DCF Studio

    C · NYQ · Financial Services

    Citigroup Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 107.70

    Market price

    USD 131.77

    Implied upside

    -18.3%

    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.
    AdjustedCapital expenditure runs at 7.9% of revenue against depreciation of 5.5%. 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 107.70-18.3%
    Exit multiple
    USD 122.33-7.2%
    Market price
    USD 131.77

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn5bn11bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 89.1bnUSD 93.2bnUSD 97.5bnUSD 102.0bnUSD 106.6bn+4.6%
    EBITUSD 19.2bnUSD 20.1bnUSD 21.0bnUSD 22.0bnUSD 23.0bn+4.6%
    NOPATUSD 15.2bnUSD 15.9bnUSD 16.6bnUSD 17.4bnUSD 18.2bn+4.6%
    Add depreciation & amortisationUSD 4.9bnUSD 5.1bnUSD 5.4bnUSD 5.6bnUSD 5.9bn+4.6%
    Less capital expenditureUSD -7.1bnUSD -7.4bnUSD -7.7bnUSD -8.1bnUSD -8.5bn+4.6%
    Less increase in working capitalUSD -3.9bnUSD -4.1bnUSD -4.3bnUSD -4.5bnUSD -4.7bn+4.6%
    Free cashflow to firmUSD 9.1bnUSD 9.5bnUSD 10.0bnUSD 10.4bnUSD 10.9bn+4.6%
    Discount factor0.96440.89680.83410.77570.7213-
    Present valueUSD 8.8bnUSD 8.5bnUSD 8.3bnUSD 8.1bnUSD 7.9bn-2.7%
    Present Value Of The ForecastUSD 41.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.065Reported 1.097, pulled toward 1.0 (Blume)
    Cost of equity10.86%Risk-free + beta x equity risk premium
    Cost of debt7.00%Implied cost of debt of 23.6% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationUSD 221.0bn37.5% of capital
    Total debtUSD 367.7bn62.5% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC7.53%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 107.70

    81% of EV

    Forecast FCFF, final year
    USD 10.9bn
    Capex at depreciation, working capital in reinvestment
    USD 18.2bn
    Less reinvestment at g/ROIC (33.2% of NOPAT)
    USD -6.0bn
    Capitalised
    USD 12.1bn
    ROIC (WACC floor)
    7.5%
    Terminal value, undiscounted
    USD 247.1bn
    Terminal value, discounted
    USD 178.3bn
    Enterprise value
    USD 219.9bn
    Less net debt
    USD 18.1bn
    Equity value
    USD 201.7bn

    Exit at 9.9x EBITDA

    Value per shareUSD 122.33

    83% of EV

    Terminal value, undiscounted
    USD 285.1bn
    Terminal value, discounted
    USD 205.7bn
    Enterprise value
    USD 247.3bn
    Less net debt
    USD 18.1bn
    Equity value
    USD 229.1bn

    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%
    5.53%153.23153.92154.60155.29155.98
    6.53%126.39126.94127.50128.06128.62
    7.53%106.77107.23107.70108.16108.62
    8.53%91.8392.2292.6193.0193.40
    9.53%80.0980.4280.7681.1081.44

    Outlined: this model. Green text: above today's price of 131.77. 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 year4.6%11.3%+6.7pp
    EBIT margin21.5%25.5%+3.9pp
    Discount rate7.5%6.3%-1.2pp
    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.