<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> West Holdings' estimated fair value is JP¥3,552 based on 2 Stage Free Cash Flow to Equity </li> <li> Current share price of JP¥1,961 suggests West Holdings is potentially 45% undervalued </li> <li>  The JP¥3,260 analyst price target for 1407 is 8.2% less than our estimate of fair value </li> </ul><p>Does the September share price for West Holdings Corporation (TSE:1407) reflect what it's really worth? Today, we will estimate the stock's intrinsic value  by projecting its future cash flows and then discounting them to today's value.  This will be done using the Discounted Cash Flow (DCF) model.  There's really not all that much to it, even though it might appear quite complex.</p><p> Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation.  If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. </p><p>This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.</p><h2> Is West Holdings Fairly Valued? </h2> <p> We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate.  In the first stage we need to estimate the cash flows to the business over the next ten years.   Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.  </p><p> Generally we assume that a dollar today is more valuable than a dollar in the future,  so we need to discount the sum of these future cash flows to arrive at a present value estimate: </p><h4> 10-year free cash flow (FCF) forecast </h4><table><tbody><tr><td> </td><td><strong>2026</strong></td><td><strong>2027</strong></td><td><strong>2028</strong></td><td><strong>2029</strong></td><td><strong>2030</strong></td><td><strong>2031</strong></td><td><strong>2032</strong></td><td><strong>2033</strong></td><td><strong>2034</strong></td><td><strong>2035</strong></td></tr><tr><td><strong> Levered FCF (¥, Millions) </strong></td><td>JP¥7.13b</td><td>JP¥9.23b</td><td>JP¥10.6b</td><td>JP¥12.0b</td><td>JP¥13.0b</td><td>JP¥13.8b</td><td>JP¥14.4b</td><td>JP¥14.8b</td><td>JP¥15.1b</td><td>JP¥15.4b</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x1</td><td>Analyst x1</td><td>Analyst x1</td><td>Analyst x1</td><td>Est @ 8.12%</td><td>Est @ 5.84%</td><td>Est @ 4.24%</td><td>Est @ 3.13%</td><td>Est @ 2.34%</td><td>Est @ 1.80%</td></tr><tr><td><strong> Present Value (¥, Millions) Discounted @ 9.7% </strong></td><td>JP¥6.5k</td><td>JP¥7.7k</td><td>JP¥8.1k</td><td>JP¥8.3k</td><td>JP¥8.2k</td><td>JP¥7.9k</td><td>JP¥7.5k</td><td>JP¥7.1k</td><td>JP¥6.6k</td><td>JP¥6.1k</td></tr></tbody></table><p><i>(&#34;Est&#34; = FCF growth rate estimated by Simply Wall St)</i><br/><strong>Present Value of 10-year Cash Flow (PVCF)</strong> = JP¥74b</p><p> After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage.  For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (0.5%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 9.7%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = JP¥15b× (1 + 0.5%) ÷ (9.7%– 0.5%) = JP¥169b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= JP¥169b÷ ( 1 + 9.7%)<sup>10</sup>= JP¥67b</p><p> The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value,  which in this case is JP¥141b.  In the final step we divide the equity value by the number of shares outstanding.  Compared to the current share price of JP¥2.0k, the company appears   quite good value    at a 45% discount to where the stock price trades currently.   Valuations are imprecise instruments though, rather like a telescope - move a few degrees and end up in a different galaxy. Do keep this in mind. </p><figure><img height="760" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/25873509-dcf-1-dark-2/1758937713847?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="1706" original-src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/25873509-dcf-1-dark-2/1758937713847"/><figcaption>TSE:1407 Discounted Cash Flow September 27th 2025</figcaption></figure> <h2> Important Assumptions </h2><p> Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows.  Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions.  The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance.  Given that we are looking at West Holdings as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt.  In this calculation we've used 9.7%, which is based on a levered beta of 1.748. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business. </p> <p><span> Check out our latest analysis for West Holdings </span></p><h3>SWOT Analysis for West Holdings</h3><div><div><p><strong>Strength</strong></p><ul><li>Debt is well covered by earnings.</li></ul> <ul>Balance sheet summary for 1407.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Earnings declined over the past year.</li></ul> <ul><li>Dividend is low compared to the top 25% of dividend payers in the Construction market.</li></ul></div><div><p><strong>Opportunity</strong></p><ul><li>Annual earnings are forecast to grow faster than the Japanese market.</li></ul> <ul><li>Good value based on P/E ratio and estimated fair value.</li></ul> </div><div><p><strong>Threat</strong></p><ul><li>Debt is not well covered by operating cash flow.</li></ul> <ul><li>Paying a dividend but company has no free cash flows.</li></ul> <ul><li>Revenue is forecast to grow slower than 20% per year.</li></ul> <ul>Is 1407 well equipped to handle threats?</ul> </div></div><h2> Looking Ahead: </h2><p> Although the valuation of a company is important, it  is only one of many factors that you need to assess for a company.  It's not possible to obtain a foolproof valuation with a DCF model.  Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued.  For example, changes in the company's cost of equity or the risk free rate can significantly impact the valuation.   Can we work out why the company is trading at a discount to intrinsic value?   For West Holdings, we've put together three  fundamental  aspects  you should look at: </p><ol> <li> <strong>Risks</strong>: Case in point, we've spotted  <strong> 3 warning signs for West Holdings</strong>  you should be aware of, and 1 of them is significant.  </li> <li><strong>Future Earnings</strong>: How does 1407's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.</li><li> <strong>Other Solid Businesses</strong>: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered! </li> </ol><p>PS. Simply Wall St updates its DCF calculation for every Japanese stock every day, so if you want to find the intrinsic value of any other stock just search here.</p></div></div>

1407

<p>West Holdings Corporation (TSE:1407) is estimated to be 45% undervalued, with a fair value of JP¥3,552 compared to the current share price of JP¥1,961. Analysts have set a price target of JP¥3,260, which is 8.2% lower than the fair value estimate. The valuation is based on a Discounted Cash Flow (DCF) model, projecting future cash flows and discounting them to present value. The total equity value is calculated at JP¥141 billion, indicating a significant discount in the current stock price.</p>

West Holdings Corporation (TSE:1407) Shares Could Be 45% Below Their Intrinsic Value Estimate