Are Investors Undervaluing Southern Cross Electrical Engineering Limited (ASX:SXE) By 22%?

editorial-team@simplywallst.com (Simply Wall St)

Wed, May 14, 2025, 1:37 PM 6 min read

• Using the 2 Stage Free Cash Flow to Equity, Southern Cross Electrical Engineering just worth estimation is AU$2.36

• Current stock terms of AU$1.85 suggests Southern Cross Electrical Engineering is perchance 22% undervalued

• The AU$2.41 expert terms people for SXE is 2.1% much than our estimation of just value

In this nonfiction we are going to estimation the intrinsic worth of Southern Cross Electrical Engineering Limited (ASX:SXE) by taking the expected aboriginal currency flows and discounting them to their contiguous value. One mode to execute this is by employing the Discounted Cash Flow (DCF) model. Before you deliberation you won't beryllium capable to recognize it, conscionable work on! It's really overmuch little analyzable than you'd imagine.

We would caution that determination are galore ways of valuing a institution and, similar the DCF, each method has advantages and disadvantages successful definite scenarios. If you privation to larn much astir discounted currency flow, the rationale down this calculation tin beryllium work successful item successful the Simply Wall St investigation model.

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We are going to usage a two-stage DCF model, which, arsenic the sanction states, takes into relationship 2 stages of growth. The archetypal signifier is mostly a higher maturation play which levels disconnected heading towards the terminal value, captured successful the 2nd 'steady growth' period. To commencement disconnected with, we request to estimation the adjacent 10 years of currency flows. Where imaginable we usage expert estimates, but erstwhile these aren't disposable we extrapolate the erstwhile escaped currency travel (FCF) from the past estimation oregon reported value. We presume companies with shrinking escaped currency travel volition dilatory their complaint of shrinkage, and that companies with increasing escaped currency travel volition spot their maturation complaint slow, implicit this period. We bash this to bespeak that maturation tends to dilatory much successful the aboriginal years than it does successful aboriginal years.

Generally we presume that a dollar contiguous is much invaluable than a dollar successful the future, truthful we discount the worth of these aboriginal currency flows to their estimated worth successful today's dollars:

("Est" = FCF maturation complaint estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = AU$237m