Valuation Analysis of Enel Generación Chile S.A. (SNSE:ENELGXCH)

Enel Generación Chile S.A. is estimated to have a fair value of CL$512, while its current share price is CL$416, indicating it is approximately fairly valued. The analysis uses a two-stage DCF model, projecting future cash flows and calculating a total equity value of CL$4.2 trillion. Key assumptions regarding discount rates and cash flow growth rates play a pivotal role in this valuation, which should be treated as a guide rather than an absolute measure.

This analysis estimates Enel Generación Chile S.A.’s fair value using the two-stage Free Cash Flow (FCF) to Equity model. The current stock price is approximately CL$416, while the estimated fair value is CL$512. Thus, the stock appears to be trading relatively close to its fair value. Most competitors are priced at a significant premium of around 190%, warranting further examination of Enel’s intrinsic value amid these market conditions.

The two-stage DCF model incorporates two growth phases: a higher growth period followed by a stable growth phase. The initial ten years’ cash flows have been forecasted based on previously reported values due to the absence of analyst estimates. The model acknowledges that growth rates generally slow as time progresses, necessitating careful estimation of future cash flows for a more accurate present value assessment.

According to the forecasting for ten years, the company’s estimated cash flows gradually decline to CL$354.8 billion in 2025, stabilizing around CL$269.6 billion by 2034. The present value of these cash flows, discounted at a rate of 9.9%, sums to approximately CL$1.7 trillion. The terminal value, calculated using the projected 2034 cash flow, stands at CL$6.5 trillion, yielding a present value of CL$2.5 trillion after discounting.

This valuation approach reveals a total equity value of CL$4.2 trillion for Enel Generación Chile. When considering the number of shares outstanding, the stock’s valuation reflects a 19% discount compared to its current trading price of CL$416. Investors should be mindful of this valuation’s imprecision and treat it as a tool for deeper financial analysis, rather than definitive investment advice.

Key assumptions in this model include the discount rate and cash flow projections, with the cost of equity set at 9.9%. It is critical to consider potential volatility and cyclical behaviors within the energy industry, as they may affect overall performance and valuations. A thorough risk analysis is recommended to evaluate potential investment decisions regarding Enel Generación Chile.

The analysis of Enel Generación Chile S.A. suggests that its current stock price is closely aligned with its estimated fair value based on the two-stage DCF model. However, given the complexities of valuation and the varying assumptions that could impact future cash flows, careful consideration of market dynamics is essential. This assessment is not an investment directive but rather a foundation for further inquiry into the company’s financial health and market position.

Original Source: simplywall.st