DCF Studio

    CGF.AX · ASX · Financial Services

    Challenger Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 29.22

    Market price

    AUD 10.20

    Implied upside

    +186.5%

    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.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReported capital expenditure averages just 0.16% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.
    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.7%. 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.

    No usable EV/EBITDA (EBITDA is not positive), so the exit multiple falls back to 8x.

    Value Per Share

    Perpetuity growth
    AUD 29.22+186.5%
    Exit multiple
    AUD 24.12+136.5%
    Market price
    AUD 10.20

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (AUD). Outflows negative.

    -495379650-2476898250FY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayAUD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueAUD 1.8bnAUD 1.9bnAUD 1.9bnAUD 2.0bnAUD 2.0bn+3.0%
    EBITAUD -640.5mAUD -659.5mAUD -679.1mAUD -699.3mAUD -720.1m-3.0%
    NOPATAUD -450.6mAUD -464.0mAUD -477.8mAUD -492.0mAUD -506.6m-3.0%
    Add depreciation & amortisationAUD 12.9mAUD 13.3mAUD 13.6mAUD 14.1mAUD 14.5m+3.0%
    Less capital expenditureAUD -18.2mAUD -18.8mAUD -19.3mAUD -19.9mAUD -20.5m+3.0%
    Less increase in working capitalAUD 15.4mAUD 15.8mAUD 16.3mAUD 16.8mAUD 17.3m-3.0%
    Free cashflow to firmAUD -440.6mAUD -453.7mAUD -467.2mAUD -481.1mAUD -495.4m-3.0%
    Discount factor0.96680.90360.84450.78930.7377-
    Present valueAUD -426.0mAUD -410.0mAUD -394.5mAUD -379.7mAUD -365.4m+3.8%
    Present Value Of The ForecastAUD -2.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.35%Australian Government 10-year (RBA F2)
    Equity risk premium6.00%Market assumption
    Beta0.727Reported 0.592, pulled toward 1.0 (Blume)
    Cost of equity9.71%Risk-free + beta x equity risk premium
    Cost of debt6.78%Interest expense / average total debt
    Market capitalisationAUD 6.9bn45.0% of capital
    Total debtAUD 8.5bn55.0% of capital, book value as a proxy
    Tax rate29.6%Effective, capped at statutory
    WACC6.99%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 shareAUD 29.22

    0% of EV

    Terminal value, undiscounted
    AUD 0.00
    Terminal value, discounted
    AUD 0.00
    Enterprise value
    AUD -2.0bn
    Less net debt
    AUD -25.8bn
    Equity value
    AUD 23.9bn

    Exit at 8.0x EBITDA

    Value per shareAUD 24.12

    68% of EV

    Terminal value, undiscounted
    AUD -5.6bn
    Terminal value, discounted
    AUD -4.2bn
    Enterprise value
    AUD -6.1bn
    Less net debt
    AUD -25.8bn
    Equity value
    AUD 19.7bn

    Spread between methods: 19%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    4.99%29.1129.1129.1129.1129.11
    5.99%29.1629.1629.1629.1629.16
    6.99%29.2229.2229.2229.2229.22
    7.99%29.2729.2729.2729.2729.27
    8.99%29.3329.3329.3329.3329.33

    Outlined: this model. Green text: above today's price of 10.20. Shading: distance from this model's own value.

    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.