What is CTEC.L's Intrinsic value?

ConvaTec Group PLC (CTEC.L) Intrinsic Value Analysis

Executive Summary

As of June 24, 2025, ConvaTec Group PLC's estimated intrinsic value ranges from $85.82 to $215.19 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $215.19 -24.0%
Discounted Cash Flow (5Y) $184.83 -34.7%
Dividend Discount Model (Multi-Stage) $140.90 -50.2%
Dividend Discount Model (Stable) $85.82 -69.7%
Earnings Power Value $89.21 -68.5%

Is ConvaTec Group PLC (CTEC.L) undervalued or overvalued?

With the current market price at $283.00, 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 ConvaTec Group 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 0.93 0.97
Cost of equity 9.5% 11.8%
Cost of debt 4.5% 5.7%
Tax rate 22.4% 22.8%
Debt/Equity ratio 0.15 0.15
After-tax WACC 8.8% 10.8%

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: 9.8% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $2,289 (FY12-2024) to $3,606 (FY12-2034)
  • Net profit margin expansion from 8% to 17%
  • Capital expenditures maintained at approximately 5% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $249 $6,340M 75.3%
10-Year Growth $289 $7,195M 57.4%
5-Year EBITDA $299 $7,392M 78.8%
10-Year EBITDA $335 $8,153M 62.4%

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: 68.3%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.7%
  • Long-term growth rate: 3.5%
  • Fair value: $140.90 (-50.2% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.8% (Low) to 9.5% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $69 to $162
  • Selected fair value: $85.82 (-69.7% 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 $353M
Discount Rate (WACC) 10.8% - 8.8%
Enterprise Value $3,264M - $4,033M
Net Debt $1,137M
Equity Value $2,127M - $2,896M
Outstanding Shares 21M
Fair Value $102 - $138
Selected Fair Value $89.21

Key Financial Metrics

Metric Value
Market Capitalization $5923M
Enterprise Value $6769M
Trailing P/E 41.82
Forward P/E 33.11
Trailing EV/EBITDA 12.65
Current Dividend Yield 163.42%
Dividend Growth Rate (5Y) 19.95%
Debt-to-Equity Ratio 0.15

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% $64.56
Discounted Cash Flow (5Y) 25% $46.21
Dividend Discount Model (Multi-Stage) 20% $28.18
Dividend Discount Model (Stable) 15% $12.87
Earnings Power Value 10% $8.92
Weighted Average 100% $160.74

Investment Conclusion

Based on our comprehensive valuation analysis, ConvaTec Group PLC's weighted average intrinsic value is $160.74, which is approximately 43.2% below the current market price of $283.00.

Key investment considerations:

  • Strong projected earnings growth (8% to 17% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.15)
  • Historical dividend growth of 19.95%

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