What is DGN.L's Intrinsic value?

Asia Dragon Trust PLC (DGN.L) Intrinsic Value Analysis

Executive Summary

As of May 22, 2025, Asia Dragon Trust PLC's estimated intrinsic value ranges from $402.64 to $613.81 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $613.81 +45.1%
Discounted Cash Flow (5Y) $600.05 +41.9%
Dividend Discount Model (Multi-Stage) $402.64 -4.8%
Dividend Discount Model (Stable) $501.03 +18.4%

Is Asia Dragon Trust PLC (DGN.L) undervalued or overvalued?

With the current market price at $423.00, the stock appears to be significantly undervalued.

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 Asia Dragon Trust 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

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 0.81 0.93
Cost of equity 8.8% 11.5%
Cost of debt 4.0% 4.6%
Tax rate 1.8% 2.6%
Debt/Equity ratio 0.11 0.11
After-tax WACC 8.4% 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: 9.6% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $76 (FY08-2024) to $98 (FY08-2034)
  • Net profit margin expansion from 79% to 88%
  • Capital expenditures maintained at approximately 0% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $600 $977M 68.5%
10-Year Growth $614 $999M 47.5%
5-Year EBITDA $341 $574M 46.5%
10-Year EBITDA $430 $713M 26.5%

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: 10.6%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.2%
  • Long-term growth rate: 2.0%
  • Fair value: $402.64 (-4.8% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.5% (Low) to 8.8% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $302 to $700
  • Selected fair value: $501.03 (18.4% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $658M
Enterprise Value $702M
Trailing P/E 9.33
Forward P/E 9.43
Trailing EV/EBITDA 5.25
Current Dividend Yield 113.21%
Dividend Growth Rate (5Y) 5.16%
Debt-to-Equity Ratio 0.11

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% $184.14
Discounted Cash Flow (5Y) 28% $150.01
Dividend Discount Model (Multi-Stage) 22% $80.53
Dividend Discount Model (Stable) 17% $75.15
Weighted Average 100% $544.27

Investment Conclusion

Based on our comprehensive valuation analysis, Asia Dragon Trust PLC's weighted average intrinsic value is $544.27, which is approximately 28.7% above the current market price of $423.00.

Key investment considerations:

  • Strong projected earnings growth (79% to 88% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.11)
  • Historical dividend growth of 5.16%

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