Wilmington plc (LON:WIL): A Compelling Value Play with 77% Upside Potential

Wilmington plc (LON:WIL) is trading at a significant discount to its intrinsic value, according to two widely respected Discounted Cash Flow (DCF) analyses. With a current share price of £3.24, the stock is undervalued by 29%–44% compared to DCF-derived fair values of £4.56 (Alpha Spread) and £5.74 (Simply Wall St). This discrepancy creates a compelling opportunity for investors, as catalysts like improving margins, sector tailwinds, and an underappreciated balance sheet could narrow the gap, unlocking a potential 77% upside.

The DCF Discrepancy: Why the Gap Exists

The two DCF models differ in assumptions about growth and risk, but both underscore Wilmington's undervaluation.

1. Growth Forecasts: Too Conservative?

• Simply Wall St's Model assumes 2.5% terminal growth, aligned with long-term UK bond yields. However, Wilmington's recent revenue growth in HSE training (39% profit margin expansion) and its debt-free balance sheet suggest it could sustain higher organic growth.
• Alpha Spread's Model uses a 2.0% terminal growth rate, but its sensitivity analysis shows a £479.87 fair value (28% above the current price) if growth is adjusted to 3.0%.

2. Balance Sheet Strength: Overlooked Resilience

Wilmington's debt-free position and £31.3 million net cash (as of December 2024) are underappreciated in valuations. This financial flexibility allows the company to capitalize on acquisition opportunities, like the Phoenix Health & Safety acquisition, which boosted recurring revenue and margins.

3. Margin Improvements: A Silent Catalyst

The company's adjusted profit margin has expanded by 4 percentage points to 25% in 2025, driven by operational efficiencies and higher-margin recurring revenue (now 72% of total revenue). Analysts may have underestimated the sustainability of this margin expansion.

Undervaluation Drivers: The Case for a Re-Rating

Sector Tailwinds

• HSE Training Demand: Regulatory compliance and safety standards are rising globally, benefiting Wilmington's core business.
• Recurring Revenue Model: With 72% of revenue recurring, the company is less cyclical than peers, yet trades at a 20% discount to fair value (per Alpha Spread).

Dividend Sustainability

Wilmington's dividend yield of 3.49% is covered by earnings and cash flows, but it lags the top 25% of peers. However, this could change as margins improve, potentially attracting income-focused investors.

Catalysts for Narrowing the Gap

• Q2 2025 Results: Strong earnings growth (39% in adjusted profit) and margin expansion signal operational turnaround.
• Portfolio Optimizations: Divestitures of non-core assets and tech platform integration could boost efficiency further.
• Sector Multiple Expansion: If the market re-rates HSE training companies, Wilmington's valuation could align with peers.

Risks and Considerations

• Earnings Volatility: A prior-year earnings decline raises execution risks.
• Growth Slippage: Revenue growth is projected to slow below 20% annually.
• DCF Sensitivity: A 1% increase in the discount rate reduces Simply Wall St's fair value by ~10%.

Investment Thesis and Recommendation

Wilmington's £3.24 share price is a stark contrast to its £5.74 intrinsic value, implying a 77% upside. The gap is driven by conservative assumptions about growth and margin sustainability, which recent results suggest are overly pessimistic.

Buy Recommendation:
- Target Price: £5.74 (Simply Wall St's base case) or £4.56 (Alpha Spread's base case).
- Upside Catalysts: Margin expansion, sector re-rating, and debt-free flexibility.
- Risk Management: Monitor quarterly earnings for consistency and track dividend coverage.

Final Thoughts

Wilmington plc presents a high-conviction opportunity for investors willing to look past short-term volatility. With a robust balance sheet, improving margins, and a growing HSE training market, the stock is primed to close its valuation gap.

Conclusion: Wilmington is undervalued by 44% at current prices, offering a rare chance to buy a debt-free, cash-rich company with strong recurring revenue streams at a steep discount. Investors should consider adding this to their portfolios for potential double-digit returns.

Data as of July 2025. Past performance is not indicative of future results. Always conduct independent research or consult a financial advisor.