DCF Approach

John Hopper: Texas Pacific Land Trust Is Greatly Undervalued On A DCF Basis

For the years 2020 through 2026, the sales revenue forecasted growth rate is 5%. The terminal value occurs in year 2023. The resulting value of $7,158,560,998 is obtained by calculating the net present value (NPV) of the free cash flow (FCF) from years 2019 to 2023, discounted at my required rate of return of 8%. The resulting value represents the future cash flows discounted back to the present. We can use the $7,158,560,998 value as the value of what TPL’s market cap should be worth today. You can also see in the table below that the current market cap of TPL is $4,679,987,000.

If we divide $7,158,560,998 by the current number of shares outstanding, we get a resulting value per share of $919.30.

Not the most precise analysis in the world but at least he’s trying.  Problem with DCF is that TPL’s top and bottom line include both recurring (as recurring as royalties, water services, and easements can be) and non-recurring items (land and royalty sales).    #doubledipping


One thought on “DCF Approach

  1. I’ve already added my comments about the DCF approach on his article in Seeking Alpha. But in his defense, he did back out the $100 million land sale. I’m not sure the rest of the land sales moves the needle very much.


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