What is SME.WA's Intrinsic value?

Simple SA (SME.WA) Intrinsic Value Analysis

Executive Summary

As of June 8, 2025, Simple SA's estimated intrinsic value ranges from $5.91 to $8.32 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $8.32 -32.3%
Discounted Cash Flow (5Y) $8.04 -34.6%
Dividend Discount Model (Multi-Stage) $5.91 -52.0%
Earnings Power Value $6.55 -46.8%

Is Simple SA (SME.WA) undervalued or overvalued?

With the current market price at $12.30, the stock appears to be significantly overvalued.

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 Simple 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 7.2% 7.7%
Equity market risk premium 5.6% 6.6%
Adjusted beta 0.87 0.96
Cost of equity 12.1% 14.5%
Cost of debt 7.0% 7.5%
Tax rate 7.3% 13.8%
Debt/Equity ratio 0.07 0.07
After-tax WACC 11.7% 14.0%

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: 12.9% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $45 (FY12-2020) to $57 (FY12-2030)
  • Net profit margin expansion from 11% to 10%
  • Capital expenditures maintained at approximately 8% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $8 $39M 63.4%
10-Year Growth $8 $41M 37.6%
5-Year EBITDA $10 $49M 70.7%
10-Year EBITDA $10 $46M 45.4%

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: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 13.3%
  • Long-term growth rate: 2.0%
  • Fair value: $5.91 (-52.0% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 14.5% (Low) to 12.1% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $(4) to $(8)
  • Selected fair value: $-6.45 (-152.4% 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 $4M
Discount Rate (WACC) 14.0% - 11.7%
Enterprise Value $29M - $35M
Net Debt $1M
Equity Value $29M - $34M
Outstanding Shares 5M
Fair Value $6 - $7
Selected Fair Value $6.55

Key Financial Metrics

Metric Value
Market Capitalization $59M
Enterprise Value $60M
Trailing P/E 0.00
Forward P/E 13.28
Trailing EV/EBITDA 6.20
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) -10.78%
Debt-to-Equity Ratio 0.07

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) 35% $2.50
Discounted Cash Flow (5Y) 29% $2.01
Dividend Discount Model (Multi-Stage) 24% $1.18
Earnings Power Value 12% $0.65
Weighted Average 100% $7.46

Investment Conclusion

Based on our comprehensive valuation analysis, Simple SA's weighted average intrinsic value is $7.46, which is approximately 39.3% below the current market price of $12.30.

Key investment considerations:

  • Strong projected earnings growth (11% to 10% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.07)

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