Enel Generación Chile’s estimated fair value is CL$512, currently trading at CL$416, which is close to fair value. A two-stage DCF model estimates cash flows and terminal value leading to a total equity value of CL$4.2 trillion. The company’s debt is manageable, and despite facing declining earnings, no significant threats were identified. Investors should stay aware of potential risks in their decision-making process.
Enel Generación Chile S.A. (SNSE:ENELGXCH) is evaluated using a two-stage Free Cash Flow to Equity model, estimating its fair value at CL$512. The current share price is around CL$416, indicating it is trading near its intrinsic value. Compared to its industry peers, which are priced at an average premium of 190%, Enel Generación appears financially stable, despite its lower share price.
The analysis leverages the Discounted Cash Flow (DCF) method to assess the company’s future cash flows and their present value. The DCF method estimates a company’s value based on its predicted future cash flows, but it should not be the sole valuation metric due to its inherent limitations. Users are encouraged to engage with the Simply Wall St analysis model for an interactive learning experience.
Using a two-stage DCF model, the first stage covers the next ten years, where growth rates are adjusted based on past performance. Analysts do not provide specific free cash flow predictions, hence the previous values must be extrapolated, considering that both growth rates for declining and rising free cash flow will slow in future years. Future cash flows are then discounted to present value, calculated based on a 9.9% discount rate.
Estimated free cash flows over the ten years show a gradual decline from CL$354.8 billion in 2025 to CL$269.6 billion in 2034. The accompanying present values, discounted at 9.9%, result in a total present value of CL$1.7 trillion for these cash flows. The terminal value, calculated using a conservative growth rate based on the national GDP, gives insight into future valuations beyond the ten-year horizon, culminating in a total equity value of CL$4.2 trillion.
Concluding the valuation, the present value of cash flows and terminal value indicates that Enel Generación trades approximately 19% below its fair valuation. The DCF inputs—especially the discount rate and cash flow forecasts—are crucial for accurate valuation. Users should also consider industry’s cyclicality and future capital requirements when making their investment decisions.
A SWOT analysis reveals strengths like a low risk perception of debt and sustainable dividend payout; however, the company faced a decline in earnings over the past year. No major external threats were identified. Looking ahead, investors should evaluate investment risks and consider diversifying by exploring other strong business fundamentals in the market. Moreover, ongoing analysis ensures that the DCF calculation remains relevant amid changing market conditions.
In summary, Enel Generación Chile S.A. is currently valued at CL$512, while trading at CL$416, indicating it is fairly priced relative to its intrinsic value. The company’s financial metrics suggest strength despite recent earnings declines, and the analysis via DCF highlights the importance of various external and internal factors that should be considered by potential investors. Stakeholders are encouraged to regularly reevaluate their approach to investment in light of this DCF analysis and associated risks.
Original Source: simplywall.st
