DCF Studio

    ATM.NZ · NZE · Consumer Defensive

    The a2 Milk Company Limited

    Also onConsensus Drift

    Implied value per share

    NZD 5.59

    Market price

    NZD 8.05

    Implied upside

    -30.5%

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

    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    NoteRisk-free rate is an assumption: NZD assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    NZD 5.59-30.5%
    Exit multiple
    NZD 9.05+12.4%
    Market price
    NZD 8.05

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (NZD). Outflows negative.

    0m123m246mFY27FY28FY29FY30FY31
    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 173.3mNZD 186.2mNZD 200.0mNZD 214.9mNZD 230.8m+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 185.1mNZD 198.8mNZD 213.6mNZD 229.4mNZD 246.4m+7.4%
    Discount factor0.96300.89320.82840.76820.7125-
    Present valueNZD 178.2mNZD 177.6mNZD 176.9mNZD 176.2mNZD 175.6m-0.4%
    Present Value Of The ForecastNZD 884.5m

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate4.50%NZD assumption - no free live source available for this market (assumption)
    Equity risk premium6.50%Market assumption
    Beta0.514Reported 0.275, pulled toward 1.0 (Blume)
    Cost of equity7.84%Risk-free + beta x equity risk premium
    Cost of debt4.50%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationNZD 5.9bn99.6% of capital
    Total debtNZD 24.3m0.4% of capital, book value as a proxy
    Tax rate28.0%Effective, capped at statutory
    WACC7.82%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 5.59

    73% of EV

    Forecast FCFF, final year
    NZD 246.4m
    Capex at depreciation, working capital in reinvestment
    NZD 230.8m
    Less reinvestment at g/ROIC (23.9% of NOPAT)
    NZD -55.1m
    Capitalised
    NZD 175.7m
    ROIC (reported)
    10.5%
    Terminal value, undiscounted
    NZD 3.4bn
    Terminal value, discounted
    NZD 2.4bn
    Enterprise value
    NZD 3.3bn
    Less net debt
    NZD -760.2m
    Equity value
    NZD 4.1bn

    Exit at 19.3x EBITDA

    Value per shareNZD 9.05

    85% of EV

    Terminal value, undiscounted
    NZD 6.9bn
    Terminal value, discounted
    NZD 4.9bn
    Enterprise value
    NZD 5.8bn
    Less net debt
    NZD -760.2m
    Equity value
    NZD 6.6bn

    Spread between methods: 47%.

    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%
    5.82%7.297.658.128.759.64
    6.82%6.166.346.566.847.20
    7.82%5.395.485.595.725.88
    8.82%4.824.874.924.995.06
    9.82%4.394.424.444.464.49

    Outlined: this model. Green text: above today's price of 8.05. 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%17.7%+10.3pp
    EBIT margin11.4%17.6%+6.3pp
    Discount rate7.8%5.9%-2.0pp
    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.