Is Romande Energie Holding (VTX:REHN) Trading at or Below Its Intrinsic Value?

The question of whether Romande Energie Holding (VTX:REHN) is undervalued by the market hinges on a rigorous application of discounted dividend valuation. By analyzing the company's dividend fundamentals, growth trajectory, and required rate of return, we can assess whether its current market price reflects its intrinsic worth-or if pricing discrepancies present an opportunity for value investors.

Dividend Fundamentals and Growth Assumptions

Romande Energie Holding is scheduled to pay an annual dividend of CHF1.44 per share in 2025, with the ex-dividend date set for May 16, 2025 according to stock events. This dividend corresponds to a current yield of 3.36%, positioning the stock as an attractive income generator in a low-yield environment according to stock events. To estimate intrinsic value, we must project future dividends and apply a reasonable growth rate.

Historical data reveals a nuanced picture. While one source cites a 5-year average growth rate of 0.5%, tied to the 10-year government bond yield, another analysis from Simplywall.st reports a more optimistic 1.1% annual growth rate. For the purposes of this valuation, we adopt the 1.1% figure, as it reflects a more direct assessment of the company's dividend trajectory.

Cost of Equity and Discount Rate

The required rate of return-critical for discounting future dividends-was calculated in December 2025 at 3.9%. This figure, derived using a levered beta of 0.800, accounts for the stock's lower volatility relative to the broader market. The cost of equity incorporates both systematic risk and the prevailing risk-free rate, making it a robust input for valuation.

Intrinsic Value Calculation

Applying the Gordon Growth Model-a staple of discounted dividend analysis-we calculate intrinsic value as follows:

$$\text{Intrinsic Value} = \frac{D_1}{r - g}$$

Where:
- $D_1$ = Next year's dividend (CHF1.44 × 1.011 = CHF1.457)
- $r$ = Required rate of return (3.9% or 0.039)
- $g$ = Dividend growth rate (1.1% or 0.011)

Plugging in the numbers:

$$\text{Intrinsic Value} = \frac{1.457}{0.039 - 0.011} = \frac{1.457}{0.028} \approx \text{CHF52.04}$$

If the current market price of REHN is below CHF52.04, the stock is trading at a discount to intrinsic value. Given the 3.36% yield, we can infer the current price (assuming $D_1/P_0 = \text{yield}$):

$$P_0 = \frac{D_1}{\text{Yield}} = \frac{1.457}{0.0336} \approx \text{CHF43.36}$$

This suggests a significant margin of safety, with the market price approximately 17% below intrinsic value.

Market Pricing Discrepancies and Risks

The discrepancy between intrinsic value and market price may stem from macroeconomic uncertainties, sector-specific headwinds, or misaligned investor sentiment. For instance, regulatory shifts in the utilities sector or fluctuations in energy prices could dampen earnings and, by extension, dividend capacity. However, REHN's low beta of 0.800 indicates it is less sensitive to market volatility, mitigating some of these risks.

A critical caveat lies in the assumptions underpinning the model. The 1.1% growth rate is not guaranteed and could be impacted by operational challenges or changes in dividend policy. Similarly, the cost of equity assumes a stable market risk premium, which may shift in response to global economic conditions.

Conclusion

Romande Energie Holding appears to be trading at a meaningful discount to its intrinsic value, as calculated through discounted dividend analysis. With a projected intrinsic value of CHF52.04 and a current price of approximately CHF43.36, the stock offers a compelling risk-reward profile for long-term investors. However, the valuation hinges on the sustainability of its dividend growth and the stability of its cost of equity. Investors should monitor macroeconomic signals and the company's operational performance to validate these assumptions.