What is ECM.L's Intrinsic value?

Electrocomponents PLC (ECM.L) Intrinsic Value Analysis

Executive Summary

As of May 22, 2025, Electrocomponents PLC's estimated intrinsic value ranges from $393.62 to $1329.31 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $1049.91 +12.6%
Discounted Cash Flow (5Y) $841.05 -9.8%
Dividend Discount Model (Multi-Stage) $797.72 -14.5%
Dividend Discount Model (Stable) $1329.31 +42.6%
Earnings Power Value $393.62 -57.8%

Is Electrocomponents PLC (ECM.L) undervalued or overvalued?

With the current market price at $932.50, the stock appears to be fairly valued.

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 Electrocomponents 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 2.9% 3.4%
Equity market risk premium 5.3% 6.3%
Adjusted beta 0.85 0.94
Cost of equity 7.5% 9.9%
Cost of debt 4.0% 4.5%
Tax rate 23.5% 25.5%
Debt/Equity ratio 0.07 0.07
After-tax WACC 7.2% 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: 8.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $2,003 (FY03-2021) to $3,907 (FY03-2031)
  • Net profit margin expansion from 6% to 10%
  • Capital expenditures maintained at approximately 2% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $841 $4,031M 82.4%
10-Year Growth $1,050 $5,011M 67.8%
5-Year EBITDA $647 $3,122M 77.3%
10-Year EBITDA $815 $3,911M 58.7%

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: 45.8%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.7%
  • Long-term growth rate: 3.5%
  • Fair value: $797.72 (-14.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.9% (Low) to 7.5% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $632 to $2,027
  • Selected fair value: $1329.31 (42.6% 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 $158M
Discount Rate (WACC) 9.5% - 7.2%
Enterprise Value $1,665M - $2,198M
Net Debt $84M
Equity Value $1,580M - $2,114M
Outstanding Shares 5M
Fair Value $337 - $450
Selected Fair Value $393.62

Key Financial Metrics

Metric Value
Market Capitalization $4376M
Enterprise Value $4460M
Trailing P/E 13.94
Forward P/E 27.48
Trailing EV/EBITDA 8.25
Current Dividend Yield 328.41%
Dividend Growth Rate (5Y) 8.33%
Debt-to-Equity Ratio 0.07

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% $314.97
Discounted Cash Flow (5Y) 25% $210.26
Dividend Discount Model (Multi-Stage) 20% $159.54
Dividend Discount Model (Stable) 15% $199.40
Earnings Power Value 10% $39.36
Weighted Average 100% $923.54

Investment Conclusion

Based on our comprehensive valuation analysis, Electrocomponents PLC's weighted average intrinsic value is $923.54, which is approximately 1.0% below the current market price of $932.50.

Key investment considerations:

  • Strong projected earnings growth (6% to 10% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.07)
  • Historical dividend growth of 8.33%

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