What is ALGEM.PA's Intrinsic value?

Eurogerm SA (ALGEM.PA) Intrinsic Value Analysis

Executive Summary

As of May 25, 2025, Eurogerm SA's estimated intrinsic value ranges from $27.01 to $71.02 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $40.23 -16.5%
Discounted Cash Flow (5Y) $32.44 -32.7%
Dividend Discount Model (Multi-Stage) $27.01 -43.9%
Dividend Discount Model (Stable) $71.02 +47.4%
Earnings Power Value $68.88 +43.0%

Is Eurogerm SA (ALGEM.PA) undervalued or overvalued?

With the current market price at $48.18, the stock appears to be moderately 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 Eurogerm SA'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 2.6% 3.1%
Equity market risk premium 5.2% 6.2%
Adjusted beta 0.56 0.75
Cost of equity 5.5% 8.3%
Cost of debt 5.0% 5.0%
Tax rate 26.4% 26.8%
Debt/Equity ratio 0.05 0.05
After-tax WACC 5.4% 8.1%

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: 6.7% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $113 (FY12-2020) to $192 (FY12-2030)
  • Net profit margin expansion from 5% to 5%
  • Capital expenditures maintained at approximately 3% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $32 $121M 78.5%
10-Year Growth $40 $154M 66.5%
5-Year EBITDA $28 $102M 74.5%
10-Year EBITDA $33 $124M 58.4%

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: 21.9%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.9%
  • Long-term growth rate: 2.0%
  • Fair value: $27.01 (-43.9% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 8.3% (Low) to 5.5% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $30 to $112
  • Selected fair value: $71.02 (47.4% 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 $18M
Discount Rate (WACC) 8.1% - 5.4%
Enterprise Value $223M - $332M
Net Debt $(19)M
Equity Value $242M - $351M
Outstanding Shares 4M
Fair Value $56 - $82
Selected Fair Value $68.88

Key Financial Metrics

Metric Value
Market Capitalization $207M
Enterprise Value $189M
Trailing P/E 16.80
Forward P/E 32.61
Trailing EV/EBITDA 7.50
Current Dividend Yield 141.49%
Dividend Growth Rate (5Y) -9.98%
Debt-to-Equity Ratio 0.05

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) 30% $12.07
Discounted Cash Flow (5Y) 25% $8.11
Dividend Discount Model (Multi-Stage) 20% $5.40
Dividend Discount Model (Stable) 15% $10.65
Earnings Power Value 10% $6.89
Weighted Average 100% $43.12

Investment Conclusion

Based on our comprehensive valuation analysis, Eurogerm SA's weighted average intrinsic value is $43.12, which is approximately 10.5% below the current market price of $48.18.

Key investment considerations:

  • Strong projected earnings growth (5% to 5% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.05)

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