Sounds good and I might dive in deeper here too. However the valuation seems pretty optimistic. I'd never use a discount rate below 10% personally (I'm not a fan of the "scientific" way to calculate a WACC). 14% earnings CAGR as a worst case is also optimstic imo.
Appreciate your comment! I always use my model where I calculate the WACC. For me the only way.
Regarding the earnings CAGR: Nedap is scaling their business, becoming more and more a SaaS company. With a current operating margin in the 10,x% it is way too low because they invested to scale up. If you are a SaaS company and you can't improve operating margin towards 15% I think you can better stop. In my worst case I lowered the operating margin of 15%, but even in a negative scenario the operating margin should increase from todays level. Maybe I am wrong but the safety margin is high enough and with current dividend and stock price you have 5% annually dividend.
I'll definitely look into it. Thanks for the inspiration.
Regarding WACC: Discount rates effectively are the required rate of return we want from a model. Using anything under 10% doesn't work for me, why would I bother taking on the risk of a publicly traded company for a projected 7% return? How do you see it?
I dont use a projected return for my valuation of a business, but I calculate the WACC using costs of equity and debt and beta. My approach is first forecasting P&L, balance sheet and cash flow for coming years, then calculate wacc and free cash flows, calculate present values of free cash flows and determine enterprise value and equity value (considering cash / debt). That is how I come to a value for the company. Based on my model and dividend / buybacks I calculate expected earnings for next 10 years. If that is interesting versus potential risks I see, then I buy a company.
Hi Wubbe, the CAGR of 14% (worst case) is on the earnings. Management expects a CAGR of 9% on revenue but as operating margin will increase towards 15% in 2026 (expectation of management), the CAGR on earnings will increase more than 9%. This also drives the current undervaluation. And don't forget Nedap is still in Scale phase. When they will arrive at Core phase the margin will increase even further. Hence Buy Now, Hurray Later.
Sounds good and I might dive in deeper here too. However the valuation seems pretty optimistic. I'd never use a discount rate below 10% personally (I'm not a fan of the "scientific" way to calculate a WACC). 14% earnings CAGR as a worst case is also optimstic imo.
Appreciate your comment! I always use my model where I calculate the WACC. For me the only way.
Regarding the earnings CAGR: Nedap is scaling their business, becoming more and more a SaaS company. With a current operating margin in the 10,x% it is way too low because they invested to scale up. If you are a SaaS company and you can't improve operating margin towards 15% I think you can better stop. In my worst case I lowered the operating margin of 15%, but even in a negative scenario the operating margin should increase from todays level. Maybe I am wrong but the safety margin is high enough and with current dividend and stock price you have 5% annually dividend.
I'll definitely look into it. Thanks for the inspiration.
Regarding WACC: Discount rates effectively are the required rate of return we want from a model. Using anything under 10% doesn't work for me, why would I bother taking on the risk of a publicly traded company for a projected 7% return? How do you see it?
I dont use a projected return for my valuation of a business, but I calculate the WACC using costs of equity and debt and beta. My approach is first forecasting P&L, balance sheet and cash flow for coming years, then calculate wacc and free cash flows, calculate present values of free cash flows and determine enterprise value and equity value (considering cash / debt). That is how I come to a value for the company. Based on my model and dividend / buybacks I calculate expected earnings for next 10 years. If that is interesting versus potential risks I see, then I buy a company.
Quality analysis. Been a shareholder for some time now and can't wait for them to capture more growth in while raising the margins.
Well done on the analysis.
Nice analysis. A cagr of 14% as a worst case, while management expects 9%, might be a bit optimistic
Hi Wubbe, the CAGR of 14% (worst case) is on the earnings. Management expects a CAGR of 9% on revenue but as operating margin will increase towards 15% in 2026 (expectation of management), the CAGR on earnings will increase more than 9%. This also drives the current undervaluation. And don't forget Nedap is still in Scale phase. When they will arrive at Core phase the margin will increase even further. Hence Buy Now, Hurray Later.
I understand, I like the thesis. Would not use margin expansion in a worst case scenario myself. Thanks for the article!