How Undervalued Is Beasley Stock?

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On December 26, 2018, Beasley Broadcast Group shares hit a most wretched mark. A fresh five-year low of $3.25 was achieved. This put BBGI at nearly 1/4 of its value from mid-January, and at more than half of its 1-year target estimate of $7.


With Tuesday’s Opening Bell on Nasdaq, Beasley will start the day at $4.76. How much of a “discount” is that? Simply Wall St. sought out the answer.

The financial blog’s Dale Lombardi has calculated the intrinsic value of Beasley.

Lombardi took the expected future cash flows and discounted them to today’s value.

Specifically, he used the Discounted Cash Flows (DCF) model.

“I use what is known as a 2-stage model, which simply means we have two different periods of varying growth rates for the company’s cash flows,” Lombardi says. “Generally the first stage is higher growth, and the second stage is a more stable growth phase. In the first stage we need to estimate the cash flows to the business over the next five years. For this I used the consensus of the analysts covering the stock. I then discount the sum of these cash flows to arrive at a present value estimate.”


5-year cash flow estimate

2019 2020 2021 2022 2023
Levered FCF ($, Millions) $25.50 $28.50 $33.00 $37.00 $42.92
Source Analyst x2 Analyst x2 Analyst x1 Analyst x1 Est @ 16%, capped from 33.93%
Present Value Discounted @ 16.25% $21.94 $21.09 $21.01 $20.26 $20.22

 

The second stage is also known as Terminal Value, defined as the business’s cash flow after the first stage.

For a number of reasons, Lombardi says, a very conservative growth rate is used that cannot exceed that of the GDP.

“In this case I have used the 10-year government bond rate (2.7%),” he notes. “In the same way as with the five-year ‘growth’ period, we discount this to today’s value at a cost of equity of 16.2%.”


Terminal Value (TV) = FCF2023 × (1 + g) ÷ (r – g) = US$43m × (1 + 2.7%) ÷ (16.2% – 2.7%) = US$326m

Present Value of Terminal Value (PVTV) = TV / (1 + r)5 = US$326m ÷ ( 1 + 16.2%)5 = US$154m


The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value. In this case, it is $258 million.

To get the intrinsic value per share, we divide this by the total number of shares outstanding, or the equivalent number if this is a depositary receipt or ADR.

This results in an intrinsic value of $9.39.

“Relative to the current share price of $4.76, the stock is quite good value at a 49% discount to what it is available for right now,” Lombardi concludes.

Lastly, Lombardi says “the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows.”

Because he is looking at Beasley Broadcast Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighed average cost of capital, WACC) which accounts for debt.

“In this calculation I’ve used 16.2%, which is based on a levered beta of 1.859,” he says. “This is derived from the Bottom-Up Beta method based on comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.”