What is PAG.L's Intrinsic value?

Paragon Banking Group PLC (PAG.L) Intrinsic Value Analysis

Executive Summary

As of May 23, 2025, Paragon Banking Group PLC's estimated intrinsic value ranges from $891.90 to $3893.02 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $3893.02 +337.9%
Discounted Cash Flow (5Y) $891.90 +0.3%
Dividend Discount Model (Multi-Stage) $1055.23 +18.7%
Dividend Discount Model (Stable) $906.42 +2.0%

Is Paragon Banking Group PLC (PAG.L) undervalued or overvalued?

With the current market price at $889.00, 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 Paragon Banking Group 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

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 0.55 2.47
Cost of equity 7.3% 22.2%
Cost of debt 5.0% 5.0%
Tax rate 23.0% 23.8%
Debt/Equity ratio 9.86 9.86
After-tax WACC 4.2% 5.5%

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: 4.8% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,328 (FY09-2024) to $3,363 (FY09-2034)
  • Net profit margin expansion from 14% to 19%
  • Capital expenditures maintained at approximately 1% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $892 $16,517M 84.7%
10-Year Growth $3,893 $22,314M 73.8%
5-Year EBITDA $744 $16,232M 84.4%
10-Year EBITDA $3,716 $21,971M 73.4%

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: 44.9%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 14.7%
  • Long-term growth rate: 1.0%
  • Fair value: $1055.23 (18.7% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 22.2% (Low) to 7.3% (High)
  • Long-term growth rate: 0.5% (Low) to 1.5% (High)
  • Fair value range: $310 to $1,502
  • Selected fair value: $906.42 (2.0% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $1717M
Enterprise Value $16512M
Trailing P/E 9.23
Forward P/E 7.91
Trailing EV/EBITDA 21.55
Current Dividend Yield 475.31%
Dividend Growth Rate (5Y) 23.49%
Debt-to-Equity Ratio 9.86

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% $1167.91
Discounted Cash Flow (5Y) 28% $222.98
Dividend Discount Model (Multi-Stage) 22% $211.05
Dividend Discount Model (Stable) 17% $135.96
Weighted Average 100% $1930.99

Investment Conclusion

Based on our comprehensive valuation analysis, Paragon Banking Group PLC's weighted average intrinsic value is $1930.99, which is approximately 117.2% above the current market price of $889.00.

Key investment considerations:

  • Strong projected earnings growth (14% to 19% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 23.49%

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