DCF Studio

    LLOY.L · LSE · Financial Services

    Lloyds Banking Group plc

    Also onConsensus Drift

    Implied value per share

    GBp 82.08

    Market price

    GBp 108.95

    Implied upside

    -24.7%

    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.
    AdjustedCapital expenditure runs at 28.6% of revenue against depreciation of 16.5%. 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 82.08-24.7%
    Exit multiple
    GBp 124.55+14.3%
    Market price
    GBp 108.95

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayGBP
    LineFY26FY27FY28FY29FY30CAGR
    RevenueGBP 21.6bnGBP 23.2bnGBP 25.0bnGBP 26.9bnGBP 29.0bn+7.7%
    EBITGBP 7.2bnGBP 7.8bnGBP 8.4bnGBP 9.0bnGBP 9.7bn+7.7%
    NOPATGBP 5.4bnGBP 5.8bnGBP 6.3bnGBP 6.8bnGBP 7.3bn+7.7%
    Add depreciation & amortisationGBP 3.5bnGBP 3.8bnGBP 4.1bnGBP 4.4bnGBP 4.8bn+7.7%
    Less capital expenditureGBP -6.2bnGBP -6.6bnGBP -7.1bnGBP -7.7bnGBP -8.3bn+7.7%
    Less increase in working capitalGBP -1.5bnGBP -1.7bnGBP -1.8bnGBP -1.9bnGBP -2.1bn+7.7%
    Free cashflow to firmGBP 1.3bnGBP 1.4bnGBP 1.5bnGBP 1.6bnGBP 1.7bn+7.7%
    Discount factor0.96770.90630.84880.79490.7445-
    Present valueGBP 1.2bnGBP 1.3bnGBP 1.3bnGBP 1.3bnGBP 1.3bn+0.8%
    Present Value Of The ForecastGBP 6.3bn

    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
    Beta0.937Reported 0.906, pulled toward 1.0 (Blume)
    Cost of equity9.65%Risk-free + beta x equity risk premium
    Cost of debt6.50%Implied cost of debt of 19.1% 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 62.9bn39.8% of capital
    Total debtGBP 95.1bn60.2% of capital, book value as a proxy
    Tax rate25.0%Effective, capped at statutory
    WACC6.78%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 0.82

    93% of EV

    Forecast FCFF, final year
    GBP 1.7bn
    Capex at depreciation, working capital in reinvestment
    GBP 7.3bn
    Less reinvestment at g/ROIC (36.9% of NOPAT)
    GBP -2.7bn
    Capitalised
    GBP 4.6bn
    ROIC (WACC floor)
    6.8%
    Terminal value, undiscounted
    GBP 110.3bn
    Terminal value, discounted
    GBP 82.1bn
    Enterprise value
    GBP 88.4bn
    Less net debt
    GBP 38.5bn
    Equity value
    GBP 49.9bn

    Exit at 10.0x EBITDA

    Value per shareGBP 1.25

    94% of EV

    Terminal value, undiscounted
    GBP 144.9bn
    Terminal value, discounted
    GBP 107.9bn
    Enterprise value
    GBP 114.2bn
    Less net debt
    GBP 38.5bn
    Equity value
    GBP 75.7bn

    Spread between methods: 41%.

    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%
    4.78%1.541.551.561.571.58
    5.78%1.111.121.131.131.14
    6.78%0.810.810.820.830.83
    7.78%0.590.590.600.600.61
    8.78%0.420.420.430.430.43

    Outlined: this model. Green text: above today's price of 1.09. 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 year7.7%12.5%+4.9pp
    EBIT margin33.6%38.6%+5.0pp
    Discount rate6.8%5.9%-0.9pp
    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.