DCF Studio

    HSX.L · LSE · Financial Services

    Hiscox Ltd

    Also onConsensus Drift

    Implied value per share

    GBp 2730.66

    Market price

    GBp 1924.00

    Implied upside

    +41.9%

    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 2730.66+41.9%
    Exit multiple
    GBp 1679.30-12.7%
    Market price
    GBp 1924.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m160m320mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 4.4bnUSD 4.9bnUSD 5.5bnUSD 6.1bnUSD 6.8bn+11.5%
    EBITUSD 708.7mUSD 790.2mUSD 881.2mUSD 982.5mUSD 1.1bn+11.5%
    NOPATUSD 648.5mUSD 723.1mUSD 806.3mUSD 899.1mUSD 1.0bn+11.5%
    Add depreciation & amortisationUSD 83.4mUSD 93.0mUSD 103.7mUSD 115.7mUSD 129.0m+11.5%
    Less capital expenditureUSD -70.1mUSD -78.2mUSD -87.2mUSD -97.2mUSD -108.4m+11.5%
    Less increase in working capitalUSD -454.6mUSD -506.9mUSD -565.2mUSD -630.3mUSD -702.8m+11.5%
    Free cashflow to firmUSD 207.3mUSD 231.1mUSD 257.7mUSD 287.3mUSD 320.4m+11.5%
    Discount factor0.96350.89430.83020.77060.7153-
    Present valueUSD 199.7mUSD 206.7mUSD 213.9mUSD 221.4mUSD 229.2m+3.5%
    Present Value Of The ForecastUSD 1.1bn

    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
    Beta0.595Reported 0.396, pulled toward 1.0 (Blume)
    Cost of equity7.77%Risk-free + beta x equity risk premium
    Cost of debt8.12%Interest expense / average total debt
    Market capitalisationUSD 6.1bn87.1% of capital
    Total debtUSD 902.0m12.9% of capital, book value as a proxy
    Tax rate8.5%Effective, capped at statutory
    WACC7.73%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 36.57

    92% of EV

    Forecast FCFF, final year
    USD 320.4m
    Capex at depreciation, working capital in reinvestment
    USD 1.0bn
    Less reinvestment at g/ROIC (17.6% of NOPAT)
    USD -176.4m
    Capitalised
    USD 826.2m
    ROIC (reported)
    14.2%
    Terminal value, undiscounted
    USD 16.2bn
    Terminal value, discounted
    USD 11.6bn
    Enterprise value
    USD 12.7bn
    Less net debt
    USD 24.0m
    Equity value
    USD 12.6bn

    Exit at 7.7x EBITDA

    Value per shareUSD 22.49

    86% of EV

    Terminal value, undiscounted
    USD 9.4bn
    Terminal value, discounted
    USD 6.7bn
    Enterprise value
    USD 7.8bn
    Less net debt
    USD 24.0m
    Equity value
    USD 7.8bn

    Spread between methods: 48%.

    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%
    5.73%51.6856.2862.2770.4382.22
    6.73%40.7043.2446.3550.2955.41
    7.73%33.3034.8036.5738.7141.33
    8.73%27.9828.9029.9731.2132.67
    9.73%23.9824.5725.2325.9726.83

    Outlined: this model. Green text: above today's price of 25.77. 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 year11.5%-1.2%-12.7pp
    EBIT margin16.1%12.1%-4.0pp
    Discount rate7.7%9.6%+1.9pp
    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.