What is SCS.L's Intrinsic value?

SCS Group PLC (SCS.L) Intrinsic Value Analysis

Executive Summary

As of June 22, 2025, SCS Group PLC's estimated intrinsic value ranges from $223.19 to $864.09 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $223.19 -17.3%
Discounted Cash Flow (5Y) $223.99 -17.0%
Dividend Discount Model (Multi-Stage) $272.95 +1.1%
Dividend Discount Model (Stable) $280.97 +4.1%
Earnings Power Value $864.09 +220.0%

Is SCS Group PLC (SCS.L) undervalued or overvalued?

With the current market price at $270.00, the stock appears to be moderately 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 SCS 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
  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 0.55 0.68
Cost of equity 7.3% 9.7%
Cost of debt 9.2% 20.4%
Tax rate 19.0% 22.2%
Debt/Equity ratio 1.12 1.12
After-tax WACC 7.4% 13.0%

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: 10.2% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $326 (FY07-2023) to $527 (FY07-2033)
  • Net profit margin expansion from 1% to 1%
  • Capital expenditures maintained at approximately 2% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $224 $107M 75.7%
10-Year Growth $223 $107M 54.4%
5-Year EBITDA $112 $69M 62.5%
10-Year EBITDA $147 $81M 39.9%

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: 104.9%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 8.5%
  • Long-term growth rate: 3.5%
  • Fair value: $272.95 (1.1% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 9.7% (Low) to 7.3% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $129 to $433
  • Selected fair value: $280.97 (4.1% 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 $30M
Discount Rate (WACC) 13.0% - 7.4%
Enterprise Value $234M - $411M
Net Debt $32M
Equity Value $202M - $379M
Outstanding Shares 0M
Fair Value $601 - $1,127
Selected Fair Value $864.09

Key Financial Metrics

Metric Value
Market Capitalization $91M
Enterprise Value $123M
Trailing P/E 20.19
Forward P/E 17.41
Trailing EV/EBITDA 4.20
Current Dividend Yield 519.61%
Dividend Growth Rate (5Y) -7.86%
Debt-to-Equity Ratio 1.12

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% $66.96
Discounted Cash Flow (5Y) 25% $56.00
Dividend Discount Model (Multi-Stage) 20% $54.59
Dividend Discount Model (Stable) 15% $42.14
Earnings Power Value 10% $86.41
Weighted Average 100% $306.10

Investment Conclusion

Based on our comprehensive valuation analysis, SCS Group PLC's weighted average intrinsic value is $306.10, which is approximately 13.4% above the current market price of $270.00.

Key investment considerations:

  • Strong projected earnings growth (1% to 1% margin)
  • Consistent cash flow generation

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