What is BIFF.L's Intrinsic value?

Biffa PLC (BIFF.L) Intrinsic Value Analysis

Executive Summary

As of May 25, 2025, Biffa PLC's estimated intrinsic value ranges from $138.84 to $410.80 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $410.80 +0.2%
Discounted Cash Flow (5Y) $296.68 -27.6%
Dividend Discount Model (Multi-Stage) $223.72 -45.4%
Earnings Power Value $138.84 -66.1%

Is Biffa PLC (BIFF.L) undervalued or overvalued?

With the current market price at $410.00, 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 Biffa 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 4.0% 4.5%
Equity market risk premium 6.0% 7.0%
Adjusted beta 0.69 0.97
Cost of equity 8.1% 11.8%
Cost of debt 4.0% 6.2%
Tax rate 19.0% 20.8%
Debt/Equity ratio 0.51 0.51
After-tax WACC 6.5% 9.5%

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: 8.0% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,443 (FY03-2022) to $1,927 (FY03-2032)
  • Net profit margin expansion from -1% to 6%
  • Capital expenditures maintained at approximately 5% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $297 $1,511M 84.6%
10-Year Growth $411 $1,860M 69.6%
5-Year EBITDA $101 $913M 74.5%
10-Year EBITDA $186 $1,174M 51.9%

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: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.0%
  • Long-term growth rate: 3.5%
  • Fair value: $223.72 (-45.4% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.8% (Low) to 8.1% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $(43) to $(144)
  • Selected fair value: $-93.46 (-122.8% 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 $79M
Discount Rate (WACC) 9.5% - 6.5%
Enterprise Value $834M - $1,223M
Net Debt $604M
Equity Value $230M - $619M
Outstanding Shares 3M
Fair Value $75 - $202
Selected Fair Value $138.84

Key Financial Metrics

Metric Value
Market Capitalization $1254M
Enterprise Value $1858M
Trailing P/E 0.00
Forward P/E 0.00
Trailing EV/EBITDA 5.65
Current Dividend Yield 53.43%
Dividend Growth Rate (5Y) -12.44%
Debt-to-Equity Ratio 0.51

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) 35% $123.24
Discounted Cash Flow (5Y) 29% $74.17
Dividend Discount Model (Multi-Stage) 24% $44.74
Earnings Power Value 12% $13.88
Weighted Average 100% $301.22

Investment Conclusion

Based on our comprehensive valuation analysis, Biffa PLC's weighted average intrinsic value is $301.22, which is approximately 26.5% below the current market price of $410.00.

Key investment considerations:

  • Strong projected earnings growth (-1% to 6% margin)
  • Consistent cash flow generation

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