Simplywall.st shows that Sony is highly overvalued. However, Sony has a
PE Ratio (TTM) 23.31 on Finance.yahoo.com so I did look into their reasoning.
I couldn't understand it.
Could someone explain this reasoning: https://simplywall.st/stocks/jp/consumer-durables/tse-6758/sony-shares#valuation
Click on "View Data" on a Fair Value field.
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Below are the data sources, inputs and calculation used to determine the intrinsic value for Sony.
TSE:6758 Discounted Cash Flow Data Sources
Data Point Source Value
Valuation Model 2 Stage Free Cash Flow to Equity
Levered Free Cash Flow Average of 22 Analyst Estimates (S&P Global) See below
Discount Rate (Cost of Equity) See below 8.1%
Perpetual Growth Rate 5-Year Average of JP Long-Term Govt Bond Rate 0%
An important part of a discounted cash flow is the discount rate, below we explain how it has been calculated.
Calculation of Discount Rate/ Cost of Equity for TSE:6758
Data Point Calculation/ Source Result
Risk-Free Rate 5-Year Average of JP Long-Term Govt Bond Rate 0%
Equity Risk Premium S&P Global 6.3%
Consumer Durables Unlevered Beta Simply Wall St/ S&P Global 1.26
Re-levered Beta = 0.33 + [(0.66 * Unlevered beta) * (1 + (1 - tax rate) (Debt/Market Equity))]
= 0.33 + [(0.66 * 1.264) * (1 + (1 - 30.9%) (19.26%))] 1.289
Levered Beta Levered Beta limited to 0.8 to 2.0
(practical range for a stable firm) 1.289
Discount Rate/ Cost of Equity = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
= 0% + (1.289 * 6.26%) 8.07%
Discounted Cash Flow Calculation for TSE:6758 using 2 Stage Free Cash Flow to Equity
The calculations below outline how an intrinsic value for Sony is arrived at by discounting future cash flows to their present value using the 2 stage method. We use analyst's estimates of cash flows going forward 10 years for the 1st stage, the 2nd stage assumes the company grows at a stable rate into perpetuity.
TSE:6758 DCF 1st Stage: Next 10 years cash flow forecast
Levered FCF (JPY, Millions) Source Present Value
Discounted (@ 8.07%)
2021 28,350 Analyst x2 26,232.75
2022 156,000 Analyst x3 133,569.09
2023 262,300 Analyst x4 207,811.88
2024 417,200 Analyst x3 305,849
2025 538,433.33 Analyst x3 365,245.94
2026 626,464.67 Est @ 16.35% 393,224.64
2027 698,161.5 Est @ 11.44% 405,499.88
2028 754,093.1 Est @ 8.01% 405,275.64
2029 796,381.81 Est @ 5.61% 396,038.63
2030 827,643.96 Est @ 3.93% 380,846.93
Present value of next 10 years cash flows ¥3,019,594
TSE:6758 DCF 2nd Stage: Terminal Value
Calculation Result
Terminal Value FCF2030 × (1 + g) ÷ (Discount Rate – g)
= ¥827,643.961 x (1 + 0%) ÷ (8.07% - 0% ) ¥10,254,496.57
Present Value of Terminal Value = Terminal Value ÷ (1 + r)10
¥10,254,497 ÷ (1 + 8.07%)10 ¥4,718,687.92
TSE:6758 Total Equity Value
Calculation Result
Total Equity Value = Present value of next 10 years cash flows + Terminal Value
= ¥3,019,594 + ¥4,718,688 ¥7,738,281.92
Equity Value per Share
(JPY) = Total value / Shares Outstanding
= ¥7,738,282 / 1,236 ¥6,258.78
TSE:6758 Discount to Share Price
Calculation Result
Value per share (JPY) From above. ¥6258.78
Current discount Discount to share price of ¥11650
= (¥6258.78 - ¥11650) / ¥6258.78 -86.1%
Learn more about our DCF calculations in Simply Wall St’s analysis model.
PE Ratio (TTM) 23.31 on Finance.yahoo.com so I did look into their reasoning.
I couldn't understand it.
Could someone explain this reasoning: https://simplywall.st/stocks/jp/consumer-durables/tse-6758/sony-shares#valuation
Click on "View Data" on a Fair Value field.
---
Below are the data sources, inputs and calculation used to determine the intrinsic value for Sony.
TSE:6758 Discounted Cash Flow Data Sources
Data Point Source Value
Valuation Model 2 Stage Free Cash Flow to Equity
Levered Free Cash Flow Average of 22 Analyst Estimates (S&P Global) See below
Discount Rate (Cost of Equity) See below 8.1%
Perpetual Growth Rate 5-Year Average of JP Long-Term Govt Bond Rate 0%
An important part of a discounted cash flow is the discount rate, below we explain how it has been calculated.
Calculation of Discount Rate/ Cost of Equity for TSE:6758
Data Point Calculation/ Source Result
Risk-Free Rate 5-Year Average of JP Long-Term Govt Bond Rate 0%
Equity Risk Premium S&P Global 6.3%
Consumer Durables Unlevered Beta Simply Wall St/ S&P Global 1.26
Re-levered Beta = 0.33 + [(0.66 * Unlevered beta) * (1 + (1 - tax rate) (Debt/Market Equity))]
= 0.33 + [(0.66 * 1.264) * (1 + (1 - 30.9%) (19.26%))] 1.289
Levered Beta Levered Beta limited to 0.8 to 2.0
(practical range for a stable firm) 1.289
Discount Rate/ Cost of Equity = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
= 0% + (1.289 * 6.26%) 8.07%
Discounted Cash Flow Calculation for TSE:6758 using 2 Stage Free Cash Flow to Equity
The calculations below outline how an intrinsic value for Sony is arrived at by discounting future cash flows to their present value using the 2 stage method. We use analyst's estimates of cash flows going forward 10 years for the 1st stage, the 2nd stage assumes the company grows at a stable rate into perpetuity.
TSE:6758 DCF 1st Stage: Next 10 years cash flow forecast
Levered FCF (JPY, Millions) Source Present Value
Discounted (@ 8.07%)
2021 28,350 Analyst x2 26,232.75
2022 156,000 Analyst x3 133,569.09
2023 262,300 Analyst x4 207,811.88
2024 417,200 Analyst x3 305,849
2025 538,433.33 Analyst x3 365,245.94
2026 626,464.67 Est @ 16.35% 393,224.64
2027 698,161.5 Est @ 11.44% 405,499.88
2028 754,093.1 Est @ 8.01% 405,275.64
2029 796,381.81 Est @ 5.61% 396,038.63
2030 827,643.96 Est @ 3.93% 380,846.93
Present value of next 10 years cash flows ¥3,019,594
TSE:6758 DCF 2nd Stage: Terminal Value
Calculation Result
Terminal Value FCF2030 × (1 + g) ÷ (Discount Rate – g)
= ¥827,643.961 x (1 + 0%) ÷ (8.07% - 0% ) ¥10,254,496.57
Present Value of Terminal Value = Terminal Value ÷ (1 + r)10
¥10,254,497 ÷ (1 + 8.07%)10 ¥4,718,687.92
TSE:6758 Total Equity Value
Calculation Result
Total Equity Value = Present value of next 10 years cash flows + Terminal Value
= ¥3,019,594 + ¥4,718,688 ¥7,738,281.92
Equity Value per Share
(JPY) = Total value / Shares Outstanding
= ¥7,738,282 / 1,236 ¥6,258.78
TSE:6758 Discount to Share Price
Calculation Result
Value per share (JPY) From above. ¥6258.78
Current discount Discount to share price of ¥11650
= (¥6258.78 - ¥11650) / ¥6258.78 -86.1%
Learn more about our DCF calculations in Simply Wall St’s analysis model.