What is RDW.L's Intrinsic value?

Redrow PLC (RDW.L) Intrinsic Value Analysis

Executive Summary

As of June 4, 2025, Redrow PLC's estimated intrinsic value ranges from $695.68 to $1160.81 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $752.71 -3.4%
Discounted Cash Flow (5Y) $695.68 -10.7%
Dividend Discount Model (Multi-Stage) $698.62 -10.3%
Dividend Discount Model (Stable) $1160.81 +49.0%
Earnings Power Value $863.68 +10.9%

Is Redrow PLC (RDW.L) undervalued or overvalued?

With the current market price at $779.00, 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 Redrow 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 1.04 1.53
Cost of equity 10.2% 15.7%
Cost of debt 4.6% 35.6%
Tax rate 19.7% 21.8%
Debt/Equity ratio 1 1
After-tax WACC 6.9% 21.8%

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: 14.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $2,127 (FY07-2023) to $2,348 (FY07-2033)
  • Net profit margin expansion from 14% to 15%
  • Capital expenditures maintained at approximately 0% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $696 $2,127M 46.8%
10-Year Growth $753 $2,311M 30.3%
5-Year EBITDA $782 $2,406M 53.0%
10-Year EBITDA $772 $2,375M 32.2%

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: 57.6%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 12.9%
  • Long-term growth rate: 3.5%
  • Fair value: $698.62 (-10.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 15.7% (Low) to 10.2% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $585 to $1,736
  • Selected fair value: $1160.81 (49.0% 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 $281M
Discount Rate (WACC) 21.8% - 6.9%
Enterprise Value $1,292M - $4,047M
Net Debt $(121)M
Equity Value $1,413M - $4,168M
Outstanding Shares 3M
Fair Value $437 - $1,290
Selected Fair Value $863.68

Key Financial Metrics

Metric Value
Market Capitalization $2517M
Enterprise Value $2396M
Trailing P/E 7.07
Forward P/E 10.19
Trailing EV/EBITDA 6.40
Current Dividend Yield 814.38%
Dividend Growth Rate (5Y) 10.67%
Debt-to-Equity Ratio 1.04

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% $225.81
Discounted Cash Flow (5Y) 25% $173.92
Dividend Discount Model (Multi-Stage) 20% $139.72
Dividend Discount Model (Stable) 15% $174.12
Earnings Power Value 10% $86.37
Weighted Average 100% $799.95

Investment Conclusion

Based on our comprehensive valuation analysis, Redrow PLC's weighted average intrinsic value is $799.95, which is approximately 2.7% above the current market price of $779.00.

Key investment considerations:

  • Strong projected earnings growth (14% to 15% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 10.67%

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