DCF Studio

    HIG · NYQ · Financial Services

    The Hartford Insurance Group, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 335.36

    Market price

    USD 131.89

    Implied upside

    +154.3%

    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 just 0.71% 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 1.93% 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.

    Value Per Share

    Perpetuity growth
    USD 335.36+154.3%
    Exit multiple
    USD 214.51+62.6%
    Market price
    USD 131.89

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn4bn8bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 30.5bnUSD 33.2bnUSD 36.1bnUSD 39.2bnUSD 42.6bn+8.7%
    EBITUSD 4.2bnUSD 4.5bnUSD 4.9bnUSD 5.3bnUSD 5.8bn+8.7%
    NOPATUSD 3.4bnUSD 3.7bnUSD 4.0bnUSD 4.3bnUSD 4.7bn+8.7%
    Add depreciation & amortisationUSD 588.6mUSD 639.9mUSD 695.5mUSD 756.1mUSD 821.9m+8.7%
    Less capital expenditureUSD -588.6mUSD -639.9mUSD -695.5mUSD -756.1mUSD -821.9m+8.7%
    Less increase in working capitalUSD 2.2bnUSD 2.4bnUSD 2.7bnUSD 2.9bnUSD 3.1bn-8.7%
    Free cashflow to firmUSD 5.6bnUSD 6.1bnUSD 6.6bnUSD 7.2bnUSD 7.8bn+8.7%
    Discount factor0.96230.89110.82520.76420.7077-
    Present valueUSD 5.4bnUSD 5.4bnUSD 5.5bnUSD 5.5bnUSD 5.5bn+0.7%
    Present Value Of The ForecastUSD 27.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.631Reported 0.450, pulled toward 1.0 (Blume)
    Cost of equity8.47%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 35.7bn89.1% of capital
    Total debtUSD 4.4bn10.9% of capital, book value as a proxy
    Tax rate19.3%Effective, capped at statutory
    WACC7.99%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 shareUSD 335.36

    65% of EV

    Forecast FCFF, final year
    USD 7.8bn
    Capex at depreciation, working capital in reinvestment
    USD 4.7bn
    Less reinvestment at g/ROIC (17.8% of NOPAT)
    USD -836.6m
    Capitalised
    USD 3.9bn
    ROIC (reported)
    14.0%
    Terminal value, undiscounted
    USD 72.0bn
    Terminal value, discounted
    USD 51.0bn
    Enterprise value
    USD 78.3bn
    Less net debt
    USD -17.8bn
    Equity value
    USD 96.1bn

    Exit at 3.5x EBITDA

    Value per shareUSD 214.51

    37% of EV

    Terminal value, undiscounted
    USD 23.1bn
    Terminal value, discounted
    USD 16.3bn
    Enterprise value
    USD 43.7bn
    Less net debt
    USD -17.8bn
    Equity value
    USD 61.5bn

    Spread between methods: 44%.

    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%
    5.99%416.75438.59466.57503.77555.74
    6.99%359.36371.64386.57405.13428.88
    7.99%319.40326.75335.36345.61358.06
    8.99%289.89294.45299.64305.64312.66
    9.99%267.16270.03273.23276.84280.95

    Outlined: this model. Green text: above today's price of 131.89. 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 year8.7%-10.2%-19.0pp
    EBIT margin13.6%1.8%-11.8pp
    Discount rate8.0%34.9%+26.9pp
    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.