Key Insights

Vault Minerals' estimated fair value is AU$0.89 based on 2 Stage Free Cash Flow to Equity With AU$0.77 share price, Vault Minerals appears to be trading close to its estimated fair value The AU$0.83 analyst price target for VAU is 7.5% less than our estimate of fair value

Today we will run through one way of estimating the intrinsic value of Vault Minerals Limited (ASX:VAU) by projecting its future cash flows and then discounting them to today's value. This will be done using the Discounted Cash Flow (DCF) model. Don't get put off by the jargon, the math behind it is actually quite straightforward.

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. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.

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Crunching The Numbers

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To start off with, we need to estimate 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, and so the sum of these future cash flows is then discounted to today's value:

10-year free cash flow (FCF) estimate

2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Levered FCF (A$, Millions)  AU$285.4m AU$657.6m AU$715.6m AU$411.0m AU$338.0m AU$298.7m AU$277.2m AU$265.8m AU$260.6m AU$259.5m Growth Rate Estimate Source Analyst x5 Analyst x5 Analyst x5 Analyst x1 Analyst x1 Est @ -11.63% Est @ -7.21% Est @ -4.11% Est @ -1.95% Est @ -0.43% Present Value (A$, Millions) Discounted @ 7.2%  AU$266 AU$573 AU$581 AU$312 AU$239 AU$197 AU$171 AU$153 AU$140 AU$130

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = AU$2.8b

Story Continues

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 (3.1%) 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 7.2%.

Terminal Value (TV)= FCF2035 × (1 + g) ÷ (r – g) = AU$259m× (1 + 3.1%) ÷ (7.2%– 3.1%) = AU$6.6b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= AU$6.6b÷ ( 1 + 7.2%)10= AU$3.3b

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$6.1b. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of AU$0.8, the company appears about fair value at a 14% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.ASX:VAU Discounted Cash Flow October 21st 2025

The Assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. If you don't agree with these result, have a go at the calculation yourself and play with the assumptions. 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 Vault Minerals 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 7.2%, which is based on a levered beta of 0.962. 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.

See our latest analysis for Vault Minerals

SWOT Analysis for Vault Minerals

Strength

Currently debt free.

Weakness

No major weaknesses identified for VAU.

Opportunity

Annual earnings are forecast to grow faster than the Australian market.

Current share price is below our estimate of fair value.

Threat

Revenue is forecast to grow slower than 20% per year.

Looking Ahead:

Valuation is only one side of the coin in terms of building your investment thesis, and it is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. Rather it should be seen as a guide to "what assumptions need to be true for this stock to be under/overvalued?" If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. For Vault Minerals, we've compiled three pertinent elements you should explore:

Financial Health: Does VAU have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk. Management:Have insiders been ramping up their shares to take advantage of the market's sentiment for VAU's future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors. Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!

PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the ASX every day. If you want to find the calculation for other stocks just search here.

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

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.

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