What is RMG.L's Intrinsic value?

Royal Mail PLC (RMG.L) Intrinsic Value Analysis

Executive Summary

As of May 29, 2025, Royal Mail PLC's estimated intrinsic value ranges from $3028.41 to $3028.41 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Earnings Power Value $3028.41 +1315.1%

Is Royal Mail PLC (RMG.L) undervalued or overvalued?

With the current market price at $214.00, 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 Royal Mail PLC's intrinsic value, including:

  1. 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 4.4% 4.9%
Equity market risk premium 6.4% 7.4%
Adjusted beta 1.03 1.56
Cost of equity 11.1% 17.0%
Cost of debt 4.0% 7.0%
Tax rate 13.2% 17.5%
Debt/Equity ratio 1.28 1.28
After-tax WACC 6.8% 10.7%

Valuation Methods

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 $2,323M
Discount Rate (WACC) 10.7% - 6.8%
Enterprise Value $21,742M - $34,193M
Net Debt $1,500M
Equity Value $20,242M - $32,693M
Outstanding Shares 9M
Fair Value $2,316 - $3,741
Selected Fair Value $3028.41

Key Financial Metrics

Metric Value
Market Capitalization $1870M
Enterprise Value $3370M
Trailing P/E 0.00
Forward P/E 0.00
Trailing EV/EBITDA 6.15
Current Dividend Yield 679.03%
Dividend Growth Rate (5Y) 12.19%
Debt-to-Equity Ratio 1.28

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
Earnings Power Value 100% $302.84
Weighted Average 100% $3028.41

Investment Conclusion

Based on our comprehensive valuation analysis, Royal Mail PLC's weighted average intrinsic value is $3028.41, which is approximately 1315.1% above the current market price of $214.00.

Key investment considerations:

  • Strong projected earnings growth (-7% to 0% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 12.19%

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