What is DVO.L's Intrinsic value?

Devro PLC (DVO.L) Intrinsic Value Analysis

Executive Summary

As of May 23, 2025, Devro PLC's estimated intrinsic value ranges from $213.84 to $278.65 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $278.65 -15.3%
Discounted Cash Flow (5Y) $270.83 -17.7%
Dividend Discount Model (Multi-Stage) $213.84 -35.0%
Dividend Discount Model (Stable) $239.65 -27.2%
Earnings Power Value $262.33 -20.3%

Is Devro PLC (DVO.L) undervalued or overvalued?

With the current market price at $329.00, 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 Devro 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 0.55 0.65
Cost of equity 7.3% 9.5%
Cost of debt 4.0% 4.7%
Tax rate 25.2% 28.1%
Debt/Equity ratio 0.2 0.2
After-tax WACC 6.6% 8.5%

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: 7.5% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $252 (FY12-2021) to $317 (FY12-2031)
  • Net profit margin expansion from 12% to 11%
  • Capital expenditures maintained at approximately 5% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $271 $559M 77.9%
10-Year Growth $279 $572M 59.5%
5-Year EBITDA $189 $420M 70.5%
10-Year EBITDA $215 $463M 50.0%

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: 54.1%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.4%
  • Long-term growth rate: 2.0%
  • Fair value: $213.84 (-35.0% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.5% (Low) to 7.3% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $135 to $344
  • Selected fair value: $239.65 (-27.2% 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 $40M
Discount Rate (WACC) 8.5% - 6.6%
Enterprise Value $476M - $613M
Net Debt $96M
Equity Value $380M - $517M
Outstanding Shares 2M
Fair Value $222 - $302
Selected Fair Value $262.33

Key Financial Metrics

Metric Value
Market Capitalization $562M
Enterprise Value $658M
Trailing P/E 20.01
Forward P/E 20.30
Trailing EV/EBITDA 6.80
Current Dividend Yield 270.38%
Dividend Growth Rate (5Y) 0.51%
Debt-to-Equity Ratio 0.20

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% $83.59
Discounted Cash Flow (5Y) 25% $67.71
Dividend Discount Model (Multi-Stage) 20% $42.77
Dividend Discount Model (Stable) 15% $35.95
Earnings Power Value 10% $26.23
Weighted Average 100% $256.25

Investment Conclusion

Based on our comprehensive valuation analysis, Devro PLC's weighted average intrinsic value is $256.25, which is approximately 22.1% below the current market price of $329.00.

Key investment considerations:

  • Strong projected earnings growth (12% to 11% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.20)
  • Historical dividend growth of 0.51%

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