What is FDEU's Intrinsic value?

First Trust Dynamic Europe Equity Income Fund (FDEU) Intrinsic Value Analysis

Executive Summary

As of June 21, 2025, First Trust Dynamic Europe Equity Income Fund's estimated intrinsic value ranges from $0.72 to $11.47 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $11.47 -8.9%
Discounted Cash Flow (5Y) $10.48 -16.7%
Earnings Power Value $0.72 -94.3%

Is First Trust Dynamic Europe Equity Income Fund (FDEU) undervalued or overvalued?

With the current market price at $12.59, 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 First Trust Dynamic Europe Equity Income Fund's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. 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 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.9 1.12
Cost of equity 8.0% 11.2%
Cost of debt 4.0% 4.8%
Tax rate 26.2% 27.0%
Debt/Equity ratio 0.34 0.34
After-tax WACC 6.7% 9.2%

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 $15 (FY12-2022) to $19 (FY12-2032)
  • Net profit margin expansion from -178% to -130%
  • Capital expenditures maintained at approximately 0% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $10 $251M 69.4%
10-Year Growth $11 $268M 49.5%
5-Year EBITDA $11 $259M 70.3%
10-Year EBITDA $12 $274M 50.5%

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 $6M
Discount Rate (WACC) 9.2% - 6.7%
Enterprise Value $70M - $96M
Net Debt $71M
Equity Value $(1)M - $25M
Outstanding Shares 17M
Fair Value $(0) - $1
Selected Fair Value $0.72

Key Financial Metrics

Metric Value
Market Capitalization $217M
Enterprise Value $288M
Trailing P/E 0.00
Forward P/E 0.00
Trailing EV/EBITDA 24.20
Current Dividend Yield 571.95%
Dividend Growth Rate (5Y) -16.08%
Debt-to-Equity Ratio 0.34

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) 46% $3.44
Discounted Cash Flow (5Y) 38% $2.62
Earnings Power Value 15% $0.07
Weighted Average 100% $9.43

Investment Conclusion

Based on our comprehensive valuation analysis, First Trust Dynamic Europe Equity Income Fund's weighted average intrinsic value is $9.43, which is approximately 25.1% below the current market price of $12.59.

Key investment considerations:

  • Strong projected earnings growth (-178% to -130% margin)
  • Consistent cash flow generation

Given these factors, we believe First Trust Dynamic Europe Equity Income Fund is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.