Bytes Technology Group’s estimated fair value is UK£4.80 based on 2 Stage Free Cash Flow to Equity
Bytes Technology Group is estimated to be 27% undervalued based on current share price of UK£3.49
The UK£4.86 analyst price target for BYIT is 1.2% more than our estimate of fair value
In this article we are going to estimate the intrinsic value of Bytes Technology Group plc (LON:BYIT) by taking the expected future cash flows and discounting them to today’s value. We will use the Discounted Cash Flow (DCF) model on this occasion. Models like these may appear beyond the comprehension of a lay person, but they’re fairly easy to follow.
Remember though, that there are many ways to estimate a company’s value, and a DCF is just one method. For those who are keen learners of equity analysis, the Simply Wall St analysis model here may be something of interest to you.
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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 start off with, we need to estimate 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.
Generally we assume that a dollar today is more valuable than a dollar in the future, and so the sum of these future cash flows is then discounted to today’s value:
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
Levered FCF (£, Millions)
UK£53.2m
UK£61.7m
UK£66.9m
UK£70.1m
UK£73.2m
UK£76.1m
UK£78.8m
UK£81.5m
UK£84.2m
UK£87.0m
Growth Rate Estimate Source
Analyst x6
Analyst x6
Analyst x5
Est @ 4.90%
Est @ 4.33%
Est @ 3.93%
Est @ 3.65%
Est @ 3.45%
Est @ 3.31%
Est @ 3.22%
Present Value (£, Millions) Discounted @ 8.7%
UK£49.0
UK£52.2
UK£52.0
UK£50.2
UK£48.1
UK£46.0
UK£43.9
UK£41.7
UK£39.7
UK£37.6
(“Est” = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = UK£460m
The second stage is also known as Terminal Value, this is the business’s cash flow after 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 (3.0%) 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 8.7%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= UK£1.6b÷ ( 1 + 8.7%)10= UK£675m
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£1.1b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of UK£3.5, the company appears a touch undervalued at a 27% discount to where the stock price trades currently. Remember though, that this is just an approximate valuation, and like any complex formula – garbage in, garbage out.
LSE:BYIT Discounted Cash Flow December 6th 2025
We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. If you don’t agree with these result, have a go at the calculation yourself and play with the 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 Bytes Technology 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 8.7%, which is based on a levered beta of 1.126. 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 Bytes Technology Group
Strength
Weakness
Opportunity
Threat
Whilst important, the DCF calculation shouldn’t be the only metric you look at when researching 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. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. What is the reason for the share price sitting below the intrinsic value? For Bytes Technology Group, we’ve put together three fundamental factors you should further examine:
Risks: Consider for instance, the ever-present spectre of investment risk. We’ve identified 1 warning sign with Bytes Technology Group , and understanding this should be part of your investment process.
Future Earnings: How does BYIT’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.
