Intrinsic value (intrinsic valuation)

Intrinsic value is the estimated economic value of an asset or company based on its fundamental characteristics — cash flow generation capacity, growth prospects, risk profile — independently of observable market prices. It is determined through analytical valuation methods, primarily the DCF model, which derives value from the asset's own projected performance discounted at a risk-adjusted rate. Intrinsic value may diverge significantly from market price in the short term — but tends to converge over time. In business valuation, it provides the theoretical anchor for transaction pricing and counterbalances the market approach when comparable data is scarce or unrepresentative.

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Example: a Swiss technology company trades at CHF 15.0 per share (market price). Hectelion's DCF analysis, based on 8 years of projected free cash flows discounted at a WACC of 10.5%, produces an intrinsic value of CHF 19.5 per share — a 30% premium to market, suggesting the market is undervaluing the company's long-term growth prospects. This intrinsic value gap supports the acquirer's offer at CHF 18.0 per share as creating immediate value for shareholders.

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Hectelion uses intrinsic value analysis as the theoretical foundation for every DCF valuation, triangulated against market-based approaches to produce robust and defensible value conclusions.