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West Holdings (TSE:1407) Earnings Power Value (EPV) : 円555.33 (As of Feb24)


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What is West Holdings Earnings Power Value (EPV)?

As of Feb24, West Holdings's earnings power value is 円555.33. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is -395.38

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


West Holdings Earnings Power Value (EPV) Historical Data

The historical data trend for West Holdings's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

West Holdings Earnings Power Value (EPV) Chart

West Holdings Annual Data
Trend Aug14 Aug15 Aug16 Aug17 Aug18 Aug19 Aug20 Aug21 Aug22 Aug23
Earnings Power Value (EPV)
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West Holdings Quarterly Data
May19 Aug19 Nov19 Feb20 May20 Aug20 Nov20 Feb21 May21 Aug21 Nov21 Feb22 May22 Aug22 Nov22 Feb23 May23 Aug23 Nov23 Feb24
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Competitive Comparison of West Holdings's Earnings Power Value (EPV)

For the Utilities - Renewable subindustry, West Holdings's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.


West Holdings's Earnings Power Value (EPV) Distribution in the Utilities - Independent Power Producers Industry

For the Utilities - Independent Power Producers industry and Utilities sector, West Holdings's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where West Holdings's Earnings Power Value (EPV) falls into.



West Holdings Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

West Holdings's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 58,954
DDA 0
Operating Margin % 13.03
SGA * 25% 0
Tax Rate % 29.88
Maintenance Capex 0
Cash and Cash Equivalents 41,860
Short-Term Debt 19,285
Long-Term Debt 59,869
Shares Outstanding (Diluted) 41

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = 13.03%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = 円58,954 Mil, Average Operating Margin = 13.03%, Average Adjusted SGA = 0,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 58,954 * 13.03% +0 = 円7684.385199 Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = 29.88%, and "Normalized" EBIT = 円7684.385199 Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = 7684.385199 * ( 1 - 29.88% ) = 円5388.6366988728 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 0 * 0.5 * 29.88% = 円0 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = 5388.6366988728 + 0 = 円5388.6366988728 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
West Holdings's Average Maintenance CAPEX = 円0 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. West Holdings's current cash and cash equivalent = 円41,860 Mil.
West Holdings's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 59,869 + 19,285 = 円79154 Mil.
West Holdings's current Shares Outstanding (Diluted Average) = 41 Mil.

West Holdings's Earnings Power Value (EPV) for Feb24 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( 5388.6366988728 - 0)/ 9%+41,860-79154 )/41
=555.33

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( 555.33057300999-2751.00 )/555.33057300999
= -395.38%

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


West Holdings  (TSE:1407) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


West Holdings Earnings Power Value (EPV) Related Terms

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West Holdings (TSE:1407) Business Description

Traded in Other Exchanges
N/A
Address
3-20-2 Nishi-Shinjuku, Tokyo Opera City Building 32 Floor, Shinjuku-ku, Tokyo, JPN, 163-1432
West Holdings Corp is engaged in the solar power generation. The company generates solar power for municipalities, residential and industrial use. Its business activities are divided into different divisions including Stadtberg business, Solar power generation for municipalities, special high-pressure solar power generation, Industrial solar power generation, Residential solar power generation, O & M (operation and management), Sales of electricity and Esco Business. Stadtberg division provides consulting and operation support for infrastructure services centered on renewable energy. O & M division monitors the photovoltaic power plant and maintains the maximum amount of power generation. Its Esco division provides various energy-saving measures.

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