Acrow Limited: Undervalued by 36% Based on Intrinsic Calculation

Acrow Limited (ASX:ACF), a leading provider of integrated construction systems, has been identified as significantly undervalued by an intrinsic calculation. The company's market cap or net worth is AUD 333.12 million, with an enterprise value of AUD 434.22 million. Acrow's earnings per share (EPS) in the last 12 months was AUD 0.09, with a trailing PE ratio of 12.69 and a forward PE ratio of 9.06. The company's PEG ratio is 1x, with an enterprise value/revenue ratio of 2.2x and an enterprise value/EBITDA ratio of 9x.



Acrow's Valuation Metrics
Acrow's valuation metrics suggest that the company is significantly undervalued compared to its fair value, analyst forecasts, and its price relative to the market. The company has a valuation score of 6/6, indicating that it is trading below its fair value by more than 20%. Acrow's PE ratio of 13.1x is good value based on its Price-To-Earnings Ratio compared to the peer average of 23.2x and the Global Trade Distributors industry average of 14.4x. The company's fair PE ratio is estimated to be 16x, further supporting the notion that Acrow is undervalued.

Acrow's Dividend Growth and Payout Ratio
Acrow's dividend growth rate of 32.95% over the last year is higher than the average dividend growth rate of 13.2% for the Global Trade Distributors industry. The company's payout ratio of 55.95% is lower than the average payout ratio of 60% for the industry. Compared to its peers, Acrow's dividend growth rate is higher than most, and its payout ratio is lower than most. This suggests that Acrow is distributing a higher proportion of its earnings as dividends and has a strong track record of dividend growth.

Acrow's Growth Opportunities
Acrow's earnings growth is primarily driven by its revenue growth, which is expected to be 13.6% per annum. The company's expansion into new markets and the acquisition of new businesses, such as MI Scaffolding and Benchmark Scaffolding, have increased its product offerings and market share. Additionally, Acrow's contract with Ceres Urea Plant provides a solid footing for achieving double-digit earnings growth over the next three years. However, it is important to note that Acrow's earnings growth may be impacted by shareholder dilution due to capital raising for acquisitions and the increasing debt levels. Therefore, while Acrow's earnings growth is expected to be sustainable, it is important to monitor the company's debt levels and the impact of acquisitions on shareholder dilution.

Acrow's Fair Value and Analyst Price Targets
Acrow's fair value is estimated to be AUD 1.71, based on a discounted cash flow model. This suggests that Acrow is trading below its fair value by 36.2%, indicating that the company is significantly undervalued. Analysts have a 12-month price target of AUD 1.33, with a consensus EPS estimate of AUD 0.11 for FY2025. This suggests that Acrow's shares could be worth AUD 1.30 next year, based on a PE multiple of 12.



Conclusion
Acrow Limited's valuation metrics, dividend growth, and growth opportunities suggest that the company is significantly undervalued compared to its fair value, analyst forecasts, and its price relative to the market. The company's PE ratio, dividend growth rate, and payout ratio all indicate that Acrow is good value based on its Price-To-Earnings Ratio compared to its peers and the Global Trade Distributors industry average. Acrow's earnings growth is expected to be sustainable, driven by its revenue growth and expansion into new markets. However, it is important to monitor the company's debt levels and the impact of acquisitions on shareholder dilution. Based on an intrinsic calculation, Acrow is estimated to be undervalued by 36%. Therefore, investors who have not managed to add exposure to Acrow should consider capitalizing on the current levels to buy more shares before Acrow potentially revisits its previous highs. Rating: Maintain Buy.