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An Intrinsic Calculation For Inland Homes PLC (LON:INL) Shows It’s 28% Undervalued

I am going to run you through how I calculated the intrinsic value of Inland Homes PLC (AIM:INL) using the discounted cash flow (DCF) method. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. Also note that this article was written in April 2018 so be sure check the latest calculation for Inland Homes here.

What’s the value?

We are going to use a two-stage DCF model, which takes into account the initial higher growth stage of a company’s life cycle and the steadier growth phase over the long run. To start off, I use the analyst consensus forecast of INL’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 10.72%. When estimates weren’t available, I’ve extrapolated the average annual growth rate over the previous five years, capped at a reasonable level. This resulted in a present value of 5-year cash flow of UK£51.58M. Want to understand how I calculated this value? Read our detailed analysis here.

AIM:INL Future Profit Apr 13th 18
AIM:INL Future Profit Apr 13th 18

The graph above shows how INL’s earnings are expected to move in the future, which should give you some color on INL’s outlook. Secondly, I determine the terminal value, which accounts for all the future cash flows after the five years. I think it’s suitable to use the 10-year government bond rate of 2.8% as the perpetual growth rate, which is rightly below GDP growth, but more towards the conservative side. After discounting the terminal value back five years, the present value becomes UK£125.66M.

The total value, or equity value, is then the sum of the present value of the cash flows, which in this case is UK£177.24M. To get the intrinsic value per share, we divide this by the total number of shares outstanding. This results in an intrinsic value of £0.88, which, compared to the current share price of £0.635, we find that Inland Homes is about right, perhaps slightly undervalued at a 27.59% discount to what it is available for right now.

Next Steps:

Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For INL, I’ve compiled three essential factors you should look at:

  1. Financial Health: Does INL have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

  2. Future Earnings: How does INL’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.

  3. Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of INL? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St does a DCF calculation for every GB stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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