TTJ Holdings

[CityFarmer]

DCF valuation focusing only on structural steel business.

• The 5yrs average operating cash flow was $10.9mil as retrieved from segmental info
  
• Subtract it with 5yrs average depreciation of $1.66mil. Why did I choose the depreciation expense over the capex? First because it excludes the growth capex and second because their capex has been low in recent years. A company can delay their capex for few years, but eventually, they will need to invest in new equipment.
  
• So there's $9.29mil in average free cash flow.
  
• Using DCF, discount rate of 15% (we may have differing perspectives on this figure but its up to your preference), a conservative constant growth rate of 3% equivalent to that of historical inflation give us a valuation of $79.7mil or $0.23 per share
  
• The earnings from remaining dorm lease would contribute another $0.035 to its valuation. Though very unlikely, a bonus of estimated $0.078 should the lease be extended by another 3 years.
  
• Comparing that to current EV of $40mil or $0.12 per share, it is undervalued with ample safety margin
  
• Can a business like TTJ that is profitable, producing reasonable margins and ROE with low capex goes for 4.3x EV/free cash flow? Yes, if it is in the inefficient part of the markets where it is illiquid, not covered by analyst nor own by institutional funds and surrounded by the uncertainty of its expiring dorm lease.

Based on the working, the EV/FCF is $0.12/($0.23+$0.035)? instead of the 4.3x? The result is <0.6x, right?

Which part I have interpreted wrongly?