The projected fair value for ZOO Digital Group is UK£0.10 based on 2 Stage Free Cash Flow to Equity
Current share price of UK£0.11 suggests ZOO Digital Group is potentially trading close to its fair value
Today we will run through one way of estimating the intrinsic value of ZOO Digital Group plc (LON:ZOO) by projecting its future cash flows and then discounting them to today’s value. We will use the Discounted Cash Flow (DCF) model on this occasion. 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. 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’re using the 2-stage growth model, which simply means we take in account two stages of company’s growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. 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, 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)
US$502.7k
US$635.7k
US$759.2k
US$869.2k
US$965.2k
US$1.05m
US$1.12m
US$1.19m
US$1.24m
US$1.30m
Growth Rate Estimate Source
Analyst x2
Est @ 26.47%
Est @ 19.42%
Est @ 14.49%
Est @ 11.04%
Est @ 8.63%
Est @ 6.94%
Est @ 5.75%
Est @ 4.92%
Est @ 4.34%
Present Value ($, Millions) Discounted @ 10.0%
US$0.5
US$0.5
US$0.6
US$0.6
US$0.6
US$0.6
US$0.6
US$0.6
US$0.5
US$0.5
(“Est” = FCF growth rate estimated by Simply Wall St) Present Value of 10-year Cash Flow (PVCF) = US$5.5m
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 (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 10.0%.
Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$19m÷ ( 1 + 10.0%)10= US$7.4m
The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$13m. In the final step we divide the equity value by the number of shares outstanding. Relative to the current share price of UK£0.1, the company appears around fair value at the time of writing. 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:ZOO Discounted Cash Flow November 21st 2025
Now the most important inputs to a discounted cash flow are the discount rate, and of course, the actual 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 ZOO Digital 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 10.0%, which is based on a levered beta of 1.367. 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 ZOO Digital Group
Strength
Weakness
Opportunity
Threat
Although the valuation of a company is important, it is only one of many factors that you need to assess for a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. 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. For ZOO Digital Group, we’ve compiled three essential aspects you should look at:
Risks: Be aware that ZOO Digital Group is showing 3 warning signs in our investment analysis , and 1 of those shouldn’t be ignored…
Future Earnings: How does ZOO’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.
