What is VRG.WA's Intrinsic value?

VRG SA (VRG.WA) Intrinsic Value Analysis

Executive Summary

As of July 10, 2025, VRG SA's estimated intrinsic value ranges from $4.10 to $8.91 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $5.22 +36.6%
Discounted Cash Flow (5Y) $5.05 +32.2%
Dividend Discount Model (Multi-Stage) $4.10 +7.3%
Dividend Discount Model (Stable) $4.72 +23.4%
Earnings Power Value $8.91 +133.2%

Is VRG SA (VRG.WA) undervalued or overvalued?

With the current market price at $3.82, 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 VRG 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 5.5% 6.0%
Equity market risk premium 6.3% 7.3%
Adjusted beta 0.46 0.5
Cost of equity 8.4% 10.2%
Cost of debt 4.0% 6.6%
Tax rate 20.9% 21.1%
Debt/Equity ratio 0.41 0.41
After-tax WACC 6.9% 8.7%

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: 7.8% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,375 (FY12-2024) to $2,052 (FY12-2034)
  • Net profit margin expansion from 6% to 6%
  • Capital expenditures maintained at approximately 2% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $5 $1,535M 73.4%
10-Year Growth $5 $1,574M 55.2%
5-Year EBITDA $3 $1,018M 59.9%
10-Year EBITDA $4 $1,205M 41.5%

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: 9.3%
  • Long-term growth rate: 2.0%
  • Fair value: $4.10 (7.3% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 10.2% (Low) to 8.4% (High)
  • Long-term growth rate: 1.0% (Low) to 3.0% (High)
  • Fair value range: $3 to $6
  • Selected fair value: $4.72 (23.4% 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 $188M
Discount Rate (WACC) 8.7% - 6.9%
Enterprise Value $2,152M - $2,726M
Net Debt $350M
Equity Value $1,802M - $2,375M
Outstanding Shares 234M
Fair Value $8 - $10
Selected Fair Value $8.91

Key Financial Metrics

Metric Value
Market Capitalization $896M
Enterprise Value $1246M
Trailing P/E 9.78
Forward P/E 9.78
Trailing EV/EBITDA 4.75
Current Dividend Yield 609.76%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.41

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% $1.57
Discounted Cash Flow (5Y) 25% $1.26
Dividend Discount Model (Multi-Stage) 20% $0.82
Dividend Discount Model (Stable) 15% $0.71
Earnings Power Value 10% $0.89
Weighted Average 100% $5.25

Investment Conclusion

Based on our comprehensive valuation analysis, VRG SA's intrinsic value is $5.25, which is approximately 37.3% above the current market price of $3.82.

Key investment considerations:

  • Strong projected earnings growth (6% to 6% margin)
  • Consistent cash flow generation

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