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We will estimate the intrinsic value of Al Yah Satellite Communication Company PJSC (ADX:YAHSAT) by using the Discounted Cash Flow (DCF) model. This model involves projecting future cash flows and discounting them to their present value.

To do this, we will use a 2-stage growth model. In the initial period, the company may experience higher growth, whereas the second stage is assumed to have a stable growth rate. We estimate the next ten years of cash flows, using analyst estimates when available and extrapolating previous free cash flow (FCF) values when necessary. We adjust for companies with shrinking or growing FCF by assuming that the rate of shrinkage or growth will slow over time.

We then discount the estimated future cash flows to their present value, as we assume that a dollar today is more valuable than a dollar in the future. Using a discount rate of 14%, we calculate the present value of the 10-year cash flow to be .3 billion.

Next, we calculate the Terminal Value, which represents the business’s cash flow beyond the initial 10-year period. We use the Gordon Growth formula and a future growth rate of 9.0% based on the 5-year average of the 10-year government bond yield. The present value of the Terminal Value is .0 billion.

The total equity value is the sum of the present value of the future cash flows and the Terminal Value, which amounts to .2 billion. Dividing this value by the number of shares outstanding, we find that the stock appears to be undervalued at a 47% discount to the current share price of د.إ2.6.

It’s important to note that the assumptions made in this calculation can significantly impact the valuation. Therefore, this estimate should be seen as a rough approximation rather than a precise valuation. Also, we have used a discount rate of 14% based on the company’s levered beta of 0.800, which measures its volatility compared to the overall market.

In conclusion, while valuation is an essential aspect of investment analysis, it should not be the sole determining factor. DCF models are helpful in testing assumptions and theories but may not provide the complete picture of a company’s performance. Further research is necessary to understand why the company is trading at a discount to intrinsic value.

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