DCF Studio

    A2M.AX · ASX · Consumer Defensive

    The a2 Milk Company Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 4.02

    Market price

    AUD 6.70

    Implied upside

    -40.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · NZD model at 0.8033

    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReports in NZD, trades in AUD. Modelled in NZD, converted at the end.

    Value Per Share

    Perpetuity growth
    AUD 4.02-40.0%
    Exit multiple
    AUD 6.04-9.9%
    Market price
    AUD 6.70

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (NZD). Outflows negative.

    0m120m240mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayNZD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueNZD 2.1bnNZD 2.3bnNZD 2.4bnNZD 2.6bnNZD 2.8bn+7.4%
    EBITNZD 240.8mNZD 258.6mNZD 277.8mNZD 298.4mNZD 320.6m+7.4%
    NOPATNZD 168.5mNZD 181.0mNZD 194.5mNZD 208.9mNZD 224.4m+7.4%
    Add depreciation & amortisationNZD 28.6mNZD 30.7mNZD 33.0mNZD 35.4mNZD 38.0m+7.4%
    Less capital expenditureNZD -30.8mNZD -33.1mNZD -35.5mNZD -38.2mNZD -41.0m+7.4%
    Less increase in working capitalNZD 14.0mNZD 15.0mNZD 16.1mNZD 17.3mNZD 18.6m-7.4%
    Free cashflow to firmNZD 180.3mNZD 193.6mNZD 208.0mNZD 223.4mNZD 240.0m+7.4%
    Discount factor0.96040.88590.81720.75380.6953-
    Present valueNZD 173.1mNZD 171.5mNZD 170.0mNZD 168.4mNZD 166.9m-0.9%
    Present Value Of The ForecastNZD 850.0m

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.35%Australian Government 10-year (RBA F2)
    Equity risk premium6.00%Market assumption
    Beta0.514Reported 0.275, pulled toward 1.0 (Blume)
    Cost of equity8.43%Risk-free + beta x equity risk premium
    Cost of debt5.35%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationNZD 4.9bn99.5% of capital
    Total debtNZD 24.3m0.5% of capital, book value as a proxy
    Tax rate30.0%Effective, capped at statutory
    WACC8.41%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 shareNZD 5.00

    71% of EV

    Forecast FCFF, final year
    NZD 240.0m
    Capex at depreciation, working capital in reinvestment
    NZD 224.4m
    Less reinvestment at g/ROIC (24.6% of NOPAT)
    NZD -55.1m
    Capitalised
    NZD 169.3m
    ROIC (reported)
    10.2%
    Terminal value, undiscounted
    NZD 2.9bn
    Terminal value, discounted
    NZD 2.0bn
    Enterprise value
    NZD 2.9bn
    Less net debt
    NZD -760.2m
    Equity value
    NZD 3.7bn

    Exit at 15.5x EBITDA

    Value per shareNZD 7.51

    82% of EV

    Terminal value, undiscounted
    NZD 5.6bn
    Terminal value, discounted
    NZD 3.9bn
    Enterprise value
    NZD 4.7bn
    Less net debt
    NZD -760.2m
    Equity value
    NZD 5.5bn

    Spread between methods: 40%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.41%6.366.586.867.217.69
    7.41%5.505.615.745.906.10
    8.41%4.884.945.005.085.16
    9.41%4.424.454.474.504.54
    10.41%4.074.084.094.104.11

    Outlined: this model. Green text: above today's price of 8.34. 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 year7.4%22.2%+14.8pp
    EBIT margin11.4%21.1%+9.8pp
    Discount rate8.4%5.6%-2.8pp
    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.