DCF Studio

    HSBA.L · LSE · Financial Services

    HSBC Holdings plc

    Also onConsensus Drift

    Implied value per share

    GBp 2739.49

    Market price

    GBp 1512.60

    Implied upside

    +81.1%

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

    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.
    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 2739.49+81.1%
    Exit multiple
    GBp 1969.33+30.2%
    Market price
    GBp 1512.60

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn24bn48bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 77.9bnUSD 85.5bnUSD 93.9bnUSD 103.1bnUSD 113.1bn+9.8%
    EBITUSD 32.9bnUSD 36.1bnUSD 39.6bnUSD 43.5bnUSD 47.7bn+9.8%
    NOPATUSD 26.0bnUSD 28.6bnUSD 31.4bnUSD 34.4bnUSD 37.8bn+9.8%
    Add depreciation & amortisationUSD 5.0bnUSD 5.5bnUSD 6.0bnUSD 6.6bnUSD 7.2bn+9.8%
    Less capital expenditureUSD -5.1bnUSD -5.6bnUSD -6.2bnUSD -6.8bnUSD -7.4bn+9.8%
    Less increase in working capitalUSD 6.9bnUSD 7.6bnUSD 8.3bnUSD 9.2bnUSD 10.1bn-9.8%
    Free cashflow to firmUSD 32.8bnUSD 36.0bnUSD 39.5bnUSD 43.4bnUSD 47.6bn+9.8%
    Discount factor0.96770.90620.84850.79460.7440-
    Present valueUSD 31.8bnUSD 32.6bnUSD 33.5bnUSD 34.5bnUSD 35.4bn+2.8%
    Present Value Of The ForecastUSD 167.9bn

    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
    Beta0.713Reported 0.571, pulled toward 1.0 (Blume)
    Cost of equity8.42%Risk-free + beta x equity risk premium
    Cost of debt6.50%Implied cost of debt of 25.3% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationUSD 258.9bn50.3% of capital
    Total debtUSD 256.1bn49.7% of capital, book value as a proxy
    Tax rate20.9%Effective, capped at statutory
    WACC6.79%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 36.69

    72% of EV

    Forecast FCFF, final year
    USD 47.6bn
    Capex at depreciation, working capital in reinvestment
    USD 37.8bn
    Less reinvestment at g/ROIC (36.8% of NOPAT)
    USD -13.9bn
    Capitalised
    USD 23.9bn
    ROIC (WACC floor)
    6.8%
    Terminal value, undiscounted
    USD 570.3bn
    Terminal value, discounted
    USD 424.4bn
    Enterprise value
    USD 592.2bn
    Less net debt
    USD -51.6bn
    Equity value
    USD 643.8bn

    Exit at 6.0x EBITDA

    Value per shareUSD 26.38

    59% of EV

    Terminal value, undiscounted
    USD 327.1bn
    Terminal value, discounted
    USD 243.4bn
    Enterprise value
    USD 411.2bn
    Less net debt
    USD -51.6bn
    Equity value
    USD 462.8bn

    Spread between methods: 33%.

    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%
    4.79%52.1253.5655.5658.5963.85
    5.79%42.0442.1842.3342.4742.62
    6.79%36.4636.5736.6936.8136.93
    7.79%32.3032.4032.5032.6032.69
    8.79%29.0929.1729.2529.3429.42

    Outlined: this model. Green text: above today's price of 20.26. 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 year9.8%-3.5%-13.3pp
    EBIT margin42.2%20.4%-21.8pp
    Discount rate6.8%13.6%+6.8pp
    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.