DCF Studio

    JHX.AX · ASX · Basic Materials

    James Hardie Industries plc

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 14.65

    Market price

    AUD 36.45

    Implied upside

    -59.8%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 1.4042

    AdjustedReports in USD, trades in AUD. Modelled in USD, converted at the end.
    AdjustedCapital expenditure runs at 11.8% of revenue against depreciation of 6.3%. 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.

    Current EV/EBITDA of 21.1x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    AUD 14.65-59.8%
    Exit multiple
    AUD 59.41+63.0%
    Market price
    AUD 36.45

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m398m796mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 5.3bnUSD 5.7bnUSD 6.2bnUSD 6.7bnUSD 7.3bn+8.6%
    EBITUSD 1.1bnUSD 1.2bnUSD 1.3bnUSD 1.4bnUSD 1.5bn+8.6%
    NOPATUSD 749.8mUSD 814.2mUSD 884.1mUSD 960.0mUSD 1.0bn+8.6%
    Add depreciation & amortisationUSD 328.8mUSD 357.1mUSD 387.7mUSD 421.0mUSD 457.2m+8.6%
    Less capital expenditureUSD -620.7mUSD -674.0mUSD -731.9mUSD -794.7mUSD -862.9m+8.6%
    Less increase in working capitalUSD 114.5mUSD 124.3mUSD 135.0mUSD 146.6mUSD 159.2m-8.6%
    Free cashflow to firmUSD 572.4mUSD 621.5mUSD 674.9mUSD 732.8mUSD 795.8m+8.6%
    Discount factor0.95180.86230.78120.70770.6412-
    Present valueUSD 544.8mUSD 536.0mUSD 527.2mUSD 518.6mUSD 510.2m-1.6%
    Present Value Of The ForecastUSD 2.6bn

    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
    Beta1.027Reported 1.040, pulled toward 1.0 (Blume)
    Cost of equity11.51%Risk-free + beta x equity risk premium
    Cost of debt7.71%Interest expense / average total debt
    Market capitalisationUSD 21.2bn81.6% of capital
    Total debtUSD 4.8bn18.4% of capital, book value as a proxy
    Tax rate30.0%Effective, capped at statutory
    WACC10.38%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 10.43

    74% of EV

    Forecast FCFF, final year
    USD 795.8m
    Capex at depreciation, working capital in reinvestment
    USD 1.0bn
    Less reinvestment at g/ROIC (12.9% of NOPAT)
    USD -134.5m
    Capitalised
    USD 907.9m
    ROIC (reported)
    19.4%
    Terminal value, undiscounted
    USD 11.8bn
    Terminal value, discounted
    USD 7.6bn
    Enterprise value
    USD 10.2bn
    Less net debt
    USD 4.5bn
    Equity value
    USD 5.7bn

    Exit at 20.0x EBITDA

    Value per shareUSD 42.31

    90% of EV

    Terminal value, undiscounted
    USD 38.9bn
    Terminal value, discounted
    USD 25.0bn
    Enterprise value
    USD 27.6bn
    Less net debt
    USD 4.5bn
    Equity value
    USD 23.1bn

    Spread between methods: 121%.

    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%
    8.38%14.8815.8516.9718.3019.89
    9.38%11.8312.4813.2214.0815.07
    10.38%9.479.9310.4311.0011.65
    11.38%7.607.928.278.679.11
    12.38%6.076.306.566.837.14

    Outlined: this model. Green text: above today's price of 25.96. 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 year8.6%22.5%+13.9pp
    EBIT margin20.4%36.1%+15.7pp
    Discount rate10.4%6.9%-3.5pp
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    Yahoo Finance and RBA data. General information, not advice. Methodology.