What is FDEV.L's Intrinsic value?

Frontier Developments PLC (FDEV.L) Intrinsic Value Analysis

Executive Summary

As of June 16, 2025, Frontier Developments PLC's estimated intrinsic value ranges from $783.60 to $1301.88 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Stable) $1301.88 +342.8%
Earnings Power Value $783.60 +166.5%

Is Frontier Developments PLC (FDEV.L) undervalued or overvalued?

With the current market price at $294.00, 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 Frontier Developments PLC's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  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 4.0% 4.5%
Equity market risk premium 6.0% 7.0%
Adjusted beta 0.49 0.68
Cost of equity 7.0% 9.7%
Cost of debt 4.0% 4.6%
Tax rate 17.6% 22.5%
Debt/Equity ratio 0.21 0.21
After-tax WACC 6.3% 8.7%

Valuation Methods

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: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.3%
  • Long-term growth rate: 4.0%
  • Fair value: $-958.74 (-426.1% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.7% (Low) to 7.0% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $479 to $2,125
  • Selected fair value: $1301.88 (342.8% 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 $19M
Discount Rate (WACC) 8.7% - 6.3%
Enterprise Value $224M - $308M
Net Debt $(7)M
Equity Value $231M - $314M
Outstanding Shares 0M
Fair Value $664 - $903
Selected Fair Value $783.60

Key Financial Metrics

Metric Value
Market Capitalization $102M
Enterprise Value $96M
Trailing P/E 6.39
Forward P/E 6.39
Trailing EV/EBITDA 4.45
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.21

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
Dividend Discount Model (Stable) 60% $195.28
Earnings Power Value 40% $78.36
Weighted Average 100% $1094.57

Investment Conclusion

Based on our comprehensive valuation analysis, Frontier Developments PLC's weighted average intrinsic value is $1094.57, which is approximately 272.3% above the current market price of $294.00.

Key investment considerations:

  • Strong projected earnings growth (-24% to -19% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.21)

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