Estimating The Fair Value Of Concurrent Technologies Plc (LON:CNC)

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

Tue, Apr 29, 2025, 11:45 PM 6 min read

Today we'll do a simple run through of a valuation method used to estimate the attractiveness of Concurrent Technologies Plc (LON:CNC) as an investment opportunity by estimating the company's future cash flows and discounting them to their present value. One way to achieve this is by employing the Discounted Cash Flow (DCF) model. There's really not all that much to it, even though it might appear quite complex.

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.

We check all companies for important risks. See what we found for Concurrent Technologies in our free report.

Is Concurrent Technologies Fairly Valued?

We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second 'steady growth' period. 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£3.68m	UK£469.4k	UK£6.30m	UK£7.90m	UK£9.35m	UK£10.6m	UK£11.7m	UK£12.6m	UK£13.4m	UK£14.1m
Growth Rate Estimate Source	Analyst x2	Analyst x2	Analyst x1	Est @ 25.36%	Est @ 18.44%	Est @ 13.60%	Est @ 10.21%	Est @ 7.84%	Est @ 6.18%	Est @ 5.01%
Present Value (£, Millions) Discounted @ 8.2%	UK£3.4	UK£0.4	UK£5.0	UK£5.8	UK£6.3	UK£6.6	UK£6.7	UK£6.7	UK£6.6	UK£6.4

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = UK£54m

After calculating the present value of future cash flows in the initial 10-year period, we need to calculate the Terminal Value, which accounts for all future cash flows beyond the first stage. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.3%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.2%.

Terminal Value (TV)= FCF₂₀₃₄ × (1 + g) ÷ (r – g) = UK£14m× (1 + 2.3%) ÷ (8.2%– 2.3%) = UK£243m

Present Value of Terminal Value (PVTV)= TV / (1 + r)¹⁰= UK£243m÷ ( 1 + 8.2%)¹⁰= UK£110m

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£164m. In the final step we divide the equity value by the number of shares outstanding. Compared to the current share price of UK£1.8, the company appears about fair value at a 7.5% 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:CNC Discounted Cash Flow April 30th 2025

Important Assumptions

The calculation above is very dependent on two assumptions. The first is the discount rate and the other is the cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. 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 Concurrent Technologies 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 8.2%, which is based on a levered beta of 1.155. 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 Concurrent Technologies

SWOT Analysis for Concurrent Technologies

Strength

Earnings growth over the past year exceeded its 5-year average.

Currently debt free.

Weakness

Earnings growth over the past year underperformed the Tech industry.

Dividend is low compared to the top 25% of dividend payers in the Tech market.

Opportunity

Annual earnings are forecast to grow faster than the British market.

Current share price is below our estimate of fair value.

Threat

No apparent threats visible for CNC.

Next Steps:

Valuation is only one side of the coin in terms of building your investment thesis, and it is only one of many factors that you need to assess for a company. It's not possible to obtain a foolproof valuation with a DCF model. Preferably you'd apply different cases and assumptions and see how they would impact the company's valuation. For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Concurrent Technologies, we've put together three fundamental items you should further research:

Financial Health: Does CNC 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.
Future Earnings: How does CNC'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 High Quality Alternatives: Do you like a good all-rounder? 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 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.