DCF Studio

    FMG.AX · ASX · Basic Materials

    Fortescue Ltd

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 23.94

    Market price

    AUD 16.73

    Implied upside

    +43.1%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 1.4042

    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReports in USD, trades in AUD. Modelled in USD, converted at the end.
    AdjustedCapital expenditure runs at 18.4% of revenue against depreciation of 13.9%. 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
    AUD 23.94+43.1%
    Exit multiple
    AUD 24.29+45.2%
    Market price
    AUD 16.73

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn4bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 16.9bnUSD 16.9bnUSD 16.9bnUSD 16.9bnUSD 16.9bn+0.1%
    EBITUSD 6.6bnUSD 6.6bnUSD 6.6bnUSD 6.6bnUSD 6.6bn+0.1%
    NOPATUSD 4.6bnUSD 4.6bnUSD 4.6bnUSD 4.6bnUSD 4.6bn+0.1%
    Add depreciation & amortisationUSD 2.3bnUSD 2.3bnUSD 2.3bnUSD 2.3bnUSD 2.4bn+0.1%
    Less capital expenditureUSD -3.1bnUSD -3.1bnUSD -3.1bnUSD -3.1bnUSD -3.1bn+0.1%
    Less increase in working capitalUSD -519.4kUSD -520.0kUSD -520.5kUSD -521.1kUSD -521.7k+0.1%
    Free cashflow to firmUSD 3.9bnUSD 3.9bnUSD 3.9bnUSD 3.9bnUSD 3.9bn+0.1%
    Discount factor0.95480.87050.79370.72360.6597-
    Present valueUSD 3.7bnUSD 3.4bnUSD 3.1bnUSD 2.8bnUSD 2.6bn-8.7%
    Present Value Of The ForecastUSD 15.5bn

    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
    Beta0.837Reported 0.756, pulled toward 1.0 (Blume)
    Cost of equity10.37%Risk-free + beta x equity risk premium
    Cost of debt5.35%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 51.5bn89.7% of capital
    Total debtUSD 5.9bn10.3% of capital, book value as a proxy
    Tax rate30.0%Effective, capped at statutory
    WACC9.68%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 17.05

    71% of EV

    Forecast FCFF, final year
    USD 3.9bn
    Capex at depreciation, working capital in reinvestment
    USD 4.6bn
    Less reinvestment at g/ROIC (13.0% of NOPAT)
    USD -603.0m
    Capitalised
    USD 4.0bn
    ROIC (reported)
    19.2%
    Terminal value, undiscounted
    USD 57.5bn
    Terminal value, discounted
    USD 37.9bn
    Enterprise value
    USD 53.4bn
    Less net debt
    USD 857.0m
    Equity value
    USD 52.6bn

    Exit at 6.5x EBITDA

    Value per shareUSD 17.30

    71% of EV

    Terminal value, undiscounted
    USD 58.7bn
    Terminal value, discounted
    USD 38.7bn
    Enterprise value
    USD 54.2bn
    Less net debt
    USD 857.0m
    Equity value
    USD 53.3bn

    Spread between methods: 1%.

    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%
    7.68%21.2622.2823.4924.9526.76
    8.68%18.3118.9819.7520.6521.72
    9.68%16.0816.5317.0517.6418.31
    10.68%14.3414.6515.0115.4115.85
    11.68%12.9413.1613.4113.6913.99

    Outlined: this model. Green text: above today's price of 11.91. 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 year0.1%-7.8%-7.9pp
    EBIT margin39.1%28.1%-11.0pp
    Discount rate9.7%12.9%+3.2pp
    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.