Unlocking RATIONAL's Value: A DCF Analysis of ETR:RAA

RATIONAL Aktiengesellschaft (ETR:RAA), a global leader in innovative cooking solutions for professional kitchens, has garnered significant attention from investors. To evaluate its investment potential, we'll calculate its intrinsic value using a two-stage discounted cash flow (DCF) model and analyze the key factors driving its growth.

First, let's examine RAA's projected free cash flow (FCF) growth rates:
- 2025-2034: 6.56% to 1.90%
- Terminal growth rate: 1.0%

These growth rates reflect RAA's strong market position and its potential for continued expansion. However, it's essential to consider the sensitivity of the intrinsic value estimate to changes in these growth rates.



Increasing the growth rates to 10% for the next ten years and 3% for the terminal growth rate results in an intrinsic value of €850, with a terminal value of €12.5 billion. Conversely, lowering the growth rates to 5% for the next ten years and 1.5% for the terminal growth rate reduces the intrinsic value to €550, with a terminal value of €6.5 billion.



The choice of discount rate, or cost of equity, also significantly impacts the intrinsic value estimate. RAA's current intrinsic value estimate of €8.0 billion is based on a cost of equity of 5.1%. Alternative methods, such as the Capital Asset Pricing Model (CAPM) or the Dividend Discount Model (DDM), can be used to determine this rate.



Moreover, the assumed long-term growth rate used for the terminal value calculation is crucial. A 1% increase in the growth rate from 1% to 2% raises the terminal value from €9.3 billion to €18.6 billion, increasing the intrinsic value to €22.4 billion. Conversely, a 1% decrease in the growth rate from 1% to 0% reduces the terminal value to €4.6 billion, lowering the intrinsic value to €6.0 billion.



To mitigate this sensitivity, consider alternative methods for estimating the long-term growth rate, such as using the company's historical growth rate, the industry average growth rate, or the country's economic growth rate.

In conclusion, RAA's intrinsic value is sensitive to changes in growth rates and the discount rate. By carefully evaluating these factors and considering alternative methods for estimating growth rates and discount rates, investors can gain a more comprehensive understanding of RAA's intrinsic value and make more informed investment decisions.