What is AIF.L's Intrinsic value?

Acorn Income Fund Ltd (AIF.L) Intrinsic Value Analysis

Executive Summary

As of June 20, 2025, Acorn Income Fund Ltd's estimated intrinsic value ranges from $354.51 to $458.86 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $369.74 +0.6%
Discounted Cash Flow (5Y) $356.65 -3.0%
Dividend Discount Model (Multi-Stage) $354.51 -3.5%
Dividend Discount Model (Stable) $458.86 +24.9%

Is Acorn Income Fund Ltd (AIF.L) undervalued or overvalued?

With the current market price at $367.50, the stock appears to be fairly valued.

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 Acorn Income Fund Ltd'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

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 0.73 0.94
Cost of equity 6.9% 9.9%
Cost of debt 5.0% 5.0%
Tax rate 19.0% 19.0%
Debt/Equity ratio 0.35 0.35
After-tax WACC 6.1% 8.4%

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: 7.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $(11) (FY12-2020) to $8 (FY12-2030)
  • Net profit margin expansion from 124% to 101%
  • Capital expenditures maintained at approximately 0% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $357 $127M 79.0%
10-Year Growth $370 $131M 61.1%
5-Year EBITDA $284 $108M 75.2%
10-Year EBITDA $313 $116M 56.0%

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: 91.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.4%
  • Long-term growth rate: 2.0%
  • Fair value: $354.51 (-3.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.9% (Low) to 6.9% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $231 to $687
  • Selected fair value: $458.86 (24.9% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $98M
Enterprise Value $130M
Trailing P/E 12.50
Forward P/E 15.14
Trailing EV/EBITDA 12.70
Current Dividend Yield 727.94%
Dividend Growth Rate (5Y) 10.21%
Debt-to-Equity Ratio 0.35

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) 33% $110.92
Discounted Cash Flow (5Y) 28% $89.16
Dividend Discount Model (Multi-Stage) 22% $70.90
Dividend Discount Model (Stable) 17% $68.83
Weighted Average 100% $377.57

Investment Conclusion

Based on our comprehensive valuation analysis, Acorn Income Fund Ltd's weighted average intrinsic value is $377.57, which is approximately 2.7% above the current market price of $367.50.

Key investment considerations:

  • Strong projected earnings growth (124% to 101% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 10.21%

Given these factors, we believe Acorn Income Fund Ltd is currently fairly valued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.