What is MGGT.L's Intrinsic value?

Meggitt PLC (MGGT.L) Intrinsic Value Analysis

Executive Summary

As of May 23, 2025, Meggitt PLC's estimated intrinsic value ranges from $8.21 to $702.22 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $702.22 -12.1%
Discounted Cash Flow (5Y) $448.97 -43.8%
Dividend Discount Model (Multi-Stage) $413.08 -48.3%
Dividend Discount Model (Stable) $8.21 -99.0%
Earnings Power Value $660.99 -17.3%

Is Meggitt PLC (MGGT.L) undervalued or overvalued?

With the current market price at $798.80, 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 Meggitt 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 0.84 0.96
Cost of equity 9.0% 11.7%
Cost of debt 4.0% 5.5%
Tax rate 8.6% 13.9%
Debt/Equity ratio 0.16 0.16
After-tax WACC 8.3% 10.8%

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: 9.5% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,489 (FY12-2021) to $3,437 (FY12-2031)
  • Net profit margin expansion from 2% to 18%
  • Capital expenditures maintained at approximately 7% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $449 $4,398M 81.4%
10-Year Growth $702 $6,379M 66.8%
5-Year EBITDA $473 $4,588M 82.2%
10-Year EBITDA $670 $6,127M 65.4%

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: 10.3%
  • Long-term growth rate: 4.0%
  • Fair value: $413.08 (-48.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.7% (Low) to 9.0% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $4 to $12
  • Selected fair value: $8.21 (-99.0% 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 $566M
Discount Rate (WACC) 10.8% - 8.3%
Enterprise Value $5,268M - $6,845M
Net Debt $886M
Equity Value $4,383M - $5,959M
Outstanding Shares 8M
Fair Value $560 - $762
Selected Fair Value $660.99

Key Financial Metrics

Metric Value
Market Capitalization $6249M
Enterprise Value $7134M
Trailing P/E 1487.86
Forward P/E 67.95
Trailing EV/EBITDA 10.65
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) -100.00%
Debt-to-Equity Ratio 0.16

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% $210.67
Discounted Cash Flow (5Y) 25% $112.24
Dividend Discount Model (Multi-Stage) 20% $82.62
Dividend Discount Model (Stable) 15% $1.23
Earnings Power Value 10% $66.10
Weighted Average 100% $472.85

Investment Conclusion

Based on our comprehensive valuation analysis, Meggitt PLC's weighted average intrinsic value is $472.85, which is approximately 40.8% below the current market price of $798.80.

Key investment considerations:

  • Strong projected earnings growth (2% to 18% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.16)

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