DCF Studio

    III.L · LSE · Financial Services

    3i Group Ord

    Also onConsensus Drift

    Implied value per share

    GBp 7329.91

    Market price

    GBp 2664.00

    Implied upside

    +175.1%

    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.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReported capital expenditure averages just 0.11% 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 1.00% 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.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.1%. 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.
    NoteRisk-free rate is an assumption: GBP assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    GBp 7329.91+175.1%
    Exit multiple
    GBp 4627.36+73.7%
    Market price
    GBp 2664.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    0bn3bn7bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayGBP
    LineFY27FY28FY29FY30FY31CAGR
    RevenueGBP 5.7bnGBP 6.0bnGBP 6.3bnGBP 6.6bnGBP 6.9bn+4.8%
    EBITGBP 5.5bnGBP 5.8bnGBP 6.1bnGBP 6.4bnGBP 6.7bn+4.8%
    NOPATGBP 5.5bnGBP 5.8bnGBP 6.1bnGBP 6.4bnGBP 6.7bn+4.8%
    Add depreciation & amortisationGBP 8.0mGBP 8.3mGBP 8.7mGBP 9.2mGBP 9.6m+4.8%
    Less capital expenditureGBP -56.9mGBP -59.6mGBP -62.5mGBP -65.5mGBP -68.7m+4.8%
    Less increase in working capitalGBP -17.3mGBP -18.1mGBP -19.0mGBP -19.9mGBP -20.9m+4.8%
    Free cashflow to firmGBP 5.5bnGBP 5.7bnGBP 6.0bnGBP 6.3bnGBP 6.6bn+4.8%
    Discount factor0.95230.86370.78340.71050.6444-
    Present valueGBP 5.2bnGBP 4.9bnGBP 4.7bnGBP 4.5bnGBP 4.2bn-4.9%
    Present Value Of The ForecastGBP 23.5bn

    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
    Beta1.086Reported 1.129, pulled toward 1.0 (Blume)
    Cost of equity10.48%Risk-free + beta x equity risk premium
    Cost of debt5.60%Interest expense / average total debt
    Market capitalisationGBP 27.2bn95.6% of capital
    Total debtGBP 1.3bn4.4% of capital, book value as a proxy
    Tax rate0.0%Effective, capped at statutory
    WACC10.26%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 shareGBP 73.30

    68% of EV

    Forecast FCFF, final year
    GBP 6.6bn
    Capex at depreciation, working capital in reinvestment
    GBP 6.7bn
    Less reinvestment at g/ROIC (13.3% of NOPAT)
    GBP -889.1m
    Capitalised
    GBP 5.8bn
    ROIC (reported)
    18.7%
    Terminal value, undiscounted
    GBP 76.3bn
    Terminal value, discounted
    GBP 49.1bn
    Enterprise value
    GBP 72.7bn
    Less net debt
    GBP 626.0m
    Equity value
    GBP 72.0bn

    Exit at 5.3x EBITDA

    Value per shareGBP 46.27

    49% of EV

    Terminal value, undiscounted
    GBP 35.1bn
    Terminal value, discounted
    GBP 22.6bn
    Enterprise value
    GBP 46.1bn
    Less net debt
    GBP 626.0m
    Equity value
    GBP 45.5bn

    Spread between methods: 45%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.26%89.9093.4297.53102.40108.26
    9.26%78.5980.9583.6386.7290.33
    10.26%69.8671.4873.3075.3577.69
    11.26%62.9164.0665.3266.7168.28
    12.26%57.2658.0758.9659.9361.00

    Outlined: this model. Green text: above today's price of 26.64. 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 year4.8%-18.0%-22.9pp
    EBIT margin97.0%36.0%-61.0pp
    Discount rate10.3%25.9%+15.6pp
    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.