DCF Studio

    MA · NYQ · Financial Services

    Mastercard Incorporated

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 405.51

    Market price

    USD 565.24

    Implied upside

    -28.3%

    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.
    AdjustedCapital expenditure runs at 4.3% of revenue against depreciation of 3.3%. 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 24.4x 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
    USD 405.51-28.3%
    Exit multiple
    USD 653.75+15.7%
    Market price
    USD 565.24

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn14bn27bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 37.3bnUSD 42.5bnUSD 48.4bnUSD 55.0bnUSD 62.6bn+13.8%
    EBITUSD 21.7bnUSD 24.7bnUSD 28.2bnUSD 32.1bnUSD 36.5bn+13.8%
    NOPATUSD 18.1bnUSD 20.6bnUSD 23.4bnUSD 26.7bnUSD 30.4bn+13.8%
    Add depreciation & amortisationUSD 1.2bnUSD 1.4bnUSD 1.6bnUSD 1.8bnUSD 2.1bn+13.8%
    Less capital expenditureUSD -1.6bnUSD -1.8bnUSD -2.1bnUSD -2.4bnUSD -2.7bn+13.8%
    Less increase in working capitalUSD -1.5bnUSD -1.7bnUSD -2.0bnUSD -2.3bnUSD -2.6bn+13.8%
    Free cashflow to firmUSD 16.2bnUSD 18.4bnUSD 21.0bnUSD 23.9bnUSD 27.2bn+13.8%
    Discount factor0.95640.87480.80020.73200.6696-
    Present valueUSD 15.5bnUSD 16.1bnUSD 16.8bnUSD 17.5bnUSD 18.2bn+4.1%
    Present Value Of The ForecastUSD 84.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.822Reported 0.735, pulled toward 1.0 (Blume)
    Cost of equity9.52%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 495.2bn96.3% of capital
    Total debtUSD 19.0bn3.7% of capital, book value as a proxy
    Tax rate16.8%Effective, capped at statutory
    WACC9.32%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 405.51

    78% of EV

    Forecast FCFF, final year
    USD 27.2bn
    Capex at depreciation, working capital in reinvestment
    USD 30.4bn
    Less reinvestment at g/ROIC (4.6% of NOPAT)
    USD -1.4bn
    Capitalised
    USD 29.0bn
    ROIC (reported)
    54.4%
    Terminal value, undiscounted
    USD 435.3bn
    Terminal value, discounted
    USD 291.5bn
    Enterprise value
    USD 375.5bn
    Less net debt
    USD 8.1bn
    Equity value
    USD 367.4bn

    Exit at 20.0x EBITDA

    Value per shareUSD 653.75

    86% of EV

    Terminal value, undiscounted
    USD 771.2bn
    Terminal value, discounted
    USD 516.3bn
    Enterprise value
    USD 600.4bn
    Less net debt
    USD 8.1bn
    Equity value
    USD 592.3bn

    Spread between methods: 47%.

    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%
    7.32%501.78538.54582.88637.42706.17
    8.32%424.45449.54478.90513.73555.75
    9.32%367.01384.96405.51429.28457.10
    10.32%322.68335.99350.98367.99387.46
    11.32%287.47297.62308.89321.50335.70

    Outlined: this model. Green text: above today's price of 565.24. 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 year13.8%22.4%+8.6pp
    EBIT margin58.2%80.1%+21.9pp
    Discount rate9.3%7.5%-1.9pp
    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.