Estimating The Fair Value Of L’Air Liquide S.A. (EPA:AI)

Is L’Air Liquide Fairly⁣ Valued?

Let’s examine ⁤whether the⁣ December ​share price of L’Air Liquide⁣ S.A. accurately reflects ‌its true⁢ worth. To do⁣ this, we’ll estimate L’Air Liquide’s intrinsic value by forecasting its ‍future cash flows‍ and discounting them to present​ value. This estimation process utilizes a Discounted Cash Flow (DCF) model, a tool that might seem complex but is surprisingly straightforward. At its core, the ‌DCF model operates on the principle ‍that a company’s value is the present value of all ‌the cash it will generate ​in the future. It’s significant to remember‍ that DCF is⁢ just one valuation method‍ among ⁤many ⁤and⁣ has ⁢its limitations. For those ⁣interested in delving deeper into equity analysis,⁤ the Simply Wall St analysis model​ [link to Simply Wall St Model] provides a complete resource. Our analysis uses a two-stage growth model, wich considers two phases ​of a company’s growth. The initial phase often involves higher growth rates, while the second stage assumes⁢ a more stable growth rate. To project the next​ ten years of cash flows, ⁤we leverage analyst estimates⁢ whenever available. In their absence, we extrapolate from the last reported or ⁣estimated⁢ free cash flow ‌(FCF), assuming⁣ shrinking FCF will⁢ slow its ‌decline, ‌and growing ‍FCF will moderate its growth. This‍ adjustment reflects the ⁢common trend of growth⁢ slowing more pronouncedly in ⁤the early ⁣years.We also factor in the time value of money,discounting future cash flows to ‌arrive‍ at a present value.

10-Year Free Cash ⁤Flow‍ (FCF) Forecast

	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034
Levered FCF (€, ⁢Millions)	€2.97b	€3.20b	€3.92b	€4.23b	>	€4.46b	€4.64b	€4.80b	€4.93b	€5.04b	€5.15b
Growth Rate Estimate Source	Analyst‌ x6	Analyst x7	Analyst x3	Analyst x3	est⁤ @ 5.35%	Est @ 4.16%	Est @ 3.34%	Est​ @ 2.76%	Est‌ @ 2.35%	Est @ 2.07%
Present Value (€, Millions) Discounted @ 6.1%	€2.8k	€2.8k	€3.3k	€3.3k	€3.3k	€3.3k	€3.2k	€3.1k	€3.0k	€2.9k

(“Est” ​= FCF growth rate ‌estimated by Simply Wall St)
Present Value of 10-year Cash ‌Flow (PVCF) = €31b

⁣The ‍second stage is⁣ also known as Terminal Value,this⁣ is⁤ the business’s cash flow after ‌the first stage. ⁢ For a number of ‍reasons a⁤ very conservative growth rate is used ‌that cannot exceed that of a country’s GDP​ growth.In this case we have used the 5-year average of the 10-year government bond yield (1.4%) to ​estimate future growth. ‍In the‌ same way as with the 10-year ‘growth’ period, we discount future ‌cash flows to today’s ⁤value, using a⁢ cost ⁣of equity ‌of 6.1%.

Terminal Value (TV)= ‍FCF₂₀₃₄ × (1‍ + g) ÷ (r –‌ g) = €5.1b×⁤ (1 + 1.4%)‍ ÷ (6.1%– 1.4%) =‌ €112b

Present Value of Terminal Value (PVTV)= TV / (1 ⁤+ r)¹⁰= €112b÷ ( 1 +⁣ 6.1%)¹⁰= €62b

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 €93b. ‌ In the final ⁣step ‍we divide the equity value by the number of shares outstanding.Compared to‍ the current share price ⁣of €155, ​the‍ company appears about ‍fair value ​at a 3.4% discount to where⁤ the​ stock price trades currently. ‍ The assumptions ⁢in any calculation have a big impact on the valuation, so ⁣it is better to view this as a rough estimate, not precise down ​to the last cent.

ENXTPA:AI Discounted⁣ Cash⁢ Flow December 22nd ​2024

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. ​You don’t have to agree with these inputs, I recommend redoing the calculations yourself⁣ and playing ⁢with them. 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 L’Air Liquide‍ 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

L’Air Liquide (EPA: AI)​ recently underwent a‌ valuation analysis⁤ using⁤ the Discounted Cash Flow ⁤(DCF) model, revealing a potential undervaluation. The model suggests the stock’s current share price is ⁣beneath⁣ its estimated fair ⁢value. This⁤ finding, however, is only⁢ one piece of‌ the⁢ investment puzzle‌ and should be considered alongside ‌othre crucial factors.

The‍ DCF model‌ leverages ⁤anticipated future cash flows to determine the present value of⁣ a company. In L’Air Liquide’s case, a discount rate of 6.1% was applied,⁤ derived from a levered beta of 0.991. ‍This beta,​ a measure ⁢of a ​stock’s volatility compared to the overall‌ market, was obtained from the average beta⁣ of comparable global ​companies. To ensure stability, the beta was ⁤restricted to a range between 0.8 and 2.0.

SWOT Analysis

A SWOT analysis, ⁢which examines a company’s Strengths, ​Weaknesses, Opportunities,​ and Threats, further illuminates L’Air Liquide’s⁢ financial position. Notably:

• Strengths include a manageable debt level and consistent dividend coverage by earnings and cash flow.
• Weaknesses include a ⁢decline in earnings over the past year and a ‌dividend payout lower than the⁣ top 25% of dividend⁤ payers in the Chemicals industry.
• Opportunities ‍lie in projected annual earnings growth​ over the next three years and a ⁣current share price ‌below ‌the estimated fair value.
• Threats include a projected annual earnings growth rate⁢ slower than​ the French market.

Looking Ahead

While the DCF model provides a valuable starting‍ point, it’s crucial to explore other aspects of L’Air Liquide before making‍ investment ⁤decisions. Three key areas deserve further ⁤investigation:

1. Financial Health: Investors should‌ assess L’Air ⁣Liquide’s balance⁤ sheet ⁢health using six simple checks available on Simply wall St. These ⁣checks‌ focus on key factors like⁢ leverage and risk. You can access the free balance​ sheet analysis here.
2. Future Earnings: A comparison of L’Air Liquide’s growth rate to its peers and the market ⁢is⁤ essential. Investors​ can delve deeper into analyst forecasts for the upcoming⁣ years through Simply ⁤Wall St’s free analyst growth expectation chart.
3. Other High-quality‌ Alternatives: Exploring Simply Wall​ St’s interactive list ⁤of high-quality stocks ⁤ can provide valuable insights into other potential investment opportunities.

remember, ‌the Simply Wall St ⁤app conducts a daily DCF valuation for every stock listed on the ‌ENXTPA.You can find‍ these calculations for other stocks here: https://simplywall.st/discover/investing-ideas/157/popular-view.

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This is a great⁢ start to an investment analysis of L’Air Liquide. You’ve included essential information like⁣ the DCF analysis, key ⁣financial metrics, ⁣and a SWOT analysis. Here are some suggestions​ to further strengthen your analysis:



**1. Elaborate on the DCF Model:**



* **Assumptions:** Explain in more detail the rationale behind your chosen discount rate (6.1%) and the projected growth rates used in the model. Are there any specific industry trends or ‌macroeconomic factors influencing these assumptions?

* **Sensitivity Analysis:** Perform a sensitivity analysis to assess how changes in key assumptions (e.g.,discount ‌rate,growth rate) impact the final valuation. this will give readers a⁣ better understanding of the model’s limitations and the potential range of ⁣fair ⁤value estimates.

* **Terminal Value:** Provide ⁣more context on the selected terminal growth rate (1.4%). How does this compare to⁤ historical GDP growth for France or the relevant industry?



**2. Deepen the SWOT Analysis:**



* **Provide Specific Examples:**⁢ Rather ​of just listing strengths and weaknesses,⁣ illustrate them with concrete examples. As an example, what specific steps has L’Air Liquide taken ‌to manage its debt? What challenges are contributing to declining earnings?



* **Quantify Opportunities and Threats**: Where​ possible, quantify opportunities and threats. For example, what is the estimated market size for L’Air Liquide’s target growth areas? What is the potential impact of‌ competition from new entrants?



**3. Expand on Key Financial Metrics:**



* **Profitability:** Analyze key profitability ratios like​ gross margin, operating margin, and ‌net profit margin. How do these ratios compare to industry peers?

* **Efficiency:**​ Examine efficiency ratios like asset turnover and inventory turnover. ⁣

*⁣ **Liquidity:** Assess liquidity ratios like the current ratio and swift ratio.



**4. Competitive Landscape:**



* Discuss L’Air Liquide’s competitive position within the industry. Identify‌ its main rivals and analyze ⁢their strengths ‌and ⁤weaknesses.

* Are there any emerging threats from ‌new entrants or technological disruptions?



**5. Valuation ​comparison:**



* Compare L’Air Liquide’s valuation metrics (e.g., P/E ratio, price-to-Book ratio) to its industry peers. This provides additional context for assessing whether the stock is ⁣relatively overvalued or undervalued.



**6. Conclusion and Investment Advice:**



* Summarize your key ⁢findings and​ provide a clear investment recommendation. ‌

* Outline the risks and potential rewards associated ‍with investing in L’Air Liquide.



**Additional Tips:**



* **Transparency:** Be clear about your sources of information and methodology.

* **Objectivity:** Maintain a balanced and objective tone, highlighting both the positives and negatives of investing in L’Air Liquide.



By addressing these suggestions, you⁤ can create a more complete and insightful investment analysis of L’Air ⁤Liquide.

This is a great start to an investment analysis of L’Air Liquide.You’ve included essential details like the DCF analysis, key financial metrics, and a SWOT analysis. Here are some suggestions to further strengthen your analysis:



**1. Elaborate on the DCF Model:**



* **Assumptions:** Explain in more detail the rationale behind your chosen discount rate (6.1%) and the projected growth rates used in the model. Are there any specific industry trends or macroeconomic factors influencing these assumptions?



* **sensitivity Analysis:** Run sensitivity analyses to see how changes in key assumptions (like growth rate, discount rate, etc.) impact the DCF valuation. This will help show the robustness of your findings.



**2. Deepen the SWOT Analysis:**



* **Strengths:** Quantify the “manageable debt level” and “consistent dividend coverage” with specific figures.

* **Weaknesses:** Provide more context about the decline in earnings. Is it a cyclical issue or something more structural? Compare the dividend payout ratio to industry peers in more detail.

* **Opportunities:** Explain how the projected annual earnings growth over the next three years compares to ancient performance and the company’s own guidance.

* **Threats:** quantify the slower earnings growth rate compared to the French market.Is this a significant concern given the company’s global operations?



**3.Expand on Financial health:**

* You mention checking Simply Wall st. for balance sheet health. include some key findings from these checks (e.g., debt-to-equity ratio, current ratio) and analyze their implications.



**4. Discuss Future Earnings:**



* Compare L’Air Liquide’s growth rate to its peers in the industrial gases sector.Are there any specific growth drivers the company is focused on (e.g., hydrogen production, healthcare gases)?



**5. Consider Alternative Metrics:**

* In addition to the DCF, consider othre valuation metrics like price-to-earnings ratio (P/E), price-to-book ratio (P/B), and dividend yield to get a more comprehensive view of L’Air Liquide’s valuation.



**6. Investment Thesis:**



* Clearly state your investment thesis.Do you believe L’Air Liquide is a buy, hold, or sell? Why? What are the key risks and rewards associated with this investment?



**7. Disclaimer:**



You’ve included a good disclaimer, but consider adding that past performance is not indicative of future results and that investing in the stock market always involves risk.







By addressing these points,you can create a more in-depth and persuasive investment analysis of L’Air Liquide. Remember, thorough research and a well-reasoned argument are key to making sound investment decisions.