Regis Healthcare’s estimated fair value is AU$10.45 based on 2 Stage Free Cash Flow to Equity
Regis Healthcare is estimated to be 28% undervalued based on current share price of AU$7.52
Our fair value estimate is 29% higher than Regis Healthcare’s analyst price target of AU$8.08
In this article we are going to estimate the intrinsic value of Regis Healthcare Limited (ASX:REG) by taking the expected future cash flows and discounting them to their present value. Our analysis will employ the Discounted Cash Flow (DCF) model. There’s really not all that much to it, even though it might appear quite complex.
We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.
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We use what is known as a 2-stage model, which simply means we have two different periods of growth rates for the company’s cash flows. Generally the first stage is higher growth, and the second stage is a lower growth phase. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren’t available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.
Generally we assume that a dollar today is more valuable than a dollar in the future, so we need to discount the sum of these future cash flows to arrive at a present value estimate:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Levered FCF (A$, Millions)
AU$188.6m
AU$205.3m
AU$133.5m
AU$139.8m
AU$146.4m
AU$136.5m
AU$131.3m
AU$128.9m
AU$128.4m
AU$129.2m
Growth Rate Estimate Source
Analyst x3
Analyst x3
Analyst x1
Analyst x1
Analyst x1
Est @ -6.75%
Est @ -3.84%
Est @ -1.80%
Est @ -0.38%
Est @ 0.62%
Present Value (A$, Millions) Discounted @ 6.4%
AU$177
AU$181
AU$111
AU$109
AU$107
AU$94.0
AU$85.0
AU$78.4
AU$73.4
AU$69.4
(“Est” = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = AU$1.1b
The second stage is also known as Terminal Value, this is the business’s cash flow after the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country’s GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.9%) to estimate future growth. In the same way as with the 10-year ‘growth’ period, we discount future cash flows to today’s value, using a cost of equity of 6.4%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= AU$3.8b÷ ( 1 + 6.4%)10= AU$2.1b
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is AU$3.1b. The last step is to then divide the equity value by the number of shares outstanding. Relative to the current share price of AU$7.5, the company appears a touch undervalued at a 28% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.
ASX:REG Discounted Cash Flow July 5th 2025
The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don’t have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company’s future capital requirements, so it does not give a full picture of a company’s potential performance. Given that we are looking at Regis Healthcare as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we’ve used 6.4%, which is based on a levered beta of 0.800. Beta is a measure of a stock’s volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.
View our latest analysis for Regis Healthcare
Strength
Weakness
Opportunity
Threat
Whilst important, the DCF calculation shouldn’t be the only metric you look at when researching a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company’s cost of equity or the risk free rate can significantly impact the valuation. Can we work out why the company is trading at a discount to intrinsic value? For Regis Healthcare, we’ve compiled three essential items you should further research:
Risks: We feel that you should assess the 1 warning sign for Regis Healthcare we’ve flagged before making an investment in the company.
Future Earnings: How does REG’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St updates its DCF calculation for every Australian stock every day, so if you want to find the intrinsic value of any other stock just search here.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
