DCF Studio

    ARES · NYQ · Financial Services

    Ares Management Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 15.76

    Market price

    USD 123.80

    Implied upside

    -87.3%

    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 1.67% of revenue against depreciation and amortisation of 6.49%. A business cannot depreciate more than it invests indefinitely. Capex has been set to 6.49% 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.

    Current EV/EBITDA of 47.4x 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
    USD 15.76-87.3%
    Exit multiple
    USD 170.00+37.3%
    Market price
    USD 123.80

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m178m356mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 6.9bnUSD 8.4bnUSD 10.3bnUSD 12.6bnUSD 15.4bn+22.4%
    EBITUSD 1.3bnUSD 1.5bnUSD 1.9bnUSD 2.3bnUSD 2.8bn+22.4%
    NOPATUSD 1.1bnUSD 1.3bnUSD 1.6bnUSD 2.0bnUSD 2.4bn+22.4%
    Add depreciation & amortisationUSD 445.2mUSD 544.8mUSD 666.8mUSD 816.1mUSD 998.9m+22.4%
    Less capital expenditureUSD -445.2mUSD -544.8mUSD -666.8mUSD -816.1mUSD -998.9m+22.4%
    Less increase in working capitalUSD -927.2mUSD -1.1bnUSD -1.4bnUSD -1.7bnUSD -2.1bn+22.4%
    Free cashflow to firmUSD 158.9mUSD 194.4mUSD 238.0mUSD 291.2mUSD 356.4m+22.4%
    Discount factor0.95150.86140.77980.70600.6391-
    Present valueUSD 151.2mUSD 167.5mUSD 185.6mUSD 205.6mUSD 227.8m+10.8%
    Present Value Of The ForecastUSD 937.6m

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.346Reported 1.517, pulled toward 1.0 (Blume)
    Cost of equity12.40%Risk-free + beta x equity risk premium
    Cost of debt5.61%Interest expense / average total debt
    Market capitalisationUSD 41.1bn74.3% of capital
    Total debtUSD 14.2bn25.7% of capital, book value as a proxy
    Tax rate13.5%Effective, capped at statutory
    WACC10.46%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 15.76

    94% of EV

    Forecast FCFF, final year
    USD 356.4m
    Capex at depreciation, working capital in reinvestment
    USD 2.4bn
    Less reinvestment at g/ROIC (23.9% of NOPAT)
    USD -582.4m
    Capitalised
    USD 1.9bn
    ROIC (WACC floor)
    10.5%
    Terminal value, undiscounted
    USD 23.9bn
    Terminal value, discounted
    USD 15.3bn
    Enterprise value
    USD 16.2bn
    Less net debt
    USD 12.8bn
    Equity value
    USD 3.4bn

    Exit at 20.0x EBITDA

    Value per shareUSD 170.00

    98% of EV

    Terminal value, undiscounted
    USD 76.3bn
    Terminal value, discounted
    USD 48.8bn
    Enterprise value
    USD 49.7bn
    Less net debt
    USD 12.8bn
    Equity value
    USD 37.0bn

    Spread between methods: 166%.

    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%
    8.46%39.0939.5540.0140.4740.93
    9.46%25.7426.1326.5326.9227.32
    10.46%15.0715.4115.7616.1016.44
    11.46%6.386.686.987.287.58
    12.46%-0.82-0.55-0.29-0.020.24

    Outlined: this model. Green text: above today's price of 123.80. 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 year22.4%54.5%+32.1pp
    EBIT margin18.3%38.2%+19.9pp
    Discount rate10.5%5.2%-5.3pp
    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.