Calculating The Fair Value Of Water Intelligence plc (LON:WATR)

Simply Wall St

Sun, February 15, 2026 at 4:19 PM GMT+9 6 min read

In this article:

WTLLF

+5.06%

Key Insights

Water Intelligence's estimated fair value is UK£2.45 based on 2 Stage Free Cash Flow to Equity

Water Intelligence's UK£2.86 share price indicates it is trading at similar levels as its fair value estimate

When compared to theindustry average discount of -7.1%, Water Intelligence's competitors seem to be trading at a lesser premium to fair value

Does the February share price for Water Intelligence plc (LON:WATR) reflect what it’s really worth? Today, we will estimate the stock’s intrinsic value by taking the expected future cash flows and discounting them to today’s value. This will be done using the Discounted Cash Flow (DCF) model. There’s really not all that much to it, even though it might appear quite complex.

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 still have some burning questions about this type of valuation, take a look at the Simply Wall St analysis model.

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What’s The Estimated Valuation?

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. 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.

A DCF is all about the idea that a dollar in the future is less valuable than a dollar today, and so the sum of these future cash flows is then discounted to today’s value:

10-year free cash flow (FCF) forecast

(“Est” = FCF growth rate estimated by Simply Wall St)
Present Value of 10-year Cash Flow (PVCF) = US$23m

Story Continues  

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. 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 3.2%. We discount the terminal cash flows to today’s value at a cost of equity of 8.0%.

Terminal Value (TV)$1 FCF2035 × (1 + g) ÷ (r – g) = US$3.4m× (1 + 3.2%) ÷ (8.0%– 3.2%) = US$72m

Present Value of Terminal Value (PVTV)$1 TV / (1 + r)10$1 US$72m÷ ( 1 + 8.0%)10$1 US$33m

The total value is the sum of cash flows for the next ten years plus the discounted terminal value, which results in the Total Equity Value, which in this case is US$57m. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of UK£2.9, the company appears around fair value at the time of writing. Remember though, that this is just an approximate valuation, and like any complex formula - garbage in, garbage out.

AIM:WATR Discounted Cash Flow February 15th 2026

The Assumptions

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. 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 Water Intelligence 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 8.0%, which is based on a levered beta of 0.966. 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.

View our latest analysis for Water Intelligence

SWOT Analysis for Water Intelligence

Strength

Debt is not viewed as a risk.

Weakness

Earnings declined over the past year.

Opportunity

Annual earnings are forecast to grow faster than the British market.

Good value based on P/E ratio compared to estimated Fair P/E ratio.

Threat

No apparent threats visible for WATR.

Looking Ahead:

Valuation is only one side of the coin in terms of building your investment thesis, and it 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. Rather it should be seen as a guide to “what assumptions need to be true for this stock to be under/overvalued?” For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result. For Water Intelligence, we’ve compiled three relevant items you should look at:

**Risks**: Every company has them, and we've spotted  ** 1 warning sign for Water Intelligence **  you should know about.

**Future Earnings**: How does WATR'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 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. 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.

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.

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