DCF Studio

    IAG.AX · ASX · Financial Services

    Insurance Australia Group Limited

    Also onConsensus Drift

    Implied value per share

    AUD 30.38

    Market price

    AUD 8.01

    Implied upside

    +279.3%

    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.
    Wrong toolThis line has no market capitalisation, which means it is not ordinary shares - typically a hybrid, preference line, note or unlisted stub. A discounted cashflow values a claim on the whole business, so applying it here attributes all of the group’s revenue to a security that has no such claim. Its value is its coupon and call schedule. Look up the ordinary line instead.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReported capital expenditure averages just 0.00% 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 1029.02% 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.

    No usable EV/EBITDA (EBITDA is not positive), so the exit multiple falls back to 8x.

    Value Per Share

    Perpetuity growth
    AUD 30.38+279.3%
    Exit multiple
    AUD 859.96+10636.1%
    Market price
    AUD 8.01

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (AUD). Outflows negative.

    0bn3bn6bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayAUD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueAUD 18.8bnAUD 21.8bnAUD 25.4bnAUD 29.6bnAUD 34.5bn+16.4%
    EBITAUD 4.5bnAUD 5.2bnAUD 6.1bnAUD 7.1bnAUD 8.3bn+16.4%
    NOPATAUD 3.2bnAUD 3.7bnAUD 4.3bnAUD 5.0bnAUD 5.8bn+16.4%
    Add depreciation & amortisationAUD 193.1bnAUD 224.8bnAUD 261.7bnAUD 304.7bnAUD 354.7bn+16.4%
    Less capital expenditureAUD -193.1bnAUD -224.8bnAUD -261.7bnAUD -304.7bnAUD -354.7bn+16.4%
    Less increase in working capitalAUD 150.7mAUD 175.5mAUD 204.3mAUD 237.9mAUD 276.9m-16.4%
    Free cashflow to firmAUD 3.3bnAUD 3.8bnAUD 4.5bnAUD 5.2bnAUD 6.1bn+16.4%
    Discount factor0.96140.88860.82120.75900.7015-
    Present valueAUD 3.2bnAUD 3.4bnAUD 3.7bnAUD 4.0bnAUD 4.3bn+7.6%
    Present Value Of The ForecastAUD 18.5bn

    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
    Beta0.314Reported -0.024, pulled toward 1.0 (Blume)
    Cost of equity7.23%Risk-free + beta x equity risk premium
    Cost of debt11.71%Interest expense / average total debt
    Market capitalisationAUD 0.000.0% of capital
    Total debtAUD 3.2bn100.0% of capital, book value as a proxy
    Tax rate30.0%Effective, capped at statutory
    WACC8.20%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 shareAUD 30.38

    75% of EV

    Forecast FCFF, final year
    AUD 6.1bn
    Capex at depreciation, working capital in reinvestment
    AUD 5.8bn
    Less reinvestment at g/ROIC (22.5% of NOPAT)
    AUD -1.3bn
    Capitalised
    AUD 4.5bn
    ROIC (reported)
    11.1%
    Terminal value, undiscounted
    AUD 80.8bn
    Terminal value, discounted
    AUD 56.7bn
    Enterprise value
    AUD 75.2bn
    Less net debt
    AUD 2.6bn
    Equity value
    AUD 72.5bn

    Exit at 8.0x EBITDA

    Value per shareAUD 859.96

    99% of EV

    Terminal value, undiscounted
    AUD 2903.8bn
    Terminal value, discounted
    AUD 2037.1bn
    Enterprise value
    AUD 2055.6bn
    Less net debt
    AUD 2.6bn
    Equity value
    AUD 2053.0bn

    Spread between methods: 186%.

    Sensitivity

    Value per share (AUD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.20%41.6643.9546.8350.5855.70
    7.20%34.2035.4136.8638.6440.87
    8.20%28.9729.6330.3831.2732.34
    9.20%25.1025.4525.8326.2826.78
    10.20%22.1122.2822.4622.6622.87

    Outlined: this model. Green text: above today's price of 8.01. 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 year16.4%-11.8%-28.2pp
    EBIT margin24.0%6.8%-17.3pp
    Discount rate8.2%24.8%+16.6pp
    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.