DCF Studio

    LGEN.L · LSE · Financial Services

    Legal & General Group Plc

    Also onConsensus Drift

    Implied value per share

    GBp 661.31

    Market price

    GBp 293.50

    Implied upside

    +125.3%

    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.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedOnly 3 year(s) of history available to anchor assumptions on.
    AdjustedConsensus rests on as few as 1 analyst estimate(s).
    AdjustedReported capital expenditure averages just 0.44% 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 0.0%. 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.

    Current EV/EBITDA of 2.6x 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 661.31+125.3%
    Exit multiple
    GBp 598.05+103.8%
    Market price
    GBp 293.50

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    0bn3bn6bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayGBP
    LineFY26FY27FY28FY29FY30CAGR
    RevenueGBP 47.7bnGBP 54.1bnGBP 61.3bnGBP 69.5bnGBP 78.8bn+13.4%
    EBITGBP 481.3mGBP 545.8mGBP 618.9mGBP 701.9mGBP 795.9m+13.4%
    NOPATGBP 360.9mGBP 409.3mGBP 464.2mGBP 526.4mGBP 597.0m+13.4%
    Add depreciation & amortisationGBP 0.00GBP 0.00GBP 0.00GBP 0.00GBP 0.00-
    Less capital expenditureGBP -476.7mGBP -540.6mGBP -613.1mGBP -695.3mGBP -788.5m+13.4%
    Less increase in working capitalGBP 4.0bnGBP 4.5bnGBP 5.1bnGBP 5.8bnGBP 6.6bn-13.4%
    Free cashflow to firmGBP 3.9bnGBP 4.4bnGBP 5.0bnGBP 5.6bnGBP 6.4bn+13.4%
    Discount factor0.96290.89280.82780.76750.7116-
    Present valueGBP 3.7bnGBP 3.9bnGBP 4.1bnGBP 4.3bnGBP 4.5bn+5.1%
    Present Value Of The ForecastGBP 20.6bn

    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
    Beta0.861Reported 0.793, pulled toward 1.0 (Blume)
    Cost of equity9.24%Risk-free + beta x equity risk premium
    Cost of debt4.50%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationGBP 15.9bn76.4% of capital
    Total debtGBP 4.9bn23.6% of capital, book value as a proxy
    Tax rate25.0%Effective, capped at statutory
    WACC7.85%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 6.61

    21% of EV

    Forecast FCFF, final year
    GBP 6.4bn
    Capex at depreciation, working capital in reinvestment
    GBP 597.0m
    Less reinvestment at g/ROIC (31.8% of NOPAT)
    GBP -190.0m
    Capitalised
    GBP 407.0m
    ROIC (WACC floor)
    7.9%
    Terminal value, undiscounted
    GBP 7.8bn
    Terminal value, discounted
    GBP 5.5bn
    Enterprise value
    GBP 26.1bn
    Less net debt
    GBP -14.1bn
    Equity value
    GBP 40.2bn

    Exit at 3.0x EBITDA

    Value per shareGBP 5.98

    8% of EV

    Terminal value, undiscounted
    GBP 2.4bn
    Terminal value, discounted
    GBP 1.7bn
    Enterprise value
    GBP 22.3bn
    Less net debt
    GBP -14.1bn
    Equity value
    GBP 36.3bn

    Spread between methods: 10%.

    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%
    5.85%7.197.207.207.217.22
    6.85%6.866.876.876.886.88
    7.85%6.606.616.616.626.62
    8.85%6.396.396.406.406.40
    9.85%6.216.216.216.226.22

    Outlined: this model. Green text: above today's price of 2.94. 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 year13.4%0.9%-12.5pp
    EBIT margin1.0%-7.8%-8.8pp
    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.