Editing Sirius Real Estate Limited
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|What is the expected constant growth rate in free cash flow? | |What is the expected constant growth rate in free cash flow? | ||
|4% | |4% | ||
|Research shows that there's a correlation between GDP growth and | |Research shows that there's a strong correlation between GDP growth and property income growth, which is the main way that Sirius makes its money. We note that the gross domestic product (GDP) growth rate in the last 20 years (2001 to 2022) is around 3% per year for the global economy, and around 2.25% for the United Kingdom and 1.95% for Germany. Given that the business is leveraged, and the size of the leverage, we expect the business to grow at much more than the weighted average GDP of the two main countries in which the company operates (i.e. the United Kingdom and Germany). | ||
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|Which financial forecasts to use? | |Which financial forecasts to use? | ||
|Proactive Investors. | |Proactive Investors. | ||
|Here, we have used | |Here, we have used assumed that the company's free cash flows | ||
the weighted average free cash flows of the most years three years (i.e. historic forecasts). | |||
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|What is the required return on equity? | |What is the required return on equity? | ||
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|What is the euros to pounds foreign exchange conversion rate? | |What is the euros to pounds foreign exchange conversion rate? | ||
| | |1.13 | ||
|For simplicity, we have used the rate as of today (1:0.89). | |For simplicity, we have used the rate as of today (1:0.89). | ||
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The main inputs that result in the greatest change in the expected return of the Sirius Real Estate Limited investment are, in order of importance (from highest to lowest): | The main inputs that result in the greatest change in the expected return of the Sirius Real Estate Limited investment are, in order of importance (from highest to lowest): | ||
# The | #The size of the total addressable market (the default size is $xxx trillion); | ||
# | #Sirius Real Estate Limited peak market share (the default share is xxx%); and | ||
# The | #The discount rate (the default time-weighted average rate is xxx%). | ||
The impact of a 10% change in those main inputs to the expected return of the Sirius Real Estate Limited investment is shown in the table below. | The impact of a 10% change in those main inputs to the expected return of the Sirius Real Estate Limited investment is shown in the table below. | ||
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|What is the expected constant growth rate in dividends? | |What is the expected constant growth rate in dividends? | ||
|8% | |8% | ||
| | |We note that the gross domestic product (GDP) growth rate in the last 20 years (2001 to 2022) is around 3% per year for the global economy, and around 2.25% for the United Kingdom. Since the company's inception (i.e. eight years ago), the median dividend of the company is 1.57%. Further information about the company's dividend pay-outs can be found in the appendix section of this report. | ||
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|What is the half life of the initial dividend growth rate? | |||
|7 years | |||
|We suggest using 7 years. | |||
|- | |- | ||
|Which financial forecasts to use? | |Which financial forecasts to use? | ||
|Proactive Investors | |Proactive Investors | ||
|Here, we have used | |Here, we have used the forecasts of Proactive Investors. | ||
|- | |- | ||
|What is the required return on equity? | |What is the required return on equity? | ||
|12.24% | |12.24% | ||
|For estimating the required return on equity, we used the Capital Asset Pricing Model (CAPM), which provides an economically grounded and relatively objective procedure for required return estimation, and, therefore, it has been widely used in valuation. The calculation of the required return on equity (and the reasons behind the calculation) can be found in the table below. | |For estimating the required return on equity, we used the Capital Asset Pricing Model (CAPM), which provides an economically grounded and relatively objective procedure for required return estimation, and, therefore, it has been widely used in valuation. The calculation of the required return on equity (and the reasons behind the calculation) can be found in the table below. | ||
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|What's the current value of the company? | |What's the current value of the company? | ||
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|1,875 | |1,875 | ||
|} | |} | ||
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Relative valuation approach | |||
As noted earlier in this report, research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that Stockhub suggests using to determine the estimated value of the company (the valuation based on the discounted cash flow approach can be found in the valuation section of this report); nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the relative valuation approach. | As noted earlier in this report, research suggests that in terms of estimating the expected return of an investment over a period of 12-months or more, the approach that is more accurate is the discounted cash flow approach, so that's the approach that Stockhub suggests using to determine the estimated value of the company (the valuation based on the discounted cash flow approach can be found in the valuation section of this report); nevertheless, for completeness purposes, separately, the valuation of the company is also estimated using the relative valuation approach. | ||