DCF Studio

    AJG · NYQ · Financial Services

    Arthur J. Gallagher & Co.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 251.98

    Market price

    USD 239.48

    Implied upside

    +5.2%

    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.

    Value Per Share

    Perpetuity growth
    USD 251.98+5.2%
    Exit multiple
    USD 479.48+100.2%
    Market price
    USD 239.48

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn3bn6bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 16.4bnUSD 19.3bnUSD 22.7bnUSD 26.8bnUSD 31.5bn+17.7%
    EBITUSD 3.1bnUSD 3.7bnUSD 4.3bnUSD 5.1bnUSD 6.0bn+17.7%
    NOPATUSD 2.5bnUSD 3.0bnUSD 3.5bnUSD 4.1bnUSD 4.8bn+17.7%
    Add depreciation & amortisationUSD 1.2bnUSD 1.4bnUSD 1.7bnUSD 2.0bnUSD 2.3bn+17.7%
    Less capital expenditureUSD -259.8mUSD -305.7mUSD -359.8mUSD -423.5mUSD -498.5m+17.7%
    Less increase in working capitalUSD -197.9mUSD -232.9mUSD -274.1mUSD -322.7mUSD -379.8m+17.7%
    Free cashflow to firmUSD 3.3bnUSD 3.8bnUSD 4.5bnUSD 5.3bnUSD 6.3bn+17.7%
    Discount factor0.96290.89290.82800.76780.7119-
    Present valueUSD 3.1bnUSD 3.4bnUSD 3.7bnUSD 4.1bnUSD 4.5bn+9.1%
    Present Value Of The ForecastUSD 18.9bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.669Reported 0.506, pulled toward 1.0 (Blume)
    Cost of equity8.68%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 61.4bn82.0% of capital
    Total debtUSD 13.5bn18.0% of capital, book value as a proxy
    Tax rate19.1%Effective, capped at statutory
    WACC7.84%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 251.98

    76% of EV

    Forecast FCFF, final year
    USD 6.3bn
    Capex at depreciation, working capital in reinvestment
    USD 6.3bn
    Less reinvestment at g/ROIC (31.9% of NOPAT)
    USD -2.0bn
    Capitalised
    USD 4.3bn
    ROIC (WACC floor)
    7.8%
    Terminal value, undiscounted
    USD 82.5bn
    Terminal value, discounted
    USD 58.8bn
    Enterprise value
    USD 77.6bn
    Less net debt
    USD 12.1bn
    Equity value
    USD 65.5bn

    Exit at 20.0x EBITDA

    Value per shareUSD 479.48

    86% of EV

    Terminal value, undiscounted
    USD 165.7bn
    Terminal value, discounted
    USD 117.9bn
    Enterprise value
    USD 136.8bn
    Less net debt
    USD 12.1bn
    Equity value
    USD 124.7bn

    Spread between methods: 62%.

    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%
    5.84%373.26383.50396.41413.37436.98
    6.84%295.51296.95298.41299.91301.47
    7.84%249.77250.87251.98253.08254.18
    8.84%214.65215.59216.52217.46218.40
    9.84%186.73187.54188.35189.15189.96

    Outlined: this model. Green text: above today's price of 239.48. 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 year17.7%16.6%-1.1pp
    EBIT margin19.0%18.0%-1.0pp
    Discount rate7.8%8.2%+0.3pp
    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.