What is WBR.TO's Intrinsic value?

Waterloo Brewing Ltd (WBR.TO) Intrinsic Value Analysis

Executive Summary

As of June 21, 2025, Waterloo Brewing Ltd's estimated intrinsic value ranges from $4.99 to $16.50 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $14.66 +265.6%
Discounted Cash Flow (5Y) $4.99 +24.5%
Dividend Discount Model (Multi-Stage) $16.50 +311.5%

Is Waterloo Brewing Ltd (WBR.TO) undervalued or overvalued?

With the current market price at $4.01, 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 Waterloo Brewing Ltd'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

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 0.43 0.46
Cost of equity 5.3% 7.0%
Cost of debt 6.7% 20.2%
Tax rate 29.2% 29.7%
Debt/Equity ratio 0.51 0.51
After-tax WACC 5.1% 9.4%

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: 7.3% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $112 (FY01-2022) to $392 (FY01-2032)
  • Net profit margin expansion from 5% to 10%
  • Capital expenditures maintained at approximately 16% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $5 $250M 88.6%
10-Year Growth $15 $598M 80.1%
5-Year EBITDA $11 $477M 94.0%
10-Year EBITDA $17 $695M 82.8%

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: 6.1%
  • Long-term growth rate: 3.5%
  • Fair value: $16.50 (311.5% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.0% (Low) to 5.3% (High)
  • Long-term growth rate: 2.5% (Low) to 4.5% (High)
  • Fair value range: $(0) to $(3)
  • Selected fair value: $-1.80 (-144.9% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $144M
Enterprise Value $215M
Trailing P/E 0.00
Forward P/E 17.27
Trailing EV/EBITDA 9.90
Current Dividend Yield 151.57%
Dividend Growth Rate (5Y) 14.07%
Debt-to-Equity Ratio 0.51

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) 40% $4.40
Discounted Cash Flow (5Y) 33% $1.25
Dividend Discount Model (Multi-Stage) 27% $3.30
Weighted Average 100% $11.93

Investment Conclusion

Based on our comprehensive valuation analysis, Waterloo Brewing Ltd's weighted average intrinsic value is $11.93, which is approximately 197.5% above the current market price of $4.01.

Key investment considerations:

  • Strong projected earnings growth (5% to 10% margin)
  • Consistent cash flow generation
  • Historical dividend growth of 14.07%

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