<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> The projected fair value for NOK is JP¥3,946 based on 2 Stage Free Cash Flow to Equity </li> <li> NOK's JP¥2,268 share price signals that it might be 43% undervalued </li> <li> Our fair value estimate is 57% higher than NOK's analyst price target of JP¥2,512 </li> </ul><p>How far off is NOK Corporation (TSE:7240) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced  by taking the expected future cash flows and discounting them to today's value.  The Discounted Cash Flow (DCF) model is the tool we will apply to do this.  Believe it or not, it's not too difficult to follow, as you'll see from our example!</p><p> Remember though, that there are many ways to estimate a company's value, and a DCF is just one method.  If you still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model. </p><p><span> Check out our latest analysis for NOK </span></p><h2> The Calculation </h2> <p> We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period.  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> A DCF is all about the idea that a dollar in the future is less valuable than a dollar today,  so we discount the value of these future cash flows to their estimated value in today's dollars: </p><h4> 10-year free cash flow (FCF) estimate </h4><table><tbody><tr><td> </td><td><strong>2025</strong></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></tr><tr><td><strong> Levered FCF (¥, Millions) </strong></td><td>JP¥32.2b</td><td>JP¥33.2b</td><td>JP¥31.1b</td><td>JP¥34.9b</td><td>JP¥36.2b</td><td>JP¥37.1b</td><td>JP¥37.8b</td><td>JP¥38.3b</td><td>JP¥38.7b</td><td>JP¥39.1b</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x1</td><td>Analyst x2</td><td>Analyst x2</td><td>Analyst x1</td><td>Analyst x1</td><td>Est @ 2.47%</td><td>Est @ 1.84%</td><td>Est @ 1.40%</td><td>Est @ 1.09%</td><td>Est @ 0.87%</td></tr><tr><td><strong> Present Value (¥, Millions) Discounted @ 6.1% </strong></td><td>JP¥30.4k</td><td>JP¥29.5k</td><td>JP¥26.1k</td><td>JP¥27.6k</td><td>JP¥27.0k</td><td>JP¥26.1k</td><td>JP¥25.0k</td><td>JP¥23.9k</td><td>JP¥22.8k</td><td>JP¥21.7k</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¥260b</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.  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 0.4%. We discount the terminal cash flows to today's value at a cost of equity of 6.1%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2034</sub> × (1 + g) ÷ (r – g) = JP¥39b× (1 + 0.4%) ÷ (6.1%– 0.4%) = JP¥690b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= JP¥690b÷ ( 1 + 6.1%)<sup>10</sup>= JP¥383b</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¥644b.  To get the intrinsic value per share, we divide this by the total number of shares outstanding.  Relative to the current share price of JP¥2.3k, the company appears   quite good value    at a 43% discount to where the stock price trades currently.   The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent. </p><figure><img height="380" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/875524-dcf-1-dark/1741124242375?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="853" original-src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/875524-dcf-1-dark/1741124242375"/><figcaption>TSE:7240 Discounted Cash Flow March 4th 2025</figcaption></figure> <h2> The Assumptions </h2><p> Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual 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 NOK 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 6.1%, which is based on a levered beta of 1.078. 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> <h3>SWOT Analysis for NOK</h3><div><div><p><strong>Strength</strong></p><ul><li>Earnings growth over the past year exceeded the industry.</li></ul> <ul><li>Debt is not viewed as a risk.</li></ul> <ul><li>Dividend is in the top 25% of dividend payers in the market.</li></ul> <ul> Dividend information for 7240.</ul> </div><div><p><strong>Weakness</strong></p><ul><li> No major weaknesses identified for 7240.</li></ul></div><div><p><strong>Opportunity</strong></p><ul><li>Trading below our estimate of fair value by more than 20%.</li></ul> </div><div><p><strong>Threat</strong></p><ul><li>Annual earnings are forecast to decline for the next 3 years.</li></ul> <ul> What else are analysts forecasting for 7240?</ul> </div></div><h2> Next Steps: </h2><p> Whilst important, the DCF calculation  is only one of many factors that you need to assess for a company.  The DCF model is not a perfect stock valuation tool.  Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation.  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.   Can we work out why the company is trading at a discount to intrinsic value?   For NOK, we've compiled three  relevant  items  you should further research: </p><ol> <li> <strong>Risks</strong>: Take risks, for example - NOK has  <strong> 3 warning signs </strong> (and 1 which is a bit unpleasant)  we think you should know about. </li> <li><strong>Future Earnings</strong>: How does 7240'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>

7240

<p>NOK Corporation (TSE:7240) is currently assessed to be 43% undervalued, with a projected fair value of JP¥3,946 compared to its share price of JP¥2,268. The analysis utilizes a two-stage Discounted Cash Flow (DCF) model, estimating future cash flows and discounting them to present value. The total equity value is calculated at JP¥644 billion, suggesting significant upside potential relative to the current market price. However, the DCF model's assumptions can greatly influence the valuation outcome, and it does not account for industry cyclicality or future capital needs.</p>

Is There An Opportunity With NOK Corporation's (TSE:7240) 43% Undervaluation?