DCF Studio

    DGE.L · LSE · Consumer Defensive

    Diageo plc

    Also onConsensus Drift

    Implied value per share

    GBp 1728.00

    Market price

    GBp 1606.00

    Implied upside

    +7.6%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 0.7466

    AdjustedReports in USD, trades in GBp. Modelled in USD, converted at the end.
    NoteRisk-free rate is an assumption: GBP assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    GBp 1728.00+7.6%
    Exit multiple
    GBp 1223.68-23.8%
    Market price
    GBp 1606.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn3bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 19.3bnUSD 19.1bnUSD 18.8bnUSD 18.5bnUSD 18.2bn-1.5%
    EBITUSD 4.6bnUSD 4.5bnUSD 4.4bnUSD 4.3bnUSD 4.3bn-1.5%
    NOPATUSD 3.5bnUSD 3.4bnUSD 3.4bnUSD 3.3bnUSD 3.3bn-1.5%
    Add depreciation & amortisationUSD 1.4bnUSD 1.4bnUSD 1.4bnUSD 1.4bnUSD 1.4bn-1.5%
    Less capital expenditureUSD -1.4bnUSD -1.4bnUSD -1.3bnUSD -1.3bnUSD -1.3bn-1.5%
    Less increase in working capitalUSD -294.9mUSD -290.5mUSD -286.1mUSD -281.8mUSD -277.6m-1.5%
    Free cashflow to firmUSD 3.2bnUSD 3.2bnUSD 3.2bnUSD 3.1bnUSD 3.1bn-1.5%
    Discount factor0.97140.91660.86500.81620.7702-
    Present valueUSD 3.2bnUSD 2.9bnUSD 2.7bnUSD 2.5bnUSD 2.4bn-7.1%
    Present Value Of The ForecastUSD 13.7bn

    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
    Beta0.546Reported 0.322, pulled toward 1.0 (Blume)
    Cost of equity7.50%Risk-free + beta x equity risk premium
    Cost of debt4.61%Interest expense / average total debt
    Market capitalisationUSD 35.7bn61.7% of capital
    Total debtUSD 22.2bn38.3% of capital, book value as a proxy
    Tax rate23.7%Effective, capped at statutory
    WACC5.97%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 23.14

    81% of EV

    Forecast FCFF, final year
    USD 3.1bn
    Capex at depreciation, working capital in reinvestment
    USD 3.3bn
    Less reinvestment at g/ROIC (21.4% of NOPAT)
    USD -701.2m
    Capitalised
    USD 2.6bn
    ROIC (reported)
    11.7%
    Terminal value, undiscounted
    USD 75.8bn
    Terminal value, discounted
    USD 58.3bn
    Enterprise value
    USD 72.0bn
    Less net debt
    USD 20.4bn
    Equity value
    USD 51.6bn

    Exit at 10.0x EBITDA

    Value per shareUSD 16.39

    76% of EV

    Terminal value, undiscounted
    USD 56.2bn
    Terminal value, discounted
    USD 43.3bn
    Enterprise value
    USD 57.0bn
    Less net debt
    USD 20.4bn
    Equity value
    USD 36.6bn

    Spread between methods: 34%.

    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%
    3.97%41.2249.8964.4193.76184.81
    4.97%27.1130.5935.4542.7554.97
    5.97%19.3020.9923.1426.0130.02
    6.97%14.3415.2416.3317.6819.41
    7.97%10.9011.4011.9912.6813.52

    Outlined: this model. Green text: above today's price of 21.51. 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-1.5%-2.4%-0.9pp
    EBIT margin23.5%22.3%-1.2pp
    Discount rate6.0%6.2%+0.2pp
    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.