What is KGH.WA's Intrinsic value?

KGHM Polska Miedz SA (KGH.WA) Intrinsic Value Analysis

Executive Summary

As of June 24, 2025, KGHM Polska Miedz SA's estimated intrinsic value ranges from $95.24 to $135.58 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $105.25 -12.7%
Discounted Cash Flow (5Y) $95.24 -21.0%
Dividend Discount Model (Multi-Stage) $135.58 +12.5%
Dividend Discount Model (Stable) $123.47 +2.5%

Is KGHM Polska Miedz SA (KGH.WA) undervalued or overvalued?

With the current market price at $120.50, 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 KGHM Polska Miedz SA'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

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 5.5% 6.0%
Equity market risk premium 6.3% 7.3%
Adjusted beta 0.92 1.1
Cost of equity 11.3% 14.6%
Cost of debt 4.0% 6.1%
Tax rate 24.4% 29.8%
Debt/Equity ratio 0.25 0.25
After-tax WACC 9.7% 12.5%

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: 11.1% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $35,320 (FY12-2024) to $65,071 (FY12-2034)
  • Net profit margin expansion from 8% to 10%
  • Capital expenditures maintained at approximately 14% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $95 $24,372M 65.7%
10-Year Growth $105 $26,374M 46.6%
5-Year EBITDA $183 $42,016M 80.1%
10-Year EBITDA $178 $40,845M 65.5%

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: 13.0%
  • Long-term growth rate: 3.0%
  • Fair value: $135.58 (12.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 14.6% (Low) to 11.3% (High)
  • Long-term growth rate: 2.0% (Low) to 4.0% (High)
  • Fair value range: $77 to $170
  • Selected fair value: $123.47 (2.5% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $24100M
Enterprise Value $29423M
Trailing P/E 8.69
Forward P/E 6.61
Trailing EV/EBITDA 5.30
Current Dividend Yield 122.30%
Dividend Growth Rate (5Y) 8.45%
Debt-to-Equity Ratio 0.25

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) 33% $31.58
Discounted Cash Flow (5Y) 28% $23.81
Dividend Discount Model (Multi-Stage) 22% $27.12
Dividend Discount Model (Stable) 17% $18.52
Weighted Average 100% $112.25

Investment Conclusion

Based on our comprehensive valuation analysis, KGHM Polska Miedz SA's weighted average intrinsic value is $112.25, which is approximately 6.8% below the current market price of $120.50.

Key investment considerations:

  • Strong projected earnings growth (8% to 10% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.25)
  • Historical dividend growth of 8.45%

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