Evaluating the True Worth of Singapore Paincare Holdings Limited (Catalist: FRQ)

16 Oct, 2023

Evaluating the True Worth of Singapore Paincare Holdings Limited (Catalist: FRQ)

Singapore Paincare Holdings Limited (Catalist: FRQ) is under scrutiny to determine its intrinsic value using a 2-stage Free Cash Flow to Equity model. The current share price of S$0.18 is compared to the projected fair value of S$0.20, suggesting the stock is trading close to its fair value. However, when analyzing the industry average discount to fair value of 19%, it becomes evident that Singapore Paincare Holdings' peers are currently trading at a higher discount.

Estimating intrinsic value involves assessing expected future cash flows and discounting them to their present value using the Discounted Cash Flow (DCF) model.

This method may seem complex, but it provides valuable insights into a company's worth.

The 2-stage growth model is employed, considering two stages of company growth. The initial period typically features a higher growth rate, while the second stage assumes a stable growth rate. To estimate cash flows for the next ten years, the previous free cash flow (FCF) is extrapolated, as no analyst estimates are available. It's assumed that companies with shrinking free cash flow will slow the rate of shrinkage, while those with growing free cash flow will experience a decreasing growth rate during this period.

The Present Value of Terminal Value (PVTV) is calculated using the formula PVTV = TV

/ (1 + r)^10, which results in S$21 million. The Total Equity Value is the sum of cash flows for the next ten years and the discounted terminal value, totaling S$35 million. Finally, the equity value is divided by the number of shares outstanding, revealing that the company appears to be trading at a 9.0% discount to its current share price of S$0.2. However, this assessment should be regarded as a rough estimate rather than an exact valuation.

While a DCF model provides valuable insights, it's essential to consider multiple factors when analyzing a company. Changes in the cost of equity or the risk-free rate can significantly impact the valuation. Additionally, understanding associated risks and assessing a company's financial fundamentals, such as debt levels, returns on equity, and performance history, is crucial. Investors should also be aware of any warning signs that may impact their investment decisions.

In conclusion, determining the intrinsic value of a company is a multi-faceted process that requires a comprehensive analysis beyond a single valuation model. It serves as a guide to understanding the key assumptions necessary for a stock to be considered undervalued or overvalued.