Analyzing the Intrinsic Value of Global Business Travel Group: A Comprehensive Overview
Key Insights
Global Business Travel Group (NYSE: GBTG) presents an intriguing investment opportunity as indicated by our evaluations. The estimated fair value of GBTG stands at US$10.21, suggesting a potential 38% undervaluation relative to its current share price of US$6.38. Moreover, the US$9.34 analyst price target falls short of this fair value estimate by 8.5%. By employing a Discounted Cash Flow (DCF) model, we can delve deeper into understanding the intrinsic value of this organization—and the factors influencing its market perception.
Understanding the DCF Model
The DCF model is a method used to estimate the intrinsic value of a company by analyzing anticipated future cash flows discounted to present value. Although the terminology may seem daunting, the underlying concept is straightforward and accessible. It involves predicting cash flows for a designated period and then adjusting those figures based on the time value of money.
A Cautionary Note
It’s essential to remember that while the DCF method provides valuable insights, it is just one approach among many. Each valuation technique has its pros and cons, and the DCF’s effectiveness can vary based on specific contexts. For readers keen to expand their understanding of intrinsic value, exploring the Simply Wall St analysis model is highly recommended.
Crunching the Numbers
Two-Stage Growth Model
Our analysis utilizes a two-stage DCF model, which incorporates two periods of growth. The first stage tends to reflect higher growth rates that gradually stabilize, leading into the second ‘steady growth’ period. This model demands estimates of cash flows for the next ten years.
When available, we rely on analyst estimates; otherwise, we extrapolate past free cash flow (FCF) figures. Companies with declining FCF are projected to reduce their loss rates, while those with growing FCF may experience slowing growth.
Present Value Calculation
Cash flows are discounted to present value using a standard principle—today’s dollar is more valuable than tomorrow’s. Here’s a look at the 10-year free cash flow forecast:
| Year | Levered FCF ($ Millions) | Growth Rate Estimate | Present Value ($ Millions) |
|---|---|---|---|
| 2025 | US$136.0 | Analyst | US$125 |
| 2026 | US$244.0 | Analyst | US$206 |
| 2027 | US$276.0 | Analyst | US$214 |
| 2028 | US$300.3 | Est @ 8.81% | US$214 |
| 2029 | US$321.5 | Est @ 7.05% | US$210 |
| 2030 | US$340.2 | Est @ 5.82% | US$204 |
| 2031 | US$357.1 | Est @ 4.95% | US$197 |
| 2032 | US$372.6 | Est @ 4.35% | US$189 |
| 2033 | US$387.2 | Est @ 3.93% | US$180 |
| 2034 | US$401.3 | Est @ 3.63% | US$172 |
The total present value of the projected cash flows (PVCF) equals US$1.9 billion.
Terminal Value Considerations
The Terminal Value (TV) captures the cash flow beyond the initial growth phase. A conservative growth rate based on the average of the last five-year government bond yield (2.9%) is utilized.
- Calculation:
- TV = FCF2034 × (1 + g) ÷ (r – g) = US$401m × (1 + 2.9%) ÷ (8.9%– 2.9%) = US$7.0 billion
The present value of this terminal value (PVTV) is calculated to be approximately US$3.0 billion.
Summing It Up
Adding together the PVCF and PVTV gives an equity value of roughly US$4.9 billion. Dividing this by the total shares outstanding reveals that GBTG appears undervalued by about 38%, reinforcing a compelling investment narrative for potential shareholders.
The Assumptions Involved
Two pivotal assumptions drive the DCF calculation: the discount rate and the projected cash flows. While the choice of variables can significantly impact the valuation, it’s beneficial for investors to experiment with different assumptions to gauge their sensitivity.
Using a discount rate of 8.9%, based on a levered beta of 1.370, we acknowledge that this reflects the company’s volatility compared to the broader market. A beta is sourced from industry averages, constrained typically between 0.8 and 2.0 for stability.
SWOT Analysis for Global Business Travel Group
Strengths
Currently, no major strengths are identified for GBTG.
Weaknesses
- Interest payments on debt have limited coverage.
Opportunities
- Potential to break even in the upcoming year. Adequate cash runway exceeding three years based on current free cash flows. Attractive value highlighted by the price-to-sales ratio and estimated fair value.
Threats
- Operating cash flow does not sufficiently cover current debt obligations.
Looking Ahead
While understanding a company’s valuation is critical, it should not be the sole focus during investment research. The DCF model serves best as a tool for testing various assumptions to validate whether a company may be undervalued or overvalued.
Potential investors should consider three fundamental aspects:
-
Financial Health: Conduct a thorough analysis of GBTG’s balance sheet, focusing on critical metrics such as leverage and risk.
-
Future Earnings: Compare GBTG’s growth outlook to its peers and broader industry trends, using analyst consensus forecasts.
- Robust Fundamentals: Explore companies characterized by low debt, high returns on equity, and consistent past performance.
For anyone wishing to keep informed or expand their portfolio, the Simply Wall St app conducts daily discounted cash flow valuations across the NYSE, offering intuitive access to these calculations for numerous stocks.
The realm of investing thrives on data and informed analysis, and the journey towards understanding a company’s intrinsic value is just the beginning.
