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Savills plc (LON:SVS) Shares Could Be 24% Below Their Intrinsic Value Estimate

In This Article:

Key Insights

  • The projected fair value for Savills is UK£13.83 based on 2 Stage Free Cash Flow to Equity

  • Savills is estimated to be 24% undervalued based on current share price of UK£10.48

  • The UK£12.62 analyst price target for SVS is 8.8% less than our estimate of fair value

How far off is Savills plc (LON:SVS) from its intrinsic value? Using the most recent financial data, we'll take a look at whether the stock is fairly priced by taking the forecast future cash flows of the company and discounting them back to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. Before you think you won't be able to understand it, just read on! It's actually much less complex than you'd imagine.

We would caution that there are many ways of valuing a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. 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.

See our latest analysis for Savills

What's The Estimated Valuation?

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.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, 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£113.4m

UK£128.5m

UK£130.1m

UK£132.1m

UK£134.3m

UK£136.7m

UK£139.3m

UK£142.1m

UK£144.9m

UK£147.9m

Growth Rate Estimate Source

Analyst x1

Analyst x1

Est @ 1.24%

Est @ 1.50%

Est @ 1.69%

Est @ 1.81%

Est @ 1.90%

Est @ 1.96%

Est @ 2.01%

Est @ 2.04%

Present Value (£, Millions) Discounted @ 8.6%

UK£104

UK£109

UK£101

UK£94.8

UK£88.7

UK£83.1

UK£78.0

UK£73.2

UK£68.7

UK£64.5

("Est" = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = UK£866m