A Look At The Fair Value Of Cordel Group Plc (LON:CRDL)

editorial-team@simplywallst.com (Simply Wall St)

Tue, Apr 8, 2025, 11:52 PM 6 min read

Today we will run through one way of estimating the intrinsic value of Cordel Group Plc (LON:CRDL) by projecting its future cash flows and then discounting them to today's value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Don't get put off by the jargon, the math behind it is actually quite straightforward.

We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws. If you want to learn more about discounted cash flow, the rationale behind this calculation can be read in detail in the Simply Wall St analysis model.

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Step By Step Through The Calculation

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first stage we need to estimate the cash flows to the business over the next ten years. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) forecast

	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034
Levered FCF (£, Millions)	-UK£800.0k	UK£400.0k	UK£569.8k	UK£743.1k	UK£906.4k	UK£1.05m	UK£1.18m	UK£1.28m	UK£1.37m	UK£1.45m
Growth Rate Estimate Source	Analyst x1	Analyst x1	Est @ 42.46%	Est @ 30.41%	Est @ 21.98%	Est @ 16.07%	Est @ 11.94%	Est @ 9.05%	Est @ 7.02%	Est @ 5.61%
Present Value (£, Millions) Discounted @ 8.0%	-UK£0.7	UK£0.3	UK£0.5	UK£0.5	UK£0.6	UK£0.7	UK£0.7	UK£0.7	UK£0.7	UK£0.7

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = UK£4.6m

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. The Gordon Growth formula is used to calculate Terminal Value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.3%. We discount the terminal cash flows to today's value at a cost of equity of 8.0%.

Terminal Value (TV)= FCF₂₀₃₄ × (1 + g) ÷ (r – g) = UK£1.5m× (1 + 2.3%) ÷ (8.0%– 2.3%) = UK£26m

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= UK£26m÷ ( 1 + 8.0%)¹⁰= UK£12m

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is UK£17m. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of UK£0.06, the company appears about fair value at a 19% discount to where the stock price trades currently. The assumptions in any calculation have a big impact on the valuation, so it is better to view this as a rough estimate, not precise down to the last cent.

dcf — AIM:CRDL Discounted Cash Flow April 9th 2025

The Assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. Part of investing is coming up with your own evaluation of a company's future performance, so try the calculation yourself and check your own assumptions. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at Cordel Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.0%, which is based on a levered beta of 1.120. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

View our latest analysis for Cordel Group

SWOT Analysis for Cordel Group

Strength

Debt is well covered by earnings.

Weakness

No major weaknesses identified for CRDL.

Opportunity

Expected to breakeven next year.

Current share price is below our estimate of fair value.

Threat

Debt is not well covered by operating cash flow.

Has less than 3 years of cash runway based on current free cash flow.

Looking Ahead:

Whilst important, the DCF calculation is only one of many factors that you need to assess for a company. DCF models are not the be-all and end-all of investment valuation. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Cordel Group, we've compiled three important items you should further examine:

Risks: Case in point, we've spotted 1 warning sign for Cordel Group you should be aware of.
Future Earnings: How does CRDL's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart .
Other Solid Businesses: Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid business fundamentals to see if there are other companies you may not have considered!

PS. Simply Wall St updates its DCF calculation for every British stock every day, so if you want to find the intrinsic value of any other stock just search here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.