DCF Studio

    0992.HK · HKG · Technology

    Lenovo Group Limited

    Also onConsensus Drift

    Implied value per share

    HKD 27.95

    Market price

    HKD 37.58

    Implied upside

    -25.6%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 7.8441

    AdjustedReports in USD, trades in HKD. Modelled in USD, converted at the end.
    NoteRisk-free rate is an assumption: HKD assumption - no free live source available for this market.

    Current EV/EBITDA of 99.7x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    HKD 27.95-25.6%
    Exit multiple
    HKD 60.55+61.1%
    Market price
    HKD 37.58

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn4bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 91.6bnUSD 101.0bnUSD 111.4bnUSD 122.9bnUSD 135.5bn+10.3%
    EBITUSD 3.4bnUSD 3.8bnUSD 4.1bnUSD 4.6bnUSD 5.0bn+10.3%
    NOPATUSD 2.8bnUSD 3.1bnUSD 3.5bnUSD 3.8bnUSD 4.2bn+10.3%
    Add depreciation & amortisationUSD 1.9bnUSD 2.1bnUSD 2.3bnUSD 2.6bnUSD 2.9bn+10.3%
    Less capital expenditureUSD -2.0bnUSD -2.2bnUSD -2.4bnUSD -2.7bnUSD -3.0bn+10.3%
    Less increase in working capitalUSD 232.6mUSD 256.5mUSD 282.8mUSD 311.9mUSD 344.0m-10.3%
    Free cashflow to firmUSD 3.0bnUSD 3.3bnUSD 3.7bnUSD 4.0bnUSD 4.5bn+10.3%
    Discount factor0.95020.85790.77460.69930.6314-
    Present valueUSD 2.9bnUSD 2.9bnUSD 2.8bnUSD 2.8bnUSD 2.8bn-0.4%
    Present Value Of The ForecastUSD 14.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate3.20%HKD assumption - no free live source available for this market (assumption)
    Equity risk premium7.00%Market assumption
    Beta1.090Reported 1.134, pulled toward 1.0 (Blume)
    Cost of equity10.83%Risk-free + beta x equity risk premium
    Cost of debt5.20%Implied cost of debt of 12.6% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationUSD 466.2bn98.9% of capital
    Total debtUSD 5.2bn1.1% of capital, book value as a proxy
    Tax rate16.5%Effective, capped at statutory
    WACC10.76%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 3.56

    73% of EV

    Forecast FCFF, final year
    USD 4.5bn
    Capex at depreciation, working capital in reinvestment
    USD 5.6bn
    Less reinvestment at g/ROIC (12.4% of NOPAT)
    USD -698.3m
    Capitalised
    USD 4.9bn
    ROIC (reported)
    20.1%
    Terminal value, undiscounted
    USD 61.0bn
    Terminal value, discounted
    USD 38.5bn
    Enterprise value
    USD 52.7bn
    Less net debt
    USD 252.9m
    Equity value
    USD 52.5bn

    Exit at 20.0x EBITDA

    Value per shareUSD 7.72

    88% of EV

    Terminal value, undiscounted
    USD 158.0bn
    Terminal value, discounted
    USD 99.8bn
    Enterprise value
    USD 114.0bn
    Less net debt
    USD 252.9m
    Equity value
    USD 113.7bn

    Spread between methods: 74%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.76%4.374.544.744.975.24
    9.76%3.823.944.074.224.39
    10.76%3.393.473.563.673.78
    11.76%3.043.103.173.243.32
    12.76%2.762.802.852.902.96

    Outlined: this model. Green text: above today's price of 4.79. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year10.3%17.5%+7.2pp
    EBIT margin3.7%5.3%+1.6pp
    Discount rate10.8%8.7%-2.1pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.