DCF Studio

    MRSH · NYQ · Financial Services

    Marsh & McLennan Companies, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 190.36

    Market price

    USD 175.01

    Implied upside

    +8.8%

    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.

    Value Per Share

    Perpetuity growth
    USD 190.36+8.8%
    Exit multiple
    USD 232.24+32.7%
    Market price
    USD 175.01

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn3bn7bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 29.5bnUSD 32.2bnUSD 35.1bnUSD 38.4bnUSD 41.9bn+9.2%
    EBITUSD 6.7bnUSD 7.3bnUSD 8.0bnUSD 8.7bnUSD 9.5bn+9.2%
    NOPATUSD 5.3bnUSD 5.8bnUSD 6.3bnUSD 6.9bnUSD 7.5bn+9.2%
    Add depreciation & amortisationUSD 959.7mUSD 1.0bnUSD 1.1bnUSD 1.2bnUSD 1.4bn+9.2%
    Less capital expenditureUSD -476.5mUSD -520.3mUSD -568.2mUSD -620.4mUSD -677.5m+9.2%
    Less increase in working capitalUSD -1.1bnUSD -1.2bnUSD -1.3bnUSD -1.5bnUSD -1.6bn+9.2%
    Free cashflow to firmUSD 4.6bnUSD 5.1bnUSD 5.5bnUSD 6.0bnUSD 6.6bn+9.2%
    Discount factor0.96260.89200.82650.76590.7097-
    Present valueUSD 4.5bnUSD 4.5bnUSD 4.6bnUSD 4.6bnUSD 4.7bn+1.2%
    Present Value Of The ForecastUSD 22.9bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.717Reported 0.577, pulled toward 1.0 (Blume)
    Cost of equity8.94%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 83.5bn79.6% of capital
    Total debtUSD 21.4bn20.4% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC7.92%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 190.36

    80% of EV

    Forecast FCFF, final year
    USD 6.6bn
    Capex at depreciation, working capital in reinvestment
    USD 8.1bn
    Less reinvestment at g/ROIC (16.9% of NOPAT)
    USD -1.4bn
    Capitalised
    USD 6.7bn
    ROIC (reported)
    14.8%
    Terminal value, undiscounted
    USD 126.7bn
    Terminal value, discounted
    USD 89.9bn
    Enterprise value
    USD 112.8bn
    Less net debt
    USD 18.8bn
    Equity value
    USD 94.0bn

    Exit at 14.3x EBITDA

    Value per shareUSD 232.24

    83% of EV

    Terminal value, undiscounted
    USD 155.8bn
    Terminal value, discounted
    USD 110.6bn
    Enterprise value
    USD 133.5bn
    Less net debt
    USD 18.8bn
    Equity value
    USD 114.7bn

    Spread between methods: 20%.

    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%
    5.92%270.63294.14324.40364.88421.92
    6.92%212.73226.01242.20262.42288.43
    7.92%172.92180.94190.36201.63215.35
    8.92%143.89148.93154.70161.39169.23
    9.92%121.79125.04128.68132.78137.48

    Outlined: this model. Green text: above today's price of 175.01. 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 year9.2%7.3%-1.9pp
    EBIT margin22.7%21.1%-1.6pp
    Discount rate7.9%8.3%+0.4pp
    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.