What is UKML.L's Intrinsic value?

UK Mortgages Ltd (UKML.L) Intrinsic Value Analysis

Executive Summary

As of June 6, 2025, UK Mortgages Ltd's estimated intrinsic value ranges from $11.90 to $26.46 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Dividend Discount Model (Multi-Stage) $26.46 -66.5%
Dividend Discount Model (Stable) $11.90 -84.9%

Is UK Mortgages Ltd (UKML.L) undervalued or overvalued?

With the current market price at $78.90, 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 UK Mortgages Ltd'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 2.9% 3.4%
Equity market risk premium 5.3% 6.3%
Adjusted beta 3.38 3.94
Cost of equity 21.0% 28.9%
Cost of debt 5.0% 5.0%
Tax rate 19.0% 19.0%
Debt/Equity ratio 8.7 8.7
After-tax WACC 5.8% 6.6%

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: 436.9%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 25.0%
  • Long-term growth rate: 4.0%
  • Fair value: $26.46 (-66.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 28.9% (Low) to 21.0% (High)
  • Long-term growth rate: 3.0% (Low) to 5.0% (High)
  • Fair value range: $8 to $16
  • Selected fair value: $11.90 (-84.9% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $141M
Enterprise Value $1299M
Trailing P/E 27.59
Forward P/E 249.24
Trailing EV/EBITDA 5.20
Current Dividend Yield 1583.38%
Dividend Growth Rate (5Y) -5.35%
Debt-to-Equity Ratio 8.70

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% $5.29
Dividend Discount Model (Stable) 43% $1.79
Weighted Average 100% $20.22

Investment Conclusion

Based on our comprehensive valuation analysis, UK Mortgages Ltd's weighted average intrinsic value is $20.22, which is approximately 74.4% below the current market price of $78.90.

Key investment considerations:

  • Strong projected earnings growth (-2% to 15% margin)
  • Consistent cash flow generation

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