Fair value estimate for Travel Technology Interactive (EPA:ALTTI)

key insights

• Using the dividend discount model, Travel Technology Interactive has an estimated fair value of €2.19.
• Travel Technology Interactive's share price of €2.62 indicates that the company is trading at a level similar to its fair value estimate
• Compared to the industry average discount of -23%, Travel Technology Interactive's competitors appear to be trading at a larger premium to fair value

This article estimates Travel Technology Interactive's (EPA:ALTTI) intrinsic value by projecting its future cash flows and discounting them to today's value. Our analysis uses a discounted cash flow (DCF) model. Please read it before you think you don't understand it. It's actually much less complicated than you might imagine.

We generally think of a company's value as the present value of all the cash it will generate in the future. However, DCF is just one metric among many, and it is not without its flaws. If you want to learn more about discounted cash flows, you can read more about the rationale behind this calculation in the Simply Wall St analytical model.

Check out our latest analysis for Travel Technology Interactive.

proceed with the calculation step by step

Travel Technology Interactive operates in the software sector, so we have to calculate its intrinsic value a little differently. Instead of using free cash flow, which is difficult to estimate in this industry and often not reported by analysts, dividend per share (DPS) payments are used. Although this often undervalues ​​the stock, it can still be a good comparison to its competitors. We use the Gordon Growth Model, which assumes dividends will grow at a sustainable rate forever. For a variety of reasons, a very conservative growth rate is used that cannot exceed the company's gross domestic product (GDP). This time, we used the 5-year average (1.0%) of the 10-year government bond yield. The expected dividend per share is discounted to today's value at a cost of capital of 6.4%. Compared to the current share price of €2.6, the company's fair value is considered to be approximately fair value at the time of writing. It is best to view this as a rough estimate, not accurate to the last cent, as the assumptions in the calculations have a significant impact on the valuation.

Value per share = Expected dividend per share / (discount rate – perpetual growth rate)

= 0.1 euro / (6.4% – 1.0%)

= 2.2 euros

Important prerequisites

It is important to point out that the most important input to discounted cash flows is the discount rate, which is, of course, the actual cash flows. You are not required to agree to these inputs. I encourage you to redo the calculations yourself and give it a try. Additionally, DCF does not give a complete picture of a company's potential performance because it does not take into account the cyclicality of the industry or the company's future capital requirements. Given that we are considering Travel Technology Interactive as a potential shareholder, the cost of capital is used as the discount rate, rather than the cost of capital factoring in debt (or weighted average cost of capital, WACC). For this calculation, we used 6.4% based on a leverage beta of 1.032. Beta is a measure of a stock's volatility compared to the market as a whole. Beta values ​​are derived from industry average beta values ​​for globally comparable companies and are constrained to a range of 0.8 to 2.0, which is a reasonable range for stable businesses.

For the future:

Although important, the DCF calculation ideally is not the only part of the analysis that a company scrutinizes. The DCF model is not a perfect stock valuation tool. Rather, the best use of DCF models is to test certain assumptions and theories to see if a company is undervalued or overvalued. For example, a small adjustment to the terminal value growth rate can dramatically change the overall result. When it comes to Travel Technology Interactive, there are three important factors you need to research.

1. risk: For example, taking risks – Travel Technology Interactive is 4 warning signs (And the one that makes me feel a little uncomfortable) I think you should know about.
2. Other solid businesses: Low debt, high return on equity, and good past performance are the fundamentals of a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you haven't considered before?
3. Other top analyst picks: Want to know what analysts are thinking? Check out our interactive list of analyst-picked top stocks to find stocks whose future outlook looks attractive.

PS. Simply Wall St updates DCF calculations for all French stocks daily, so if you want to know the intrinsic value of other stocks, search here.

Have feedback on this article? Curious about its content? contact Please contact us directly. Alternatively, email our editorial team at Simplywallst.com.

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