DCF Studio

    FFIV · NMS · Technology

    F5, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 135.33

    Market price

    USD 432.03

    Implied upside

    -68.7%

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

    AdjustedReported capital expenditure averages 1.41% of revenue against depreciation and amortisation of 3.77%. A business cannot depreciate more than it invests indefinitely. Capex has been set to 3.77% 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.

    Current EV/EBITDA of 26.5x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 135.33-68.7%
    Exit multiple
    USD 264.33-38.8%
    Market price
    USD 432.03

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m316m631mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 3.2bnUSD 3.4bnUSD 3.5bnUSD 3.7bnUSD 3.9bn+4.6%
    EBITUSD 676.2mUSD 707.6mUSD 740.3mUSD 774.6mUSD 810.5m+4.6%
    NOPATUSD 558.2mUSD 584.1mUSD 611.1mUSD 639.4mUSD 669.0m+4.6%
    Add depreciation & amortisationUSD 121.9mUSD 127.5mUSD 133.4mUSD 139.6mUSD 146.1m+4.6%
    Less capital expenditureUSD -121.9mUSD -127.5mUSD -133.4mUSD -139.6mUSD -146.1m+4.6%
    Less increase in working capitalUSD -31.4mUSD -32.8mUSD -34.3mUSD -35.9mUSD -37.6m+4.6%
    Free cashflow to firmUSD 526.8mUSD 551.2mUSD 576.8mUSD 603.5mUSD 631.4m+4.6%
    Discount factor0.95110.86020.77810.70380.6366-
    Present valueUSD 501.1mUSD 474.2mUSD 448.8mUSD 424.7mUSD 402.0m-5.4%
    Present Value Of The ForecastUSD 2.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.020Reported 1.030, pulled toward 1.0 (Blume)
    Cost of equity10.61%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 24.5bn98.9% of capital
    Total debtUSD 261.8m1.1% of capital, book value as a proxy
    Tax rate17.5%Effective, capped at statutory
    WACC10.56%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 135.33

    67% of EV

    Forecast FCFF, final year
    USD 631.4m
    Capex at depreciation, working capital in reinvestment
    USD 669.0m
    Less reinvestment at g/ROIC (14.9% of NOPAT)
    USD -100.0m
    Capitalised
    USD 569.1m
    ROIC (reported)
    16.7%
    Terminal value, undiscounted
    USD 7.2bn
    Terminal value, discounted
    USD 4.6bn
    Enterprise value
    USD 6.9bn
    Less net debt
    USD -1.1bn
    Equity value
    USD 7.9bn

    Exit at 20.0x EBITDA

    Value per shareUSD 264.33

    84% of EV

    Terminal value, undiscounted
    USD 19.1bn
    Terminal value, discounted
    USD 12.2bn
    Enterprise value
    USD 14.4bn
    Less net debt
    USD -1.1bn
    Equity value
    USD 15.5bn

    Spread between methods: 65%.

    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%
    8.56%161.68166.43171.92178.36186.03
    9.56%144.34147.49151.04155.10159.80
    10.56%130.84132.96135.33137.97140.97
    11.56%120.01121.47123.07124.83126.78
    12.56%111.15112.15113.24114.41115.70

    Outlined: this model. Green text: above today's price of 432.03. 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%40.9%+36.2pp
    EBIT margin20.9%73.0%+52.1pp
    Discount rate10.6%4.7%-5.9pp
    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.