<div id="readability-page-1"><div><h3>Key Insights</h3><ul><li> Using the 2 Stage Free Cash Flow to Equity, Burberry Group fair value estimate is UK£19.04 </li> <li> Current share price of UK£12.31 suggests Burberry Group is potentially 35% undervalued </li> <li> Our fair value estimate is 46% higher than Burberry Group's analyst price target of UK£13.04 </li> </ul><p>In this article we are going to estimate the intrinsic value of Burberry Group plc (LON:BRBY) by taking the expected future cash flows and discounting them to today's value.  Our analysis will employ the Discounted Cash Flow (DCF) model.  Believe it or not, it's not too difficult to follow, as you'll see from our example!</p><p> We generally believe that a company's value is the present value of all of the cash it will generate in the future. However, a DCF is just one valuation metric among many, and it is not without flaws.  Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. </p><p>Trump has pledged to &#34;unleash&#34; American oil and gas and these 15 US stocks have developments that are poised to benefit.</p><h2> The Model </h2> <p> 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.  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.  </p><p> A DCF is all about the idea that a dollar in the future is less valuable than a dollar today,  so we need to discount the sum of these future cash flows to arrive at a present value estimate: </p><h4> 10-year free cash flow (FCF) forecast </h4><table><tbody><tr><td> </td><td><strong>2026</strong></td><td><strong>2027</strong></td><td><strong>2028</strong></td><td><strong>2029</strong></td><td><strong>2030</strong></td><td><strong>2031</strong></td><td><strong>2032</strong></td><td><strong>2033</strong></td><td><strong>2034</strong></td><td><strong>2035</strong></td></tr><tr><td><strong> Levered FCF (£, Millions) </strong></td><td>UK£300.1m</td><td>UK£350.2m</td><td>UK£465.7m</td><td>UK£505.0m</td><td>UK£539.4m</td><td>UK£570.0m</td><td>UK£597.7m</td><td>UK£623.4m</td><td>UK£647.8m</td><td>UK£671.3m</td></tr><tr><td><strong>Growth Rate Estimate Source</strong></td><td>Analyst x4</td><td>Analyst x4</td><td>Analyst x2</td><td>Est @ 8.45%</td><td>Est @ 6.81%</td><td>Est @ 5.66%</td><td>Est @ 4.86%</td><td>Est @ 4.30%</td><td>Est @ 3.91%</td><td>Est @ 3.63%</td></tr><tr><td><strong> Present Value (£, Millions) Discounted @ 10% </strong></td><td>UK£273</td><td>UK£289</td><td>UK£350</td><td>UK£345</td><td>UK£335</td><td>UK£322</td><td>UK£307</td><td>UK£291</td><td>UK£275</td><td>UK£259</td></tr></tbody></table><p><i>(&#34;Est&#34; = FCF growth rate estimated by Simply Wall St)</i><br/><strong>Present Value of 10-year Cash Flow (PVCF)</strong> = UK£3.0b</p><p> 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 10%. </p><p><strong>Terminal Value (TV)</strong>= FCF<sub>2035</sub> × (1 + g) ÷ (r – g) = UK£671m× (1 + 3.0%) ÷ (10%– 3.0%) = UK£9.9b</p><p><strong>Present Value of Terminal Value (PVTV)</strong>= TV / (1 + r)<sup>10</sup>= UK£9.9b÷ ( 1 + 10%)<sup>10</sup>= UK£3.8b</p><p> 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£6.8b.  The last step is to then divide the equity value by the number of shares outstanding.  Relative to the current share price of UK£12.3, the company appears   quite undervalued    at a 35% 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. </p><figure><img height="760" src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/2582196-dcf-1-dark-2/1765006021970?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="1706" original-src="https://imageproxy.pbkrs.com/https://images.simplywall.st/asset/chart/2582196-dcf-1-dark-2/1765006021970"/><figcaption>LSE:BRBY Discounted Cash Flow December 6th 2025</figcaption></figure> <h2> Important Assumptions </h2><p> 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 Burberry 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%, which is based on a levered beta of 1.376. 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. </p> <p><span> View our latest analysis for Burberry Group </span></p><h3>SWOT Analysis for Burberry Group</h3><div><div><p><strong>Strength</strong></p><ul><li>Debt is well covered by cash flow.</li></ul> <ul>Balance sheet summary for BRBY.</ul> </div><div><p><strong>Weakness</strong></p><ul><li>Interest payments on debt are not well covered.</li></ul> <ul> What are analysts forecasting for BRBY?</ul> </div><div><p><strong>Opportunity</strong></p><ul><li>Expected to breakeven next year.</li></ul> <ul><li>Has sufficient cash runway for more than 3 years based on current free cash flows.</li></ul> <ul><li>Good value based on P/S ratio and estimated fair value.</li></ul> </div><div><p><strong>Threat</strong></p><ul><li>No apparent threats visible for BRBY.</li></ul></div></div><h2> Next Steps: </h2><p> Valuation is only one side of the coin in terms of building your investment thesis, and it  ideally won't be the sole piece of analysis you scrutinize for a company.  It's not possible to obtain a foolproof valuation with a DCF model.  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.  For instance, if the terminal value growth rate is adjusted slightly, it can dramatically alter the overall result.   Can we work out why the company is trading at a discount to intrinsic value?   For Burberry Group, we've compiled three  relevant  elements  you should further examine: </p><ol> <li><strong>Financial Health</strong>: Does BRBY have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.</li> <li><strong>Future Earnings</strong>: How does BRBY'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.</li><li> <strong>Other Solid Businesses</strong>: 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! </li> </ol><p>PS. The Simply Wall St app conducts a discounted cash flow valuation for every stock on the LSE every day. If you want to find the calculation for other stocks just search here.</p></div></div>

BURBY

<p>Burberry Group plc shares are estimated to be 35% below their intrinsic value, with a fair value of UK£19.04 compared to the current price of UK£12.31. The analysis uses a two-stage Discounted Cash Flow model, projecting future cash flows and discounting them to present value. The total equity value is estimated at UK£6.8 billion, suggesting the stock is undervalued. Important assumptions include a 10% discount rate and a levered beta of 1.376.</p>

Burberry Group plc (LON:BRBY) Shares Could Be 35% Below Their Intrinsic Value Estimate