What Is The Ownership Structure Like For Frontier Digital Ventures Limited (ASX:FDV)?

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If you want to know who really controls Frontier Digital Ventures Limited (ASX:FDV), then you’ll have to look at the makeup of its share registry. Generally speaking, as a company grows, institutions will increase their ownership. Conversely, insiders often decrease their ownership over time. I generally like to see some degree of insider ownership, even if only a little. As Nassim Nicholas Taleb said, ‘Don’t tell me what you think, tell me what you have in your portfolio.

Frontier Digital Ventures is not a large company by global standards. It has a market capitalization of AU$530m, which means it wouldn’t have the attention of many institutional investors. Taking a look at our data on the ownership groups (below), it seems that institutions are noticeable on the share registry. Let’s take a closer look to see what the different types of shareholders can tell us about Frontier Digital Ventures.

View our latest analysis for Frontier Digital Ventures

What Does The Institutional Ownership Tell Us About Frontier Digital Ventures?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it’s included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Frontier Digital Ventures does have institutional investors; and they hold a good portion of the company’s stock. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Frontier Digital Ventures, (below). Of course, keep in mind that there are other factors to consider, too.

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Our data indicates that hedge funds own 5.5% of Frontier Digital Ventures. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. The company’s largest shareholder is Catcha Group, with ownership of 13%. In comparison, the second and third largest shareholders hold about 11% and 7.6% of the stock. Shaun Di Gregorio, who is the second-largest shareholder, also happens to hold the title of Chief Executive Officer.

A closer look at our ownership figures suggests that the top 14 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. While there is some analyst coverage, the company is probably not widely covered. So it could gain more attention, down the track.

Insider Ownership Of Frontier Digital Ventures

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our most recent data indicates that insiders own a reasonable proportion of Frontier Digital Ventures Limited. Insiders own AU$66m worth of shares in the AU$530m company. It is great to see insiders so invested in the business. It might be worth checking if those insiders have been buying recently.

General Public Ownership

The general public, with a 49% stake in the company, will not easily be ignored. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Private Equity Ownership

With an ownership of 13%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.

Private Company Ownership

We can see that Private Companies own 6.4%, of the shares on issue. It might be worth looking deeper into this. If related parties, such as insiders, have an interest in one of these private companies, that should be disclosed in the annual report. Private companies may also have a strategic interest in the company.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. For example, we’ve discovered 2 warning signs for Frontier Digital Ventures that you should be aware of before investing here.

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

Exxon Mobil (NYSE:XOM) is Yet to Catch Up With the Oil Price

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This article first appeared on Simply Wall St News.

After a summer slump, oil prices are back at the yearly highs. Yet, stocks like Exxon Mobil Corporation (NYSE: XOM) slightly lag behind this positive development.

In this article, we’ll try to gauge how much by looking at the discounted cash flow (DCF) analysis.

See our latest analysis for Exxon Mobil.

Although many have written off oil as an energy source of the past, this doesn’t mean it will disappear overnight, and its price will fall off a cliff. On the contrary, the U.S. Energy Information Administration (EIA) recently released a short-term energy outlook, forecasting the average price of the West Texas Intermediate (WTI) at US$71 per barrel till the end of 2021 and US$66 per barrel in 2022. As cheap oil sources get exhausted, EIA sees the brent crude prices go to US$89/barrel by 2030 and US$185/barrel by 2050.

Yet, OPEC is expecting the energy demand to increase by 28% between 2020 and 2045. Although renewable energies will see the highest growth, all other sources are growing, except for coal. Although electric vehicles will experience growth, internal combustion vehicles will retain the lead during this time through fleet increases in developing regions.

Composition of the global vehicle fleet; Source: OPEC

Meanwhile, Bank of America expects Exxon Mobil to raise the dividend using the Q3 earnings – after meeting the net debt target lower than 25%. It keeps the buy rating and a US$90 price target.

The dividend, which remains one of the highest in the industry, is currently yielding 5.81%.

Assessing the Intrinsic Value

We generally believe that a company’s value is the present value of all cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

The model

We will use a two-stage DCF model, which, as the name states, considers two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second “steady growth” period. 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.

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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 early than 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:

10-year free cash flow (FCF) estimate

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 Levered FCF ($, Millions) US$22.4b US$21.0b US$20.8b US$21.7b US$21.7b US$21.8b US$22.0b US$22.2b US$22.5b US$22.9b Growth Rate Estimate Source Analyst x11 Analyst x9 Analyst x2 Analyst x2 Est @ -0.18% Est @ 0.46% Est @ 0.91% Est @ 1.23% Est @ 1.45% Est @ 1.6% Present Value ($, Millions) Discounted @ 8.3% US$20.7k US$17.9k US$16.4k US$15.8k US$14.6k US$13.5k US$12.6k US$11.8k US$11.0k US$10.4k

(“Est” = FCF growth rate estimated by Simply Wall St)

Present Value of 10-year Cash Flow (PVCF) = US$145b

After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond 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 (2.0%) 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 8.3%.

Terminal Value (TV)= FCF 2031 × (1 + g) ÷ (r - g) = US$23b× (1 + 2.0%) ÷ (8.3% - 2.0%) = US$370b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$370b÷ ( 1 + 8.3%)10= US$167b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$312b. In the final step, we divide the equity value by the number of shares outstanding.

Relative to the current share price of US$58.8, the company appears a touch undervalued at a 20% discount to where the stock price trades currently. Remember, though, that this is just an approximate valuation.

dcf

Important assumptions

Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual cash flows. The DCF also does not consider the possible cyclicality of an industry or its future capital requirements, so it does not give a complete picture of its potential performance.

Given that we are looking at Exxon Mobil as potential shareholders, the cost of equity is used as the discount rate rather than the cost of capital (or the weighted average cost of capital, WACC), which accounts for debt.

We’ve used 8.3% in this calculation, which is based on a levered beta of 1.439. 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.

Other Considerations

Although the valuation of a company is important, it 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.

Preferably you’d apply different cases and assumptions and see how they would impact the company’s valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.

For Exxon Mobil, we’ve compiled three important items you should explore:

Risks: Every company has them, and we’ve spotted 1 warning sign for Exxon Mobil you should know about. Future Earnings: How does XOM’s growth rate compare to its peers and the broader 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 American stock every day, so if you want to find the intrinsic value of any other stock, search here.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Lower Guidance from Micron Technology (NASDAQ:MU) may be an Opportunity for Long Term Investors

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This article originally appeared on Simply Wall St News.

Micron Technology, Inc. ( NASDAQ:MU ) delivered a strong set of fourth quarter results yesterday, but the market focused on the weaker guidance offered by the company’s management and sold the stock today. The general weakness in the tech sector hasn’t helped either, and the market appears to now be looking for reasons to sell rather than buy each stock.

Micron reported quarterly EPS of $2.34, up 116% from a year ago, while revenue of $8.27 billion was up 37% year-on-year. Both numbers were comfortable ahead of consensus estimates. Margins also continued to widen across the board, both sequentially and year-on-year.

The negative side came from guidance for the first quarter which was lowered considerably. Revenue guidance was lowered by as much as 13% while EPS were guided as much as 20% lower. In response several analysts have cut their price targets for the stock.

The Market Already had Realistic Expectations for Micron

Heading into this earnings report Micron was trading on a price-to-earnings ratio (or “P/E’") of 19.9x, which is only a little bit higher than the average US stock, which trades on a P/E of about 17x. The P/E ratio was also well below the semiconductor industry’s average P/E of 29.8x.

View our latest analysis for Micron Technology

NasdaqGS:MU Price Based on Past Earnings September 29th 2021

Analysts were forecasting earnings growth of 25% over the next year, and revenue growth of 15% - both well ahead of the industry and the broader market. We are cautious of using P/E ratios as a valuation tool, but they do give us a good idea of how optimistic investors are about a company’s prospects. When we consider the fact that Micron was expected to grow faster than the market and industry, its P/E was already quite modest. This implies that investors were already a little cautious of those forecasts.

DRAM Demand

Micron earns more than 70% of its revenue selling DRAM (dynamic random access memory) products, with the balance coming from NAND products. The market for DRAM products is highly cyclical and subject to supply and demand imbalances. Historically, some of the best opportunities to invest in Micron have occurred during these cyclical downturns.

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Some analysts had already predicted a decline in DRAM prices in the fourth quarter due to high inventory levels, so it wasn’t entirely surprising when Micron warned that shipments will fall in the current quarter. CEO Sanjay Mehrotra also said the shortages affecting other parts of the industry were affecting demand from PC customers.

The Key Takeaway

To a certain extent the lower guidance was already in the price for Micron. Demand for Micron’s products is expected to pick up again in 2022 when supply shortages in other parts of the industry ease.

In the short term, Micron’s share price is likely to be affected by sentiment in the semiconductor industry and the broader market, but further weakness would offer long term investors an opportunity.

If you’d like to see what analysts are forecasting going forward, you should check out our free report on Micron Technology .

We don’t want to rain on the parade too much, but we did also find 1 warning sign for Micron Technology that you need to be mindful of.

Of course, you might find a fantastic investment by looking at a few good candidates . So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

Simply Wall St analyst Richard Bowman and Simply Wall St have no position in any of the companies mentioned. This article 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com