Calculating The Intrinsic Value Of Cleanaway Waste Management Limited (ASX:CWY)

Cleanaway Waste Management Limited (ASX:CWY) is a leading waste management company in Australia, with a market capitalization of AUD 6.20 billion. To determine the intrinsic value of ASX:CWY, investors can use various valuation methods, such as the Discounted Cash Flow (DCF) analysis, which takes into account the company's expected future cash flows and discounts them to their present value. In this article, we will explore the key financial metrics and valuation methods to calculate the intrinsic value of ASX:CWY.



Key Financial Metrics for Intrinsic Value Calculation

1. Valuation Metrics:
* Price-to-Earnings (P/E) Ratio: ASX:CWY's P/E ratio is 39.71, indicating that the stock is overvalued compared to the industry average.
* Price-to-Book (P/B) Ratio: ASX:CWY's P/B ratio is 2.07, suggesting that the stock is overvalued compared to the industry average.
* Price-to-Free Cash Flow (P/FCF) Ratio: ASX:CWY's P/FCF ratio is 36.12, indicating that the stock is overvalued compared to the industry average.
* Enterprise Value (EV) to Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Ratio: ASX:CWY's EV/EBITDA ratio is 11.35, suggesting that the company is overvalued compared to the industry average.
* Enterprise Value (EV) to Earnings (Earnings) Ratio: ASX:CWY's EV/Earnings ratio is 50.21, indicating that the company is overvalued compared to the industry average.
2. Profitability Metrics:
* Gross Margin: ASX:CWY's gross margin is 24.26%, indicating strong profitability compared to the industry average.
* Operating Margin: ASX:CWY's operating margin is 8.76%, suggesting strong profitability compared to the industry average.
* Pretax Margin: ASX:CWY's pretax margin is 6.01%, indicating strong profitability compared to the industry average.
* Profit Margin: ASX:CWY's profit margin is 4.17%, suggesting strong profitability compared to the industry average.
* EBITDA Margin: ASX:CWY's EBITDA margin is 15.94%, indicating strong profitability compared to the industry average.
* EBIT Margin: ASX:CWY's EBIT margin is 8.76%, suggesting strong profitability compared to the industry average.
* Free Cash Flow (FCF) Margin: ASX:CWY's FCF margin is 4.57%, indicating strong profitability compared to the industry average.



Projected Free Cash Flow (FCF) Growth Rate and Intrinsic Value

The projected free cash flow (FCF) growth rate is a crucial factor in the intrinsic value calculation for ASX:CWY. In the DCF analysis provided, the terminal value is calculated using the Gordon Growth formula, which incorporates the FCF growth rate. A higher FCF growth rate results in a higher terminal value, as it implies that the company will generate more cash flows in the future. Conversely, a lower FCF growth rate leads to a lower terminal value, as it suggests that the company's cash flow generation will not increase as rapidly. Therefore, the projected FCF growth rate has a significant impact on the intrinsic value calculation for ASX:CWY.

Debt Levels, Interest Coverage, and Intrinsic Value

The company's debt levels and interest coverage play a significant role in determining its intrinsic value. High debt levels can increase the risk of default and negatively impact the company's creditworthiness, leading to higher borrowing costs and potentially lower intrinsic value. On the other hand, strong interest coverage indicates that the company has sufficient earnings to cover its interest expenses, which can be a positive sign for its financial health and intrinsic value.

In the case of Cleanaway Waste Management (ASX:CWY), the company has a Debt / Equity ratio of 0.59 and a Debt / EBITDA ratio of 2.54, indicating a manageable level of debt. Additionally, its interest coverage ratio of 3.80 suggests that the company has sufficient earnings to cover its interest expenses. These factors contribute to a more stable financial position and may positively impact the company's intrinsic value.

Conclusion

Calculating the intrinsic value of Cleanaway Waste Management Limited (ASX:CWY) involves analyzing key financial metrics, such as valuation and profitability ratios, as well as considering the impact of the projected free cash flow (FCF) growth rate and the company's debt levels and interest coverage. By applying these factors in a DCF analysis, investors can gain a better understanding of ASX:CWY's intrinsic value and make more informed investment decisions.