our fair value estimate is 13% lower than MYT Netherlands Parent B.V's analyst price target of €3.94

In this article we are going to estimate the intrinsic value of MYT Netherlands Parent B.V. (NYSE:MYTE) by projecting its future cash flows and then discounting them to today's value. We will take advantage of the Discounted Cash Flow (DCF) model for this purpose. Don't get put off by the jargon, the math behind it is actually quite straightforward.

Remember though, that there are many ways to estimate a company's value, and a DCF is just one method. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

View our latest analysis for MYT Netherlands Parent B.V

What's The Estimated Valuation?

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate:

10-year free cash flow (FCF) forecast

	2024	2025	2026	2027	2028	2029	2030	2031	2032	2033
Levered FCF (€, Millions)	€9.00m	€5.00m	€7.30m	€9.69m	€12.0m	€14.1m	€15.8m	€17.4m	€18.7m	€19.8m
Growth Rate Estimate Source	Analyst x1	Analyst x1	Est @ 45.92%	Est @ 32.83%	Est @ 23.67%	Est @ 17.26%	Est @ 12.77%	Est @ 9.62%	Est @ 7.42%	Est @ 5.88%
Present Value (€, Millions) Discounted @ 7.5%	€8.4	€4.3	€5.9	€7.3	€8.3	€9.1	€9.5	€9.7	€9.7	€9.6

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = €82m

The second stage is also known as Terminal Value, this is the business's cash flow after the first stage. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.3%. We discount the terminal cash flows to today's value at a cost of equity of 7.5%.

Terminal Value (TV)= FCF₂₀₃₃ × (1 + g) ÷ (r – g) = €20m× (1 + 2.3%) ÷ (7.5%– 2.3%) = €387m

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= €387m÷ ( 1 + 7.5%)¹⁰= €187m

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is €269m. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of US$3.2, the company appears about fair value at a 7.0% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind.

dcf

The Assumptions

We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at MYT Netherlands Parent B.V as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 7.5%, which is based on a levered beta of 1.137. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

SWOT Analysis for MYT Netherlands Parent B.V

Strength

• Debt is well covered by earnings.

Weakness

• No major weaknesses identified for MYTE.

Opportunity

• Forecast to reduce losses next year.

• Good value based on P/S ratio and estimated fair value.

Threat

• Debt is not well covered by operating cash flow.

• Has less than 3 years of cash runway based on current free cash flow.

Looking Ahead:

Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For MYT Netherlands Parent B.V, we've compiled three fundamental elements you should assess:

1. Risks: Take risks, for example - MYT Netherlands Parent B.V has 1 warning sign we think you should be aware of.

2. Future Earnings: How does MYTE's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

3. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!

PS. Simply Wall St updates its DCF calculation for every American stock every day, so if you want to find the intrinsic value of any other stock just search here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.