DCF Studio

    ACGL · NMS · Financial Services

    Arch Capital Group Ltd.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 625.90

    Market price

    USD 96.89

    Implied upside

    +546.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReported capital expenditure averages just 0.36% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 625.90+546.0%
    Exit multiple
    USD 316.68+226.8%
    Market price
    USD 96.89

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn11bn22bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 24.3bnUSD 30.6bnUSD 38.6bnUSD 48.6bnUSD 61.2bn+26.0%
    EBITUSD 5.7bnUSD 7.1bnUSD 9.0bnUSD 11.3bnUSD 14.2bn+26.0%
    NOPATUSD 5.2bnUSD 6.5bnUSD 8.2bnUSD 10.4bnUSD 13.1bn+26.0%
    Add depreciation & amortisationUSD 255.3mUSD 321.6mUSD 405.0mUSD 510.2mUSD 642.6m+26.0%
    Less capital expenditureUSD -243.1mUSD -306.2mUSD -385.7mUSD -485.9mUSD -612.0m+26.0%
    Less increase in working capitalUSD 3.7bnUSD 4.6bnUSD 5.8bnUSD 7.3bnUSD 9.2bn-26.0%
    Free cashflow to firmUSD 8.9bnUSD 11.2bnUSD 14.1bnUSD 17.8bnUSD 22.4bn+26.0%
    Discount factor0.96390.89550.83200.77300.7182-
    Present valueUSD 8.6bnUSD 10.0bnUSD 11.7bnUSD 13.7bnUSD 16.1bn+17.0%
    Present Value Of The ForecastUSD 60.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.519Reported 0.282, pulled toward 1.0 (Blume)
    Cost of equity7.85%Risk-free + beta x equity risk premium
    Cost of debt5.42%Interest expense / average total debt
    Market capitalisationUSD 33.1bn92.4% of capital
    Total debtUSD 2.7bn7.6% of capital, book value as a proxy
    Tax rate8.1%Effective, capped at statutory
    WACC7.63%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 625.90

    73% of EV

    Forecast FCFF, final year
    USD 22.4bn
    Capex at depreciation, working capital in reinvestment
    USD 13.7bn
    Less reinvestment at g/ROIC (15.2% of NOPAT)
    USD -2.1bn
    Capitalised
    USD 11.6bn
    ROIC (reported)
    16.4%
    Terminal value, undiscounted
    USD 231.6bn
    Terminal value, discounted
    USD 166.4bn
    Enterprise value
    USD 226.5bn
    Less net debt
    USD -8.8bn
    Equity value
    USD 235.3bn

    Exit at 4.7x EBITDA

    Value per shareUSD 316.68

    45% of EV

    Terminal value, undiscounted
    USD 69.8bn
    Terminal value, discounted
    USD 50.1bn
    Enterprise value
    USD 110.2bn
    Less net debt
    USD -8.8bn
    Equity value
    USD 119.0bn

    Spread between methods: 66%.

    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%
    5.63%826.70893.31980.911101.441278.06
    6.63%677.41714.70760.80819.36896.35
    7.63%576.43599.04625.90658.38698.53
    8.63%503.46517.90534.56554.05577.18
    9.63%448.19457.72468.49480.77494.93

    Outlined: this model. Green text: above today's price of 96.89. 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 year26.0%-15.0%-41.0pp
    EBIT margin23.3%-0.5%-23.8pp
    Discount rate7.6%56.1%+48.5pp
    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.