valuation
Intrinsic value is an estimate of worth derived from the asset's expected cash flows, risk and growth—not from the last traded price. It is the output of a fundamental model, most often a DCF, and it can sit above or below market value for long periods.
Intrinsic value is the analyst's (or investor's) model of what an asset is worth if expected free cash flow is discounted at a rate that matches risk. Benjamin Graham's language still describes the job: an independent estimate against which market value can look cheap or expensive. Damodaran's modern statement is similar: intrinsic value comes from cash flows, growth and risk; price is what you pay.
It is not a moral "true" value. Two competent analysts can disagree on growth, fade rates and WACC and produce different intrinsic values. The discipline is that the assumptions are explicit and the model is internally consistent.
The workhorse is a discounted cash flow:
Intrinsic EV = Σ_t FCFF_t / (1 + WACC)^t + TV_n / (1 + WACC)^n
Intrinsic equity = intrinsic EV − net debt (and other claims)
Residual-income and dividend-discount models target equity directly. Multiples can inform assumptions (fade to peer margins, exit multiple as a terminal check) but a multiple without a cash-flow story is not an intrinsic-value estimate; it is a relative-value estimate.
IVS would usually file this under the income approach. IFRS 13 fair value may use similar mechanics only if the cash flows and discount rate are those of market participants, not of a particular optimistic owner.
Mira Home Care is invented, illustration only. Current trading equivalent: implied equity €95m.
| DCF assumption | Base case |
|---|---|
| Explicit forecast | 8 years, revenue CAGR 6%, EBIT margin to 14% |
| FCFF year-1 | €7.4m |
| WACC | 8.8% |
| Terminal growth | 2.0% |
| Terminal value share of EV | 71% |
| Intrinsic EV | €128m |
| Net debt | €18m |
| Intrinsic equity | €110m |
| vs market-implied equity | €95m (~16% below intrinsic in this model) |
Label this an illustration. Change WACC by 80bp or terminal growth by 50bp and the gap can vanish. That sensitivity is the analysis.
Public investors use intrinsic value to size a margin of safety. Private buyers use it as a ceiling on stand-alone worth before synergies. In auctions, intrinsic value for a financial buyer often sits below a synergy-rich strategic bid; that is not a modelling error, it is a different asset in different hands. Boards defending a sale still need a stand-alone intrinsic view so they can explain why a bid is adequate.
Intrinsic value is only as honest as the forecast. It struggles with binary outcomes (binary regulation, binary tech). It is the wrong primary tool when the assignment is mark to market participants (IFRS 13) rather than value to this investor.
Dazur uses intrinsic value as a sanity bound on process: if every credible DCF, after realistic reinvestment, sits well below the ask, the ask is a marketing number. If market comps and DCF overlap, owners can defend a range. We do not pretend a spreadsheet is more "true" than a competitive auction—only that it stops both sides lying to themselves.