Determining the Fair Value of FDM Group (Holdings) plc: A DCF and Relative Valuation Analysis

The valuation of FDM Group (Holdings) plc (LON:FDM), a UK-based IT services and recruitment firm, presents a compelling case study in reconciling short-term volatility with long-term fundamentals. As of November 2025, the company's stock trades at 135.2 GBX, significantly below intrinsic value estimates derived from discounted cash flow (DCF) analysis and relative valuation benchmarks. This article synthesizes recent financial disclosures and industry data to assess whether FDM Group is undervalued and what investors should consider.

Discounted Cash Flow Analysis: A Mixed Picture

FDM Group's 2024 annual report reveals a free cash flow (FCF) of £28.85 million, supported by robust operating cash flow of £29.18 million. However, the company's 2025 interim results for the first six months show a stark decline in revenue (-31% to £97.3 million) and adjusted operating profit (-48% to £9.1 million) compared to the same period in 2024 according to financial data. This deterioration raises questions about near-term growth sustainability.

To estimate intrinsic value via DCF, we must project future cash flows. While FDM Group's historical FCF growth rates have been volatile ranging from -49.73% to +16.98% across periods, its weighted average cost of capital (WACC) of 3.62% as of November 2025 suggests a low discount rate environment according to Gurufocus. A return on invested capital (ROIC) of 29.38% further indicates the company generates value well above its cost of capital as reported by Gurufocus.

Assuming a conservative long-term FCF growth rate of 3% (aligned with its WACC) and using the 2024 FCF as a base, the DCF-derived intrinsic value exceeds current market capitalization. However, the sharp 2025 H1 performance decline necessitates downward adjustments to near-term cash flow assumptions, complicating precise valuation.

Relative Valuation: A Discount to Peers

FDM Group's valuation multiples starkly contrast with industry benchmarks. As of October 2025, the company trades at 0.5x EV/Revenue and 3.9x EV/EBITDA according to multiples.vc, far below the US IT industry average PE ratio of 27.8x and peer average of 25.9x as reported by Simply Wall St. This 41% undervaluation relative to its intrinsic value estimated at 230.12 GBX by Alpha Spread and 16.2% discount to Simply Wall St's fair value of $2.15 according to Simply Wall St suggest mispricing.

The disparity is partly explained by FDM's debt-free balance sheet as of June 2025, which reduces risk but also limits leverage-driven growth. Meanwhile, its dividend cut to 6.0 pence per share signals caution in capital returns, potentially dampening investor enthusiasm.

Synthesis and Investment Implications

FDM Group's valuation puzzle hinges on reconciling its strong ROIC and cash position with near-term operational headwinds. While the DCF model implies undervaluation, the interim results underscore vulnerability to macroeconomic pressures, particularly in its IT recruitment segment. Relative valuation metrics, however, highlight a compelling margin of safety: at current prices, FDM trades at a 60% discount to its 2024 revenue multiple of 1.3x according to multiples.vc.

Investors must weigh the company's structural strengths-high ROIC, low debt-against risks such as revenue volatility and margin compression. For those with a medium-term horizon, the 41% gap between intrinsic value and market price offers a margin of safety, provided the company stabilizes its growth trajectory in 2025.