DCF Studio

    BAB.L · LSE · Industrials

    Babcock International Group PLC

    Also onConsensus Drift

    Implied value per share

    GBp 734.09

    Market price

    GBp 986.00

    Implied upside

    -25.5%

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

    NoteRisk-free rate is an assumption: GBP assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    GBp 734.09-25.5%
    Exit multiple
    GBp 1034.83+5.0%
    Market price
    GBp 986.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    0m122m245mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayGBP
    LineFY27FY28FY29FY30FY31CAGR
    RevenueGBP 5.5bnGBP 5.7bnGBP 6.0bnGBP 6.4bnGBP 6.7bn+5.3%
    EBITGBP 296.3mGBP 311.9mGBP 328.4mGBP 345.6mGBP 363.9m+5.3%
    NOPATGBP 222.2mGBP 233.9mGBP 246.3mGBP 259.2mGBP 272.9m+5.3%
    Add depreciation & amortisationGBP 161.8mGBP 170.3mGBP 179.3mGBP 188.7mGBP 198.7m+5.3%
    Less capital expenditureGBP -161.0mGBP -169.5mGBP -178.4mGBP -187.8mGBP -197.7m+5.3%
    Less increase in working capitalGBP -23.9mGBP -25.2mGBP -26.5mGBP -27.9mGBP -29.4m+5.3%
    Free cashflow to firmGBP 199.1mGBP 209.6mGBP 220.7mGBP 232.3mGBP 244.5m+5.3%
    Discount factor0.96050.88620.81760.75430.6959-
    Present valueGBP 191.3mGBP 185.8mGBP 180.4mGBP 175.2mGBP 170.2m-2.9%
    Present Value Of The ForecastGBP 902.8m

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate4.50%GBP assumption - no free live source available for this market (assumption)
    Equity risk premium5.50%Market assumption
    Beta0.909Reported 0.864, pulled toward 1.0 (Blume)
    Cost of equity9.50%Risk-free + beta x equity risk premium
    Cost of debt4.67%Interest expense / average total debt
    Market capitalisationGBP 4.8bn81.5% of capital
    Total debtGBP 1.1bn18.5% of capital, book value as a proxy
    Tax rate25.0%Effective, capped at statutory
    WACC8.39%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 shareGBP 7.34

    77% of EV

    Forecast FCFF, final year
    GBP 244.5m
    Capex at depreciation, working capital in reinvestment
    GBP 301.6m
    Less reinvestment at g/ROIC (15.5% of NOPAT)
    GBP -46.8m
    Capitalised
    GBP 254.7m
    ROIC (reported)
    16.1%
    Terminal value, undiscounted
    GBP 4.4bn
    Terminal value, discounted
    GBP 3.1bn
    Enterprise value
    GBP 4.0bn
    Less net debt
    GBP 357.0m
    Equity value
    GBP 3.6bn

    Exit at 11.7x EBITDA

    Value per shareGBP 10.35

    84% of EV

    Terminal value, undiscounted
    GBP 6.6bn
    Terminal value, discounted
    GBP 4.6bn
    Enterprise value
    GBP 5.5bn
    Less net debt
    GBP 357.0m
    Equity value
    GBP 5.1bn

    Spread between methods: 34%.

    Sensitivity

    Value per share (GBP) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.39%9.8710.5811.4612.6014.12
    7.39%8.068.488.989.5910.36
    8.39%6.777.047.347.708.13
    9.39%5.815.986.186.406.66
    10.39%5.075.195.315.465.62

    Outlined: this model. Green text: above today's price of 9.86. 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 year5.3%12.5%+7.2pp
    EBIT margin5.4%7.2%+1.8pp
    Discount rate8.4%7.0%-1.4pp
    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.