What is AGK.L's Intrinsic value?

Aggreko PLC (AGK.L) Intrinsic Value Analysis

Executive Summary

As of May 29, 2025, Aggreko PLC's estimated intrinsic value ranges from $115.77 to $734.32 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $218.98 -74.8%
Discounted Cash Flow (5Y) $447.02 -48.6%
Dividend Discount Model (Stable) $115.77 -86.7%
Earnings Power Value $734.32 -15.5%

Is Aggreko PLC (AGK.L) undervalued or overvalued?

With the current market price at $869.50, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate Aggreko PLC's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 2.9% 3.4%
Equity market risk premium 5.3% 6.3%
Adjusted beta 0.87 1.09
Cost of equity 7.6% 10.9%
Cost of debt 5.3% 5.7%
Tax rate 33.6% 36.4%
Debt/Equity ratio 0.22 0.22
After-tax WACC 6.9% 9.6%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 8.2% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,365 (FY12-2020) to $0 (FY12-2030)
  • Net profit margin expansion from -8% to 0%
  • Capital expenditures maintained at approximately 15% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $447 $1,524M 38.3%
10-Year Growth $219 $941M 0.0%
5-Year EBITDA $266 $1,060M 11.3%
10-Year EBITDA $219 $941M 0.0%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 455.6%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 9.2%
  • Long-term growth rate: 3.0%
  • Fair value: $-0.00 (-100.0% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.9% (Low) to 7.6% (High)
  • Long-term growth rate: 2.0% (Low) to 4.0% (High)
  • Fair value range: $55 to $176
  • Selected fair value: $115.77 (-86.7% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $181M
Discount Rate (WACC) 9.6% - 6.9%
Enterprise Value $1,886M - $2,633M
Net Debt $380M
Equity Value $1,506M - $2,253M
Outstanding Shares 3M
Fair Value $588 - $880
Selected Fair Value $734.32

Key Financial Metrics

Metric Value
Market Capitalization $2226M
Enterprise Value $2606M
Trailing P/E 123.65
Forward P/E 123.65
Trailing EV/EBITDA 4.05
Current Dividend Yield 368.41%
Dividend Growth Rate (5Y) -34.12%
Debt-to-Equity Ratio 0.22

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 37% $65.69
Discounted Cash Flow (5Y) 31% $111.75
Dividend Discount Model (Stable) 19% $17.37
Earnings Power Value 12% $73.43
Weighted Average 100% $335.31

Investment Conclusion

Based on our comprehensive valuation analysis, Aggreko PLC's weighted average intrinsic value is $335.31, which is approximately 61.4% below the current market price of $869.50.

Key investment considerations:

  • Strong projected earnings growth (-8% to 0% margin)
  • Conservative capital structure (Debt/Equity of 0.22)

Given these factors, we believe Aggreko PLC is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.