What is LSS.PA's Intrinsic value?

Lectra SA (LSS.PA) Intrinsic Value Analysis

Executive Summary

As of June 12, 2025, Lectra SA's estimated intrinsic value ranges from $9.96 to $33.78 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $15.81 -35.7%
Discounted Cash Flow (5Y) $13.17 -46.5%
Dividend Discount Model (Multi-Stage) $9.96 -59.5%
Dividend Discount Model (Stable) $10.58 -57.0%
Earnings Power Value $33.78 +37.3%

Is Lectra SA (LSS.PA) undervalued or overvalued?

With the current market price at $24.60, 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 Lectra 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
  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 3.0% 3.5%
Equity market risk premium 5.8% 6.8%
Adjusted beta 0.84 0.87
Cost of equity 7.9% 9.9%
Cost of debt 4.0% 4.5%
Tax rate 25.8% 25.8%
Debt/Equity ratio 0.15 0.15
After-tax WACC 7.3% 9.1%

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: 8.2% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $527 (FY12-2024) to $916 (FY12-2034)
  • Net profit margin expansion from 6% to 6%
  • Capital expenditures maintained at approximately 1% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $13 $533M 77.8%
10-Year Growth $16 $633M 60.8%
5-Year EBITDA $16 $658M 82.1%
10-Year EBITDA $19 $745M 66.7%

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: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.9%
  • Long-term growth rate: 2.0%
  • Fair value: $9.96 (-59.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.9% (Low) to 7.9% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $6 to $15
  • Selected fair value: $10.58 (-57.0% 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 $106M
Discount Rate (WACC) 9.1% - 7.3%
Enterprise Value $1,167M - $1,459M
Net Debt $35M
Equity Value $1,132M - $1,424M
Outstanding Shares 38M
Fair Value $30 - $38
Selected Fair Value $33.78

Key Financial Metrics

Metric Value
Market Capitalization $931M
Enterprise Value $965M
Trailing P/E 30.47
Forward P/E 29.84
Trailing EV/EBITDA 12.50
Current Dividend Yield 154.24%
Dividend Growth Rate (5Y) 2.38%
Debt-to-Equity Ratio 0.15

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% $4.74
Discounted Cash Flow (5Y) 25% $3.29
Dividend Discount Model (Multi-Stage) 20% $1.99
Dividend Discount Model (Stable) 15% $1.59
Earnings Power Value 10% $3.38
Weighted Average 100% $14.99

Investment Conclusion

Based on our comprehensive valuation analysis, Lectra SA's weighted average intrinsic value is $14.99, which is approximately 39.1% below the current market price of $24.60.

Key investment considerations:

  • Strong projected earnings growth (6% to 6% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.15)
  • Historical dividend growth of 2.38%

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