What is FORT.L's Intrinsic value?

Forterra PLC (FORT.L) Intrinsic Value Analysis

Executive Summary

As of May 29, 2025, Forterra PLC's estimated intrinsic value ranges from $32.75 to $103.71 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $94.50 -52.3%
Discounted Cash Flow (5Y) $100.70 -49.1%
Dividend Discount Model (Multi-Stage) $100.62 -49.2%
Dividend Discount Model (Stable) $103.71 -47.6%
Earnings Power Value $32.75 -83.5%

Is Forterra PLC (FORT.L) undervalued or overvalued?

With the current market price at $198.00, 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 Forterra 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 0.93 1.02
Cost of equity 9.6% 12.1%
Cost of debt 6.2% 11.0%
Tax rate 19.7% 22.0%
Debt/Equity ratio 0.3 0.3
After-tax WACC 8.5% 11.3%

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: 9.9% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $344 (FY12-2024) to $461 (FY12-2034)
  • Net profit margin expansion from 5% to 6%
  • Capital expenditures maintained at approximately 9% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $101 $318M 70.8%
10-Year Growth $94 $305M 49.9%
5-Year EBITDA $173 $470M 80.2%
10-Year EBITDA $150 $423M 63.9%

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: 36.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 10.8%
  • Long-term growth rate: 3.5%
  • Fair value: $100.62 (-49.2% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 12.1% (Low) to 9.6% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $61 to $147
  • Selected fair value: $103.71 (-47.6% 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 $17M
Discount Rate (WACC) 11.3% - 8.5%
Enterprise Value $150M - $199M
Net Debt $105M
Equity Value $45M - $94M
Outstanding Shares 2M
Fair Value $21 - $44
Selected Fair Value $32.75

Key Financial Metrics

Metric Value
Market Capitalization $418M
Enterprise Value $523M
Trailing P/E 23.90
Forward P/E 19.98
Trailing EV/EBITDA 9.45
Current Dividend Yield 157.43%
Dividend Growth Rate (5Y) -23.22%
Debt-to-Equity Ratio 0.30

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% $28.35
Discounted Cash Flow (5Y) 25% $25.18
Dividend Discount Model (Multi-Stage) 20% $20.12
Dividend Discount Model (Stable) 15% $15.56
Earnings Power Value 10% $3.28
Weighted Average 100% $92.48

Investment Conclusion

Based on our comprehensive valuation analysis, Forterra PLC's weighted average intrinsic value is $92.48, which is approximately 53.3% below the current market price of $198.00.

Key investment considerations:

  • Strong projected earnings growth (5% to 6% margin)
  • Consistent cash flow generation

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