<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> Signpost's estimated fair value is JP¥371 based on 2 Stage Free Cash Flow to Equity </li> <li> Current share price of JP¥300 suggests Signpost is potentially trading close to its fair value </li> <li> Peers of Signpost are currently trading on average at a 47% premium </li> </ul><p>Does the October share price for Signpost Corporation (TSE:3996) reflect what it's really worth? Today, we will estimate the stock's intrinsic value  by taking the expected future cash flows and discounting them to today's value.  We will take advantage of the Discounted Cash Flow (DCF) model for this purpose.  Don't get put off by the jargon, the math behind it is actually quite straightforward.</p><p> We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios.  If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model. </p><p>Trump has pledged to &#34;unleash&#34; American oil and gas and these 15 US stocks have developments that are poised to benefit.</p><h2> What's The Estimated Valuation? </h2> <p> We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company's cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase.  In the first stage we need to estimate the cash flows to the business over the next ten years.   Seeing as no analyst estimates of free cash flow are available to us, we have extrapolate the previous free cash flow (FCF) from the company's last 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¥309.2m</td><td>JP¥318.4m</td><td>JP¥325.5m</td><td>JP¥331.0m</td><td>JP¥335.5m</td><td>JP¥339.2m</td><td>JP¥342.4m</td><td>JP¥345.1m</td><td>JP¥347.6m</td><td>JP¥349.9m</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Est @ 3.99%</td><td>Est @ 2.95%</td><td>Est @ 2.22%</td><td>Est @ 1.71%</td><td>Est @ 1.35%</td><td>Est @ 1.10%</td><td>Est @ 0.93%</td><td>Est @ 0.81%</td><td>Est @ 0.72%</td><td>Est @ 0.66%</td></tr><tr><td><strong> Present Value (¥, Millions) Discounted @ 7.5% </strong></td><td>JP¥288</td><td>JP¥276</td><td>JP¥262</td><td>JP¥248</td><td>JP¥234</td><td>JP¥220</td><td>JP¥207</td><td>JP¥194</td><td>JP¥182</td><td>JP¥170</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¥2.3b</p><p> The second stage is also known as Terminal Value, this is the business's cash flow after the first stage.  The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 0.5%. We discount the terminal cash flows to today's value at a cost of equity of 7.5%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = JP¥350m× (1 + 0.5%) ÷ (7.5%– 0.5%) = JP¥5.1b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= JP¥5.1b÷ ( 1 + 7.5%)<sup>10</sup>= JP¥2.5b</p><p> The total value, or equity value, is then the sum of the present value of the future cash flows,  which in this case is JP¥4.7b.  The last step is to then divide the equity value by the number of shares outstanding.  Relative to the current share price of JP¥300, the company appears   about fair value    at a 19% 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/543612559-dcf-1-dark-2/1760572208777?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/543612559-dcf-1-dark-2/1760572208777"/><figcaption>TSE:3996 Discounted Cash Flow October 15th 2025</figcaption></figure> <h2> Important Assumptions </h2><p> The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows.  If you don't agree with these result, have a go at the calculation yourself and play with the 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 Signpost 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 7.5%, which is based on a levered beta of 1.323. 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> View our latest analysis for Signpost </span></p><h3>SWOT Analysis for Signpost</h3><div><div><p><strong>Strength</strong></p><ul><li>Debt is not viewed as a risk.</li></ul> <ul>Balance sheet summary for 3996.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Earnings declined over the past year.</li></ul> <ul> Key risks with investing in 3996.</ul> </div><div><p><strong>Opportunity</strong></p><ul><li> Current share price is below our estimate of fair value.</li></ul> <ul><li>Lack of analyst coverage makes it difficult to determine 3996's earnings prospects.</li></ul></div><div><p><strong>Threat</strong></p><ul><li>No apparent threats visible for 3996.</li></ul></div></div><h2> Moving On: </h2><p> Valuation is only one side of the coin in terms of building your investment thesis, and it  is only one of many factors that you need to assess for a company.  DCF models are not the be-all and end-all of investment valuation.  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.  If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different.  For Signpost, we've compiled three  additional  items  you should explore: </p><ol> <li> <strong>Risks</strong>: We feel that you should assess the <strong>3 warning signs for Signpost</strong> we've flagged before making an investment in the company. </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><li> <strong>Other Top Analyst Picks</strong>: Interested to see what the analysts are thinking? Take a look at our interactive list of analysts' top stock picks to find out what they feel might have an attractive future outlook! </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>

3996

<p>Signpost Corporation (TSE:3996) has an estimated fair value of JP¥371, while its current share price is JP¥300, indicating it may be trading close to fair value. Using a 2-stage Discounted Cash Flow (DCF) model, the total equity value is calculated at JP¥4.7 billion, suggesting a 19% discount compared to the current stock price. The analysis highlights the importance of assumptions in valuation, particularly regarding discount rates and cash flow estimates.</p>

A Look At The Intrinsic Value Of Signpost Corporation (TSE:3996)