DCF Studio

    CFG · NYQ · Financial Services

    Citizens Financial Group, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 56.22

    Market price

    USD 67.04

    Implied upside

    -16.1%

    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 1.83% of revenue against depreciation of 6.26%. A business cannot depreciate more than it invests indefinitely. Capex has been set to 6.26% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.

    Value Per Share

    Perpetuity growth
    USD 56.22-16.1%
    Exit multiple
    USD 64.96-3.1%
    Market price
    USD 67.04

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 8.3bnUSD 8.4bnUSD 8.5bnUSD 8.6bnUSD 8.6bn+0.9%
    EBITUSD 2.3bnUSD 2.3bnUSD 2.3bnUSD 2.4bnUSD 2.4bn+0.9%
    NOPATUSD 1.8bnUSD 1.8bnUSD 1.8bnUSD 1.9bnUSD 1.9bn+0.9%
    Add depreciation & amortisationUSD 520.8mUSD 525.7mUSD 530.6mUSD 535.5mUSD 540.5m+0.9%
    Less capital expenditureUSD -520.8mUSD -525.7mUSD -530.6mUSD -535.5mUSD -540.5m+0.9%
    Less increase in working capitalUSD 76.7mUSD 77.5mUSD 78.2mUSD 78.9mUSD 79.6m-0.9%
    Free cashflow to firmUSD 1.9bnUSD 1.9bnUSD 1.9bnUSD 1.9bnUSD 2.0bn+0.9%
    Discount factor0.95750.87790.80490.73790.6766-
    Present valueUSD 1.8bnUSD 1.7bnUSD 1.5bnUSD 1.4bnUSD 1.3bn-7.5%
    Present Value Of The ForecastUSD 7.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.998Reported 0.997, pulled toward 1.0 (Blume)
    Cost of equity10.49%Risk-free + beta x equity risk premium
    Cost of debt7.00%Implied cost of debt of 32.2% 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 28.2bn71.5% of capital
    Total debtUSD 11.3bn28.5% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.07%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 56.22

    65% of EV

    Forecast FCFF, final year
    USD 2.0bn
    Capex at depreciation, working capital in reinvestment
    USD 1.9bn
    Less reinvestment at g/ROIC (27.6% of NOPAT)
    USD -518.1m
    Capitalised
    USD 1.4bn
    ROIC (WACC floor)
    9.1%
    Terminal value, undiscounted
    USD 21.2bn
    Terminal value, discounted
    USD 14.4bn
    Enterprise value
    USD 22.2bn
    Less net debt
    USD -2.4bn
    Equity value
    USD 24.6bn

    Exit at 9.2x EBITDA

    Value per shareUSD 64.96

    70% of EV

    Terminal value, undiscounted
    USD 26.9bn
    Terminal value, discounted
    USD 18.2bn
    Enterprise value
    USD 26.0bn
    Less net debt
    USD -2.4bn
    Equity value
    USD 28.4bn

    Spread between methods: 14%.

    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%
    7.07%69.5469.7769.9970.2170.44
    8.07%61.8862.0762.2662.4462.63
    9.07%55.9056.0656.2256.3956.55
    10.07%51.1151.2551.3951.5351.67
    11.07%47.1947.3147.4347.5547.67

    Outlined: this model. Green text: above today's price of 67.04. 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 year0.9%4.4%+3.5pp
    EBIT margin27.5%33.5%+6.0pp
    Discount rate9.1%7.4%-1.6pp
    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.