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Tourism Holdings Limited's fair value estimate is NZ$2.63, suggesting it is potentially 21% undervalued at its current share price of NZ$2.08. The NZ$2.27 analyst price target is 14% less than the estimated fair value. The Discounted Cash Flow model is used to estimate the company's value by projecting future cash flows and discounting them to today's value.

Tourism Holdings Limited (NZX:THL) has been identified as potentially undervalued by the Simply Wall St analysis, with a fair value estimate of NZ$2.63. This suggests that the company is trading at a 21% discount to its current share price of NZ$2.08. The analyst price target stands at NZ$2.27, which is 14% below the estimated fair value.

The fair value estimate is derived using the Discounted Cash Flow (DCF) model, which projects future cash flows and discounts them to their present value. This method takes into account two stages of growth: a higher initial growth rate and a stable growth rate in subsequent periods. The DCF model assumes that a dollar today is worth more than a dollar in the future, hence the need to discount future cash flows.

The DCF model for Tourism Holdings Limited projects the present value of the company's future cash flows over the next ten years and beyond. The model uses a discount rate of 8.4%, based on a levered beta of 1.260, which reflects the company's volatility compared to the market. The terminal value, which accounts for cash flows beyond the ten-year period, is estimated using a conservative growth rate of 2.9%, the average of the 10-year government bond yield.

The DCF analysis suggests that Tourism Holdings Limited is undervalued, with the estimated fair value of NZ$2.63 being significantly higher than the current share price of NZ$2.08. This discrepancy could present an attractive opportunity for investors, given that the company's current valuation is significantly below its estimated intrinsic value.

However, it is important to note that the DCF model is not without its limitations. The accuracy of the valuation depends heavily on the assumptions used, particularly the discount rate and the projected cash flows. Additionally, the DCF model does not consider the cyclical nature of the tourism industry or the company's future capital requirements.

Investors should consider this analysis as a guide to understanding the potential value of Tourism Holdings Limited. It is essential to conduct further analysis and consider other valuation methods to build a comprehensive investment thesis. The DCF model should be seen as one piece of the puzzle, rather than the sole determinant of a company's valuation.

References:
[1] https://finance.yahoo.com/news/atturra-limited-asx-ata-shares-000721445.html