What is SMS.L's Intrinsic value?

Smart Metering Systems PLC (SMS.L) Intrinsic Value Analysis

Executive Summary

As of June 16, 2025, Smart Metering Systems PLC's estimated intrinsic value ranges from $611.44 to $890.83 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $890.83 -6.4%
Dividend Discount Model (Stable) $611.44 -35.8%

Is Smart Metering Systems PLC (SMS.L) undervalued or overvalued?

With the current market price at $952.00, the stock appears to be moderately 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 Smart Metering Systems PLC's intrinsic value, including:

  1. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

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 0.34 0.42
Cost of equity 6.0% 7.9%
Cost of debt 5.1% 30.6%
Tax rate 12.7% 20.7%
Debt/Equity ratio 0.06 0.06
After-tax WACC 5.9% 8.8%

Valuation Methods

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: 244.5%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.9%
  • Long-term growth rate: 4.0%
  • Fair value: $890.83 (-6.4% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.9% (Low) to 6.0% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $167 to $1,056
  • Selected fair value: $611.44 (-35.8% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $1314M
Enterprise Value $1422M
Trailing P/E 81.44
Forward P/E 69.68
Trailing EV/EBITDA 5.55
Current Dividend Yield 300.19%
Dividend Growth Rate (5Y) 57.28%
Debt-to-Equity Ratio 0.06

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
Dividend Discount Model (Multi-Stage) 57% $178.17
Dividend Discount Model (Stable) 43% $91.72
Weighted Average 100% $771.09

Investment Conclusion

Based on our comprehensive valuation analysis, Smart Metering Systems PLC's weighted average intrinsic value is $771.09, which is approximately 19.0% below the current market price of $952.00.

Key investment considerations:

  • Strong projected earnings growth (11% to 20% margin)
  • Consistent cash flow generation
  • Conservative capital structure (Debt/Equity of 0.06)
  • Historical dividend growth of 57.28%

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