DCF Studio

    LYC.AX · ASX · Basic Materials

    Lynas Rare Earths Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 0.39

    Market price

    AUD 14.35

    Implied upside

    -97.3%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis model values the shares at 2.7% of the market price. A gap that size is a modelling failure rather than a view - most often an unusable beta, a currency or units mismatch, or a cashflow base that does not represent the business. Read the figures below as diagnostics, not as a call.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.
    AdjustedCapital expenditure runs at 74.5% of revenue against depreciation of 13.0%. 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.

    Current EV/EBITDA of 34.9x 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 0.39-97.3%
    Exit multiple
    AUD 4.91-65.8%
    Market price
    AUD 14.35

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (AUD). Outflows negative.

    -630309898-3151549490FY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayAUD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueAUD 1.1bnAUD 1.1bnAUD 1.2bnAUD 1.3bnAUD 1.4bn+7.5%
    EBITAUD 221.9mAUD 238.6mAUD 256.5mAUD 275.8mAUD 296.4m+7.5%
    NOPATAUD 187.4mAUD 201.5mAUD 216.6mAUD 232.8mAUD 250.3m+7.5%
    Add depreciation & amortisationAUD 136.2mAUD 146.5mAUD 157.5mAUD 169.3mAUD 182.0m+7.5%
    Less capital expenditureAUD -783.3mAUD -842.1mAUD -905.2mAUD -973.2mAUD -1.0bn+7.5%
    Less increase in working capitalAUD -12.3mAUD -13.2mAUD -14.2mAUD -15.3mAUD -16.4m+7.5%
    Free cashflow to firmAUD -471.9mAUD -507.3mAUD -545.4mAUD -586.3mAUD -630.3m-7.5%
    Discount factor0.95340.86660.78770.71600.6508-
    Present valueAUD -449.9mAUD -439.6mAUD -429.6mAUD -419.8mAUD -410.2m+2.3%
    Present Value Of The ForecastAUD -2.1bn

    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
    Beta0.799Reported 0.700, pulled toward 1.0 (Blume)
    Cost of equity10.14%Risk-free + beta x equity risk premium
    Cost of debt5.48%Interest expense / average total debt
    Market capitalisationAUD 14.4bn97.7% of capital
    Total debtAUD 338.3m2.3% of capital, book value as a proxy
    Tax rate15.6%Effective, capped at statutory
    WACC10.02%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 shareAUD 0.39

    -346% of EV

    Forecast FCFF, final year
    AUD -630.3m
    Capex at depreciation, working capital in reinvestment
    AUD 250.3m
    Less reinvestment at g/ROIC (25.0% of NOPAT)
    AUD -62.5m
    Capitalised
    AUD 187.8m
    ROIC (WACC floor)
    10.0%
    Terminal value, undiscounted
    AUD 2.6bn
    Terminal value, discounted
    AUD 1.7bn
    Enterprise value
    AUD -482.0m
    Less net debt
    AUD -870.8m
    Equity value
    AUD 388.8m

    Exit at 20.0x EBITDA

    Value per shareAUD 4.91

    153% of EV

    Terminal value, undiscounted
    AUD 9.6bn
    Terminal value, discounted
    AUD 6.2bn
    Enterprise value
    AUD 4.1bn
    Less net debt
    AUD -870.8m
    Equity value
    AUD 4.9bn

    Spread between methods: 171%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.02%0.860.870.880.890.90
    9.02%0.580.590.600.610.62
    10.02%0.370.380.390.390.40
    11.02%0.210.220.220.230.24
    12.02%0.080.090.090.100.11

    Outlined: this model. Green text: above today's price of 14.35. 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 year7.5%97.4%+89.9pp
    Discount rate10.0%3.1%-7.0pp
    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.