⚖️💻Business Overview

🎯Key Metrics

Total: 9/17

• +2 ✅ Projected Operating Margin: 26.38%
• +0 ⚠️ Projected 5-Year Revenue CAGR: 6.69%
• +1 ✅ Last 5-Year ROIC: 16.60%
• +1 ✅ Estimated Cost of Capital: 6.94% (less than ROIC)
• +1 ✅ Last 5-Year Shares Outstanding CAGR: -2.77%
• -1 ❌ Projected 5-Year EPS CAGR: 9.49% (given the ease of manipulating earnings metrics, sub-10% growth warrants caution)
• +0 ⚠️ Projected 5-Year Dividend CAGR: 7.44%
• +1 ✅ Moody’s Rating: A3
• +2 ✅✅ Morningstar Moat: Wide
• +2 ✅✅ Morningstar Uncertainty: Low

Wolters Kluwer demonstrates strong operating margins of 26%, evidencing both competitive advantages and pricing power. This operational strength aligns with Morningstar’s Wide Moat rating and notably rare Low Uncertainty designation—signaling a stable, well-entrenched industry position.

Particularly impressive is the company’s ROIC of 16.6%, nearly triple its 6.94% cost of capital. This spread indicates management is deploying capital efficiently and creating genuine shareholder value. The consistent share buybacks (reducing share count by 2.77% annually) further demonstrate shareholder-friendly capital allocation, increasing each investor’s ownership stake.

The only thing really to point out is the modest revenue and EPS growth still, well above the economy growth rate and given the company’s long history and maturity, it can even be considered good.

Let’s move on to the valuation, to see if it’s a good opportunity at the current prices.

📈Business Valuation

To calculate the intrinsic value of the company I’ll use multiple methods:

• Discounted Cash Flows (DCF) – Intrinsic value is estimated by projecting its free cash flows over the next 10 years and discounting them to present value using the estimated cost of capital;
• Historical EV/EBITDA – we assume mean reversion to the historical EV/EBITDA values;
• Historical P/CF – we assume mean reversion to the historical P/CF values;
• Historical P/E – we assume mean reversion to the historical P/E values;
• DDM – the fair value is estimated by projecting the dividend payments across the following years and discounting them to the present value using the estimated Cost of Capital;
• EPS Growth – the fair value is estimated by projected the Earnings Per Share CAGR for the next 5 Years and then, given its current and historic values of PE, come up with a PE for the 5th Year. This will give us its price 5 Years from now using the formula: Price = EPS x PE that we then discount using the estimated cost of capital;
• Historical Dividend Yield – we assume mean reversion to the historical dividend yield;
• Historical P/S – we assume mean reversion to the historical P/S values.

Cost of Capital

I’ve used the latest annual and half year financial statements of the company, the 10-Year Germany bonds as the risk free rate (given that Netherlands uses the Euro, used Germany bonds) and revenue geographic exposure to come up with its cost of capital, cost of debt and cost of equity. Also, given the fact that Moody’s provided a rating for the company I used it as the debt rating.

Cost of Capital: 6.94%.

This value will be used later as a discount rate in the valuation methods.

Please feel free to come up with your own values by using the tool I’ve used: Cost of Capital – The Fair Value Journal. It is and will ever be completely free 🙂

Discounted Cash Flows (Weight: 35%)

I’ve used the latest annual and half year financial statements of the company, the analyst estimates for both revenue and margins and the cost of capital calculated previously.

Some notes on the inputs above:

• Terminal Revenue Growth – I’m using the risk-free rate (10-Yr bonds of Germany), because long term the company should not grow more than the rate of the economy. I’m using the risk-free rate as a proxy to it, so the terminal growth becomes it. Why use Germany? Given the fact that Netherlands uses the Euro as currency, and multiple countries use that currency, by norm I use the country most default free or with the the higher Moody’s rating, in this case I’m using Germany for Euro countries. As always feel free to assume otherwise and calculate using your own values.
• Initial and Terminal Cost of Capital – I’m assuming here the cost of capital previously estimated.
• Initial and Terminal Tax Rate – I’m assuming here a tax rate near its current values ~22-23%.

All the other inputs were taken from the financial statement or from analyst projections.

The DCF gives us an estimated fair value of 87.76 euros for Wolters Kluwer.

Something that we can also do now is to play around with Monte Carlo simulations. What this will allow us to do is to simulate multiple DCF valuations with pre-defined ranges for each of the inputs. Each simulation will randomize the inputs between these pre-defined values. For this I also used analysts estimates.

As you can see from the above Wolters Kluwer seems to be undervalued or at maximum a little undervalued given that its current price of 84.38 euros is around P20. From these simulations we can extrapolate that there’s 80% probability that the stock is undervalued at the current price.

As always take this single output, from this DCF valuation method, with a grain of salt. Let’s move on to the other valuation methods to get a clearer picture.

Please be free, as before, to fill in your own values. Make the valuation your own and do yourself a DCF valuation using your own assumptions: DCF – The Fair Value Journal

Historical EV/EBITDA (Weight: 15%)

The current EV/EBITDA (Enterprise Value / Earnings Before Interests, Taxes, Depreciation and Amortization) ratio is below its 7-8 Year average. This means that the company is undervalued by this metric. Assuming a mean reversion to its historical average of 16.77 we can assume a fair value of 111.00 euros.

For every type of historical and relative valuation you can use the same free tool: Historical / Relative Valuation – The Fair Value Journal

Historical P/CF (Weight: 15%)

The current P/CF (Price / Free Cash Flow) ratio is below its 7-8 Year average. This means that the company is undervalued by this metric. Assuming a mean reversion to its historical average of 18.03 we can assume a fair value of 115.17 euros.

Historical P/E (Weight: 10%)

The current P/E (Price / Earnings) ratio is below its 7-8 Year average. This means that the company is undervalued by this metric. Assuming a mean reversion to its historical average of 28.92 we can assume a fair value of 117.79 euros.

DDM – Variable Growth (Weight: 10%)

Now we look at a Dividend Discount Model (DDM). This will allow us to value the company, using its dividend payments and the overall growth of it. In this type of DDM we’ll set the dividend to grow at an initial rate that then over time moderates and declines to a given terminal stable growth that will be maintained “forever”.

For the stable growth, I normally use the growth rate of the economy the company is based on, namely the 10-Year bonds of the currency used by that economy country. The same as before, here we’re using the 10 Year bonds of Germany.

As you can see below I started the dividend growth at 7.44% (analysts expectations) and then slowly the growth moderates to 2.81% (the risk free rate – 10-Yr bonds of Germany). Also note the use of the Cost of Equity, calculated previously when we also calculated the Cost of Capital.

Why use Cost of Equity and not Cost of Capital as the discount rate for DDM? Its because dividends are paid to equity holders after debt obligations. Since DDM values equity-only cash flows, we use an equity-only discount rate (the Cost of Equity).

Then, as always, we can also use a Monte Carlo simulation to dive deeper into the valuation 🤓

Using the DDM method, it seems the company is overvalued because its current price is well above the P90. However, please keep in mind that, given the fact that the total dividend payments only represent a fraction (~40-50% payout ratio) of the total free cash flows returned to the company shareholders, this method may undervaluate the company. It is better suited for companies with a higher payout ratio. Despite this, it’s always better to have a broad overview of the value of the company and then at the end use our common sense to select the weight of each valuation method to come up with its estimated fair value.

EPS Growth (Weight: 5%)

For this valuation method, I’ve used the current EPS and the analysts estimates of EPS growth. I also assumed a 20 PE for the company, so a little above its current value but still below its historical averages.

Then again, I used the Monte Carlo simulations to check how the estimated fair value changed as my assumptions were modified.

Using this valuation method, Wolters Kluwer that is currently priced at 84.38 euros seems to be overvalued being currently valued well below P10.

As before, feel free to try this yourself: EPS Growth – The Fair Value Journal

Historical Dividend Yield (Weight: 5%)

The current Dividend Yield ratio is above its 7-8 Year average. This means that the company is undervalued by this metric. Assuming a mean reversion to its historical average of 1.73% we can assume a fair value of 142.30 euros.

Historical P/S (Weight: 5%)

The current P/S (Price / Sales) ratio is below its 7-8 Year average. This means that the company is undervalued by this metric. Assuming a mean reversion to its historical average of 4.80 we can assume a fair value of 112.36 euros.

✍️Summary

Now that we did all the heavy work, let’s take the above and come up with the company weighted average fair value.

I basically take each valuation method used and given my confidence on the company apply a 20% or 10% discount (when to buy) and addition (when to sell) or use the Monte Carlo P10, P20, P80 and P90 values:

Feel free to choose your own values, but for me I will pick a fair value of 85.91 euros because I still need to make some research and know more in depth the company. However, overall and given its key metrics it is a good company and its Low Uncertainty rating makes the High Confidence Buy Price still a good call.

Overall it seems Wolters Kluwer is undervalued or at maximum a little undervalued at the moment.

Fair Value: 85.91 euros