What is SGSN.SW's Intrinsic value?

SGS SA (SGSN.SW) Intrinsic Value Analysis

Executive Summary

As of June 3, 2025, SGS SA's estimated intrinsic value ranges from $75.31 to $120.57 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $99.11 +16.2%
Discounted Cash Flow (5Y) $91.81 +7.7%
Dividend Discount Model (Multi-Stage) $75.31 -11.7%
Dividend Discount Model (Stable) $98.32 +15.3%
Earnings Power Value $120.57 +41.4%

Is SGS SA (SGSN.SW) undervalued or overvalued?

With the current market price at $85.28, 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 SGS SA'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 1.0% 1.5%
Equity market risk premium 5.1% 6.1%
Adjusted beta 0.72 0.87
Cost of equity 4.6% 7.3%
Cost of debt 4.0% 4.5%
Tax rate 26.0% 27.4%
Debt/Equity ratio 0.27 0.27
After-tax WACC 4.3% 6.4%

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: 5.4% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $6,794 (FY12-2024) to $9,630 (FY12-2034)
  • Net profit margin expansion from 9% to 9%
  • Capital expenditures maintained at approximately 5% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $92 $20,553M 84.6%
10-Year Growth $99 $21,974M 72.4%
5-Year EBITDA $34 $9,294M 66.0%
10-Year EBITDA $46 $11,539M 47.4%

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: 35.6%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 5.9%
  • Long-term growth rate: 2.0%
  • Fair value: $75.31 (-11.7% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.3% (Low) to 4.6% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $33 to $163
  • Selected fair value: $98.32 (15.3% 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 $1,345M
Discount Rate (WACC) 6.4% - 4.3%
Enterprise Value $20,957M - $31,350M
Net Debt $2,670M
Equity Value $18,287M - $28,680M
Outstanding Shares 195M
Fair Value $94 - $147
Selected Fair Value $120.57

Key Financial Metrics

Metric Value
Market Capitalization $16611M
Enterprise Value $19281M
Trailing P/E 28.59
Forward P/E 25.37
Trailing EV/EBITDA 5.55
Current Dividend Yield 123.89%
Dividend Growth Rate (5Y) -23.30%
Debt-to-Equity Ratio 0.27

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% $29.73
Discounted Cash Flow (5Y) 25% $22.95
Dividend Discount Model (Multi-Stage) 20% $15.06
Dividend Discount Model (Stable) 15% $14.75
Earnings Power Value 10% $12.06
Weighted Average 100% $94.55

Investment Conclusion

Based on our comprehensive valuation analysis, SGS SA's weighted average intrinsic value is $94.55, which is approximately 10.9% above the current market price of $85.28.

Key investment considerations:

  • Strong projected earnings growth (9% to 9% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.27)

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