Using the 2 Stage Free Cash Flow to Equity, iomart Group fair value estimate is UK£0.28
Current share price of UK£0.26 suggests iomart Group is potentially trading close to its fair value
Analyst price target for IOM is UK£0.53, which is 87% above our fair value estimate
Today we will run through one way of estimating the intrinsic value of iomart Group plc (LON:IOM) by taking the expected 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.
Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. 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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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. To begin with, we have to get estimates of the next ten years of cash flows. 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:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Levered FCF (£, Millions)
UK£200.0k
UK£3.30m
UK£6.40m
UK£5.20m
UK£4.56m
UK£4.21m
UK£4.02m
UK£3.93m
UK£3.90m
UK£3.92m
Growth Rate Estimate Source
Analyst x2
Analyst x2
Analyst x1
Est @ -18.80%
Est @ -12.26%
Est @ -7.69%
Est @ -4.48%
Est @ -2.24%
Est @ -0.67%
Est @ 0.43%
Present Value (£, Millions) Discounted @ 13%
UK£0.2
UK£2.6
UK£4.4
UK£3.2
UK£2.5
UK£2.0
UK£1.7
UK£1.5
UK£1.3
UK£1.1
(“Est” = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = UK£20m
The second stage is also known as Terminal Value, this is the business’s cash flow after the first stage. 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 3.0%. We discount the terminal cash flows to today’s value at a cost of equity of 13%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= UK£40m÷ ( 1 + 13%)10= UK£11m
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£32m. To get the intrinsic value per share, we divide this by the total number of shares outstanding. Relative to the current share price of UK£0.3, the company appears about fair value at a 7.7% 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.
AIM:IOM Discounted Cash Flow November 23rd 2025
Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual 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 iomart 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 13%, which is based on a levered beta of 2.000. 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.
Check out our latest analysis for iomart Group
Strength
Weakness
Opportunity
Threat
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. 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 iomart Group, we’ve put together three pertinent items you should assess:
Risks: Every company has them, and we’ve spotted 3 warning signs for iomart Group (of which 1 can’t be ignored!) you should know about.
Management:Have insiders been ramping up their shares to take advantage of the market’s sentiment for IOM’s future outlook? Check out our management and board analysis with insights on CEO compensation and governance factors.
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. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the AIM every day. If you want to find the calculation for other stocks just search here.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
