DCF Studio

    INVP.L · LSE · Financial Services

    Investec Group

    Also onConsensus Drift

    Implied value per share

    GBp 2084.90

    Market price

    GBp 644.50

    Implied upside

    +223.5%

    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.
    NoteRisk-free rate is an assumption: GBP assumption - no free live source available for this market.

    Current EV/EBITDA of 1.9x sits outside a defensible 3-20x band, so the exit multiple is capped at 3.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    GBp 2084.90+223.5%
    Exit multiple
    GBp 974.86+51.3%
    Market price
    GBp 644.50

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    0m422m845mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayGBP
    LineFY27FY28FY29FY30FY31CAGR
    RevenueGBP 2.3bnGBP 2.4bnGBP 2.6bnGBP 2.7bnGBP 2.8bn+5.2%
    EBITGBP 984.0mGBP 1.0bnGBP 1.1bnGBP 1.1bnGBP 1.2bn+5.2%
    NOPATGBP 791.0mGBP 832.1mGBP 875.3mGBP 920.8mGBP 968.7m+5.2%
    Add depreciation & amortisationGBP 47.6mGBP 50.1mGBP 52.7mGBP 55.4mGBP 58.3m+5.2%
    Less capital expenditureGBP -35.0mGBP -36.8mGBP -38.7mGBP -40.7mGBP -42.8m+5.2%
    Less increase in working capitalGBP -113.9mGBP -119.8mGBP -126.0mGBP -132.5mGBP -139.4m+5.2%
    Free cashflow to firmGBP 689.7mGBP 725.6mGBP 763.3mGBP 803.0mGBP 844.7m+5.2%
    Discount factor0.96750.90560.84770.79350.7428-
    Present valueGBP 667.3mGBP 657.1mGBP 647.1mGBP 637.2mGBP 627.4m-1.5%
    Present Value Of The ForecastGBP 3.2bn

    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
    Beta0.608Reported 0.415, pulled toward 1.0 (Blume)
    Cost of equity7.84%Risk-free + beta x equity risk premium
    Cost of debt6.50%Implied cost of debt of 99.4% 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 capitalisationGBP 4.0bn61.3% of capital
    Total debtGBP 2.6bn38.7% of capital, book value as a proxy
    Tax rate19.6%Effective, capped at statutory
    WACC6.83%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 20.85

    79% of EV

    Forecast FCFF, final year
    GBP 844.7m
    Capex at depreciation, working capital in reinvestment
    GBP 976.0m
    Less reinvestment at g/ROIC (28.6% of NOPAT)
    GBP -278.9m
    Capitalised
    GBP 697.0m
    ROIC (reported)
    8.7%
    Terminal value, undiscounted
    GBP 16.5bn
    Terminal value, discounted
    GBP 12.3bn
    Enterprise value
    GBP 15.5bn
    Less net debt
    GBP -2.2bn
    Equity value
    GBP 17.7bn

    Exit at 3.0x EBITDA

    Value per shareGBP 9.75

    47% of EV

    Terminal value, undiscounted
    GBP 3.8bn
    Terminal value, discounted
    GBP 2.8bn
    Enterprise value
    GBP 6.1bn
    Less net debt
    GBP -2.2bn
    Equity value
    GBP 8.3bn

    Spread between methods: 73%.

    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%
    4.83%30.0632.4235.7740.9349.93
    5.83%23.8024.7926.0827.7930.22
    6.83%19.8920.3220.8521.5022.33
    7.83%17.2117.3817.5817.8018.07
    8.83%15.2815.3315.3715.4215.46

    Outlined: this model. Green text: above today's price of 6.45. 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 year5.2%-44.0%-49.2pp
    EBIT margin42.7%9.8%-32.9pp
    Discount rate6.8%28.6%+21.8pp
    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.