What is VK.PA's Intrinsic value?

Vallourec SA (VK.PA) Intrinsic Value Analysis

Executive Summary

As of June 4, 2025, Vallourec SA's estimated intrinsic value ranges from $15.91 to $44.21 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $26.26 +67.1%
Discounted Cash Flow (5Y) $22.06 +40.4%
Dividend Discount Model (Multi-Stage) $15.91 +1.3%
Dividend Discount Model (Stable) $22.83 +45.3%
Earnings Power Value $44.21 +181.3%

Is Vallourec SA (VK.PA) undervalued or overvalued?

With the current market price at $15.71, 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 Vallourec 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 3.0% 3.5%
Equity market risk premium 5.8% 6.8%
Adjusted beta 0.99 1.14
Cost of equity 8.8% 11.8%
Cost of debt 4.0% 6.0%
Tax rate 29.6% 39.7%
Debt/Equity ratio 0.33 0.33
After-tax WACC 7.3% 9.7%

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: 8.5% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $4,034 (FY12-2024) to $6,880 (FY12-2034)
  • Net profit margin expansion from 12% to 10%
  • Capital expenditures maintained at approximately 4% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $22 $5,549M 69.4%
10-Year Growth $26 $6,533M 50.3%
5-Year EBITDA $16 $4,222M 59.8%
10-Year EBITDA $21 $5,347M 39.3%

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: 10.3%
  • Long-term growth rate: 0.5%
  • Fair value: $15.91 (1.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 11.8% (Low) to 8.8% (High)
  • Long-term growth rate: 0.0% (Low) to 1.0% (High)
  • Fair value range: $15 to $30
  • Selected fair value: $22.83 (45.3% 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 $894M
Discount Rate (WACC) 9.7% - 7.3%
Enterprise Value $9,183M - $12,293M
Net Debt $381M
Equity Value $8,801M - $11,912M
Outstanding Shares 234M
Fair Value $38 - $51
Selected Fair Value $44.21

Key Financial Metrics

Metric Value
Market Capitalization $3681M
Enterprise Value $4063M
Trailing P/E 6.03
Forward P/E 8.41
Trailing EV/EBITDA 3.70
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.33

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% $7.88
Discounted Cash Flow (5Y) 25% $5.51
Dividend Discount Model (Multi-Stage) 20% $3.18
Dividend Discount Model (Stable) 15% $3.42
Earnings Power Value 10% $4.42
Weighted Average 100% $24.42

Investment Conclusion

Based on our comprehensive valuation analysis, Vallourec SA's weighted average intrinsic value is $24.42, which is approximately 55.4% above the current market price of $15.71.

Key investment considerations:

  • Strong projected earnings growth (12% to 10% margin)
  • Consistent cash flow generation

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