Undervalued: System1 Group PLC's fair value estimated at £7.69, signaling 45% undervaluation

System1 Group PLC's projected fair value is £7.69 based on a 2-stage free cash flow to equity model. The company's current share price of £4.25 suggests it is 45% undervalued. The industry average discount to fair value is 58%, indicating that System1 Group's peers are trading at a higher discount.

System1 Group PLC (LON:SYS1), a technology company specializing in digital asset management, has been the subject of recent financial analysis that suggests it is undervalued. According to a Simply Wall St analysis using a 2-stage free cash flow to equity model, the projected fair value of System1 Group is £7.69 per share [1]. This is significantly higher than the current share price of £4.25, indicating that the stock may be 45% undervalued.

The 2-stage model estimates future cash flows over the next decade, assuming different growth rates for each stage. The first stage is characterized by higher growth rates, while the second stage reflects a slower growth trajectory. This method is used to discount future cash flows to their present value, providing an estimate of the company's intrinsic value.

Industry averages provide additional context. The average discount to fair value for System1 Group's peers is 58%, suggesting that the company's peers are trading at a higher discount compared to its intrinsic value [1]. This could imply that investors may be missing out on a potentially undervalued opportunity in System1 Group.

System1 Group's dividend policy also presents an attractive feature for investors. The company has announced an increase in its dividend to £0.11 per share, effective from October 17, 2025. This increase takes the annual payment to 1.3% of the current stock price, which is below the industry average but still a sustainable option [2]. The company's earnings per share (EPS) growth rate over the past five years has been impressive, growing at an annual rate of 42%. This trend is expected to continue, suggesting that the dividend could grow in the future.

While the dividend increase is a positive sign, investors should also consider the company's risks. For instance, System1 Group's reliance on volatile digital assets exposes it to significant market risks. Additionally, the company has a history of dividend cuts, which could be a concern for investors seeking a stable dividend income.

In conclusion, System1 Group PLC appears to be undervalued based on a 2-stage free cash flow to equity model. Its strong dividend potential and industry average discount suggest that it could be a compelling investment opportunity for long-term investors. However, the company's exposure to volatile digital assets and history of dividend cuts should be carefully considered before making an investment decision.

References:
[1] https://uk.finance.yahoo.com/news/intrinsic-calculation-system1-group-plc-053539008.html
[2] https://simplywall.st/stocks/gb/media/aim-sys1/system1-group-shares/news/system1-group-lonsys1-is-increasing-its-dividend-to-011