AVAST (AVST) FAIR VALUE CALCULATION

May 13, 2021 0 By bullheadedbear

Welcome to the BULL HEADED BEAR fair value & return on investment calculations for Avast Plc. (AVST).

This is a process I use to help me invest in companies at a fair price but also with a strong long term return. I have split this analysis into the below sections:

CURRENT PRICE VALUATIONS
10 YR FUTURE PRICE VALUATIONS
INTERNAL RATE OF RETURN ANALYSIS

BULL HEADED BEAR CONCLUSION

These models use historical financial data and forecasts as well as my personal assumptions & expectations. They do not consider company, market or economic events. Please ensure you read the full disclaimer and disclosure at the bottom of this post. This is not investment advice, always do your own research before investing.

CURRENT PRICE VALUATION MODELS:

The below prices come from personally developed models using a combination of historical financials, analysts projections and my own assumptions. I use Finbox financial models to challenge my own assumptions and valuations but do not count them in my weighted average price.

MODELFORECASTSPRICEWEIGHT
DCF – Discounted Cash FlowAnalysts£6.7850%
DCF – Discounted Cash FlowBull Headed Bear£6.8650%
FINBOX FAIR VALUE£5.380%
WEIGHTED AVERAGE PRICE£6.82

BHB FAIR VALUE = £6.82

As you can see from above, the Bull Headed Bear fair value is higher than the Finbox fair value. This is due to different assumptions and expectations used in the models. There are slight variations in expected market returns, beta and perpetual growth rates which impact the results. Finbox also have more models contributing to their fair value. This is why it is always important to do your own analysis based on your assumptions and expectations.

10YR FUTURE PRICE VALUATIONS MODELS:

The below prices come from personally developed models using a combination of historical financials, analysts projections and my own assumptions.

MODELFORECASTPRICEWEIGHT
EV\EBITDA MULTIPLEAnalysts£8.2725%
EV\EBITDA MULTIPLEBull Headed Bear£8.0625%
FCF GROWTHAnalysts£6.4825%
FCF GROWTHBull Headed Bear£6.3825%
WEIGHTED AVERAGE PRICE£7.30

BHB 10YR VALUATION = £7.30

As usual the valuations using the analysts forecasts are higher than the Bull Headed Bear forecasts. I prefer to make lean more towards the conservative expectations in my models than are usual in the Finbox models. This provides me with a valuation that has a margin of safety pre-built in to the models.

INTERNAL RATE OF RETURN (IRR)

Here we try to understand the rate of return we could receive by using the 10 year valuation vs the current price and other potential support and resistance zones.

TradingView Chart of AVST

The below table shows IRR for the current price and the surrounding support & resistance zones.

PRICE ZONEPRICEIRR
UPPER PRICE ZONE 3$5.0511.5%
UPPER PRICE ZONE 2£4.8512.2%
UPPER PRICE ZONE 1£4.5013.5%
CURRENT PRICE ZONE£4.3114.3%
LOWER PRICE ZONE 1$4.2014.7%
LOWER PRICE ZONE 2£3.9016.1%
LOWER PRICE ZONE 3£3.6417.4%
LOWER PRICE ZONE 4£2.6524.1%

The above table shows us that buying Avast at the current price of £4.31 has the potential to return an average of 14.3% per annum if we hold for a 10 period. This year Avast has had a high of around £5.55 which had a potential return of 10% and a low of £4.20 which potentially returns 14.7% per annum.

BULL HEADED BEAR BUY CONCLUSION

According to the Bull Headed Bear analysis Avast plc. is currently undervalued and at the current price has a potential long term hold return of 13.8%. At the current price Avast is also paying a 2.6% dividend yield. Although they have only been a dividend for 3 years and have a relatively high payout ratio so this dividend might not be stable.

Online security is a hot sector at the moment. There are a lot of people working from home and the recent cyber attack on the fuel pipelines have escalated this and so the sector has a lot of potential.

I am currently reading through the recent earnings report and transcripts to get a better understand of the recent performance and guidance. If I like the financial situation and the future plans I will set an alert at £4.23 for an initial purchase and £3.90 to possibly increase the position.

VALUATION & RETURN SERIES

See below for other posts in this series, or visit the FUNDAMENTAL ANALYSIS page for even more posts:

DISCLAIMER:

All opinions and assumptions made are my own and should not be viewed as investment advice. All investments involve risk and investors can get back less than they invested. I am not a financial advisor and your investments are solely your own responsibility. It is critical you do your own research and come to your own conclusions. These models are based primarily on historical and forecasted financials available May 2021. Business, market & economic events, and sentiment can change at any time. Bull Headed Bear has the right to right to change opinions and assumptions at any time.

DISCLOSURE:

Avast plc. (AVST) is not a current holding in the BULL HEADED BEAR portfolio. However, Avast plc. (AVST) has been added to the watchlist and a position may be opened if the target price is reached and the risk vs reward is appropriate.