DCF Studio

    MS · NYQ · Financial Services

    Morgan Stanley

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD -14.38

    Market price

    USD 202.58

    Implied upside

    -107.1%

    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.

    Current EV/EBITDA of 22.8x 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 -14.38-107.1%
    Exit multiple
    USD 193.16-4.6%
    Market price
    USD 202.58

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn8bn17bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 72.2bnUSD 79.1bnUSD 86.7bnUSD 94.9bnUSD 104.0bn+9.5%
    EBITUSD 20.8bnUSD 22.8bnUSD 25.0bnUSD 27.3bnUSD 29.9bn+9.5%
    NOPATUSD 16.4bnUSD 18.0bnUSD 19.7bnUSD 21.6bnUSD 23.7bn+9.5%
    Add depreciation & amortisationUSD 5.8bnUSD 6.4bnUSD 7.0bnUSD 7.7bnUSD 8.4bn+9.5%
    Less capital expenditureUSD -4.2bnUSD -4.6bnUSD -5.0bnUSD -5.5bnUSD -6.0bn+9.5%
    Less increase in working capitalUSD -6.3bnUSD -6.9bnUSD -7.5bnUSD -8.3bnUSD -9.0bn+9.5%
    Free cashflow to firmUSD 11.8bnUSD 12.9bnUSD 14.2bnUSD 15.5bnUSD 17.0bn+9.5%
    Discount factor0.96150.88880.82160.75950.7021-
    Present valueUSD 11.3bnUSD 11.5bnUSD 11.6bnUSD 11.8bnUSD 11.9bn+1.2%
    Present Value Of The ForecastUSD 58.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.139Reported 1.207, pulled toward 1.0 (Blume)
    Cost of equity11.26%Risk-free + beta x equity risk premium
    Cost of debt7.00%Implied cost of debt of 14.4% 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 capitalisationUSD 318.2bn46.2% of capital
    Total debtUSD 370.5bn53.8% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC8.18%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 -14.38

    78% of EV

    Forecast FCFF, final year
    USD 17.0bn
    Capex at depreciation, working capital in reinvestment
    USD 23.7bn
    Less reinvestment at g/ROIC (30.6% of NOPAT)
    USD -7.2bn
    Capitalised
    USD 16.4bn
    ROIC (WACC floor)
    8.2%
    Terminal value, undiscounted
    USD 296.5bn
    Terminal value, discounted
    USD 208.2bn
    Enterprise value
    USD 266.3bn
    Less net debt
    USD 289.2bn
    Equity value
    USD -22.9bn

    Exit at 20.0x EBITDA

    Value per shareUSD 193.16

    90% of EV

    Terminal value, undiscounted
    USD 767.1bn
    Terminal value, discounted
    USD 538.6bn
    Enterprise value
    USD 596.7bn
    Less net debt
    USD 289.2bn
    Equity value
    USD 307.5bn

    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%
    6.18%43.0643.9844.9045.8246.73
    7.18%9.5510.3111.0611.8212.58
    8.18%-15.66-15.02-14.38-13.75-13.11
    9.18%-35.28-34.74-34.19-33.65-33.10
    10.18%-50.98-50.51-50.03-49.56-49.09

    Outlined: this model. Green text: above today's price of 202.58. 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 year9.5%36.4%+26.9pp
    EBIT margin28.8%63.2%+34.4pp
    Discount rate8.2%3.8%-4.4pp
    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.