DCF Studio

    AFL · NYQ · Financial Services

    Aflac Incorporated

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 210.66

    Market price

    USD 116.33

    Implied upside

    +81.1%

    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.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReported capital expenditure averages just 0.00% 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. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.0%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    No usable EV/EBITDA (EBITDA is not positive), so the exit multiple falls back to 8x.

    Value Per Share

    Perpetuity growth
    USD 210.66+81.1%
    Exit multiple
    USD 185.20+59.2%
    Market price
    USD 116.33

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn4bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 16.8bnUSD 16.3bnUSD 15.7bnUSD 15.2bnUSD 14.7bn-3.2%
    EBITUSD 4.7bnUSD 4.6bnUSD 4.4bnUSD 4.3bnUSD 4.2bn-3.2%
    NOPATUSD 4.1bnUSD 4.0bnUSD 3.9bnUSD 3.7bnUSD 3.6bn-3.2%
    Add depreciation & amortisationUSD 0.00USD 0.00USD 0.00USD 0.00USD 0.00-
    Less capital expenditureUSD -167.9mUSD -162.5mUSD -157.3mUSD -152.2mUSD -147.3m-3.2%
    Less increase in working capitalUSD -366.3mUSD -354.5mUSD -343.1mUSD -332.0mUSD -321.3m-3.2%
    Free cashflow to firmUSD 3.6bnUSD 3.5bnUSD 3.4bnUSD 3.2bnUSD 3.1bn-3.2%
    Discount factor0.96060.88640.81800.75480.6965-
    Present valueUSD 3.4bnUSD 3.1bnUSD 2.7bnUSD 2.4bnUSD 2.2bn-10.7%
    Present Value Of The ForecastUSD 13.9bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.719Reported 0.580, pulled toward 1.0 (Blume)
    Cost of equity8.95%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 58.3bn87.4% of capital
    Total debtUSD 8.4bn12.6% of capital, book value as a proxy
    Tax rate13.3%Effective, capped at statutory
    WACC8.37%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 210.66

    73% of EV

    Forecast FCFF, final year
    USD 3.1bn
    Capex at depreciation, working capital in reinvestment
    USD 3.6bn
    Less reinvestment at g/ROIC (16.1% of NOPAT)
    USD -582.0m
    Capitalised
    USD 3.0bn
    ROIC (reported)
    15.5%
    Terminal value, undiscounted
    USD 52.8bn
    Terminal value, discounted
    USD 36.8bn
    Enterprise value
    USD 50.7bn
    Less net debt
    USD -62.0bn
    Equity value
    USD 112.7bn

    Exit at 8.0x EBITDA

    Value per shareUSD 185.20

    63% of EV

    Terminal value, undiscounted
    USD 33.3bn
    Terminal value, discounted
    USD 23.2bn
    Enterprise value
    USD 37.1bn
    Less net debt
    USD -62.0bn
    Equity value
    USD 99.1bn

    Spread between methods: 13%.

    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%
    6.37%239.17246.86256.49268.94285.66
    7.37%218.91223.45228.88235.52243.84
    8.37%204.55207.37210.66214.53219.16
    9.37%193.83195.65197.73200.10202.85
    10.37%185.52186.73188.07189.57191.27

    Outlined: this model. Green text: above today's price of 116.33. 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 year-3.2%-38.0%-34.7pp
    EBIT margin28.3%1.2%-27.0pp
    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.