Vermilion Energy Inc (VET.TO) Intrinsic Value Analysis

Executive Summary

As of June 12, 2025, Vermilion Energy Inc's estimated intrinsic value ranges from $14.40 to $86.96 per share, depending on the valuation methodology applied.

Valuation Method	Fair Value (USD)	Implied Upside/Downside
Discounted Cash Flow (10Y)	$14.40	+37.7%
Discounted Cash Flow (5Y)	$14.45	+38.2%
Earnings Power Value	$86.96	+731.4%

Is Vermilion Energy Inc (VET.TO) undervalued or overvalued?

With the current market price at $10.46, the stock appears to be significantly 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 Vermilion Energy Inc's intrinsic value, including:

1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
2. 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	3.2%	3.7%
Equity market risk premium	5.1%	6.1%
Adjusted beta	1.01	1.13
Cost of equity	8.3%	11.0%
Cost of debt	6.0%	6.3%
Tax rate	18.3%	25.9%
Debt/Equity ratio	0.68	0.68
After-tax WACC	6.9%	8.5%

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: 7.7% (range: 0.0% - 9.3%)

Key Projections:

• Revenue growth from $1,896 (FY12-2024) to $2,555 (FY12-2034)
• Net profit margin expansion from -2% to 0%
• Capital expenditures maintained at approximately 32% of revenue

DCF Model	Fair Value	Enterprise Value	% from Terminal Value
5-Year Growth	$14	$4,141M	73.2%
10-Year Growth	$14	$4,133M	55.0%
5-Year EBITDA	$6	$2,881M	61.5%
10-Year EBITDA	$9	$3,234M	42.5%

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	$1,167M
Discount Rate (WACC)	8.5% - 6.9%
Enterprise Value	$13,781M - $16,862M
Net Debt	$1,913M
Equity Value	$11,868M - $14,949M
Outstanding Shares	154M
Fair Value	$77 - $97
Selected Fair Value	$86.96

Key Financial Metrics

Metric	Value
Market Capitalization	$1613M
Enterprise Value	$3526M
Trailing P/E	0.00
Forward P/E	0.00
Trailing EV/EBITDA	2.65
Current Dividend Yield	495.50%
Dividend Growth Rate (5Y)	-11.25%
Debt-to-Equity Ratio	0.68

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)	46%	$4.32
Discounted Cash Flow (5Y)	38%	$3.61
Earnings Power Value	15%	$8.70
Weighted Average	100%	$25.58

Investment Conclusion

Based on our comprehensive valuation analysis, Vermilion Energy Inc's weighted average intrinsic value is $25.58, which is approximately 144.6% above the current market price of $10.46.

Key investment considerations:

• Strong projected earnings growth (-2% to 0% margin)
• Consistent cash flow generation

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