We made our DCF valuation based on a 10-year free cash flow (FCFF) forecast. The cost of equity in our model is based on a modified CAPM model. The risk-free rate assumed in the model is 5.3% (previously 5.6%). The unleveraged beta was set at 1.1 in the valuation and then we apply the leveraged beta in each forecast period based on the model simulation. We set the market risk premium at 6.5%. The final cost of equity takes into account the additional premium of 1.5% required by us in investing in a mid-cap entity like Agora. After the detailed forecast period, we made an assumption of 2.5% y/y flow growth in the residual period and used a wacc of 13.1% in the calculation.
In the model, depreciation and amortization was shown according to the treatment the company shows in its interim reports (i.e., after applying IFRS 16). We have also included in the forecast of capital expenditures (Capex) the estimated future cost of lease renewals.
The estimated level of net debt at the end of 2023 takes into account the IFRS 16 treatment. We further reduced the valuation by the value of the put option (for the acquisition of minority assets) and other estimated adjustments. We have included in capital expenditures the acquisition of full control of Eurozet before the end of 2024. The final DCF method suggests an equity value of AGO at PLN 14.64/share. The valuation was prepared as of 2024-01-09.
We have used the EV/EBITDA multiple to value the company using our 2023 to 2025 assumptions. We set the target acceptable average EV/EBITDA level for 2023-2025 at 5.5x (as before). This approach suggests an equity valuation of just under PLN 667.5 mn, or PLN 14.33/share.
