DCF Studio

    BF-B · NYQ · Consumer Defensive

    Brown-Forman Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 22.84

    Market price

    USD 25.94

    Implied upside

    -11.9%

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

    AdjustedCapital expenditure runs at 4.2% of revenue against depreciation of 2.1%. 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.

    Value Per Share

    Perpetuity growth
    USD 22.84-11.9%
    Exit multiple
    USD 20.13-22.4%
    Market price
    USD 25.94

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m349m697mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 3.8bnUSD 3.7bnUSD 3.6bnUSD 3.6bnUSD 3.5bn-2.4%
    EBITUSD 1.1bnUSD 1.1bnUSD 1.0bnUSD 1.0bnUSD 991.5m-2.4%
    NOPATUSD 871.1mUSD 849.9mUSD 829.3mUSD 809.2mUSD 789.6m-2.4%
    Add depreciation & amortisationUSD 81.5mUSD 79.5mUSD 77.6mUSD 75.7mUSD 73.9m-2.4%
    Less capital expenditureUSD -160.1mUSD -156.2mUSD -152.5mUSD -148.8mUSD -145.2m-2.4%
    Less increase in working capitalUSD -95.2mUSD -92.9mUSD -90.6mUSD -88.4mUSD -86.3m-2.4%
    Free cashflow to firmUSD 697.2mUSD 680.3mUSD 663.8mUSD 647.8mUSD 632.1m-2.4%
    Discount factor0.96530.89930.83790.78070.7274-
    Present valueUSD 673.0mUSD 611.9mUSD 556.3mUSD 505.7mUSD 459.8m-9.1%
    Present Value Of The ForecastUSD 2.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.552Reported 0.331, pulled toward 1.0 (Blume)
    Cost of equity8.03%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 11.9bn82.6% of capital
    Total debtUSD 2.5bn17.4% of capital, book value as a proxy
    Tax rate20.4%Effective, capped at statutory
    WACC7.33%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 22.84

    78% of EV

    Forecast FCFF, final year
    USD 632.1m
    Capex at depreciation, working capital in reinvestment
    USD 789.6m
    Less reinvestment at g/ROIC (17.6% of NOPAT)
    USD -138.8m
    Capitalised
    USD 650.8m
    ROIC (reported)
    14.2%
    Terminal value, undiscounted
    USD 13.8bn
    Terminal value, discounted
    USD 10.0bn
    Enterprise value
    USD 12.9bn
    Less net debt
    USD 2.2bn
    Equity value
    USD 10.7bn

    Exit at 11.3x EBITDA

    Value per shareUSD 20.13

    76% of EV

    Terminal value, undiscounted
    USD 12.1bn
    Terminal value, discounted
    USD 8.8bn
    Enterprise value
    USD 11.6bn
    Less net debt
    USD 2.2bn
    Equity value
    USD 9.4bn

    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%
    5.33%33.3436.8541.5848.3258.72
    6.33%25.5827.4429.7732.7836.85
    7.33%20.4821.5622.8424.4226.39
    8.33%16.8817.5318.2919.1920.26
    9.33%14.2014.6115.0715.6116.22

    Outlined: this model. Green text: above today's price of 25.94. 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-2.4%-0.6%+1.8pp
    EBIT margin28.5%31.6%+3.0pp
    Discount rate7.3%6.8%-0.5pp
    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.