DCF Studio

    NWG.L · LSE · Financial Services

    NatWest Group plc

    Also onConsensus Drift

    Implied value per share

    GBp 1574.96

    Market price

    GBp 699.40

    Implied upside

    +125.2%

    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 9.0% of revenue against depreciation of 6.7%. 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 1574.96+125.2%
    Exit multiple
    GBp 1030.69+47.4%
    Market price
    GBp 699.40

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    0bn4bn8bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayGBP
    LineFY26FY27FY28FY29FY30CAGR
    RevenueGBP 17.9bnGBP 19.2bnGBP 20.7bnGBP 22.2bnGBP 23.9bn+7.5%
    EBITGBP 7.5bnGBP 8.1bnGBP 8.7bnGBP 9.4bnGBP 10.1bn+7.5%
    NOPATGBP 5.7bnGBP 6.2bnGBP 6.6bnGBP 7.1bnGBP 7.7bn+7.5%
    Add depreciation & amortisationGBP 1.2bnGBP 1.3bnGBP 1.4bnGBP 1.5bnGBP 1.6bn+7.5%
    Less capital expenditureGBP -1.6bnGBP -1.7bnGBP -1.9bnGBP -2.0bnGBP -2.1bn+7.5%
    Less increase in working capitalGBP 622.9mGBP 669.9mGBP 720.5mGBP 774.9mGBP 833.3m-7.5%
    Free cashflow to firmGBP 5.9bnGBP 6.4bnGBP 6.9bnGBP 7.4bnGBP 8.0bn+7.5%
    Discount factor0.96750.90550.84760.79330.7425-
    Present valueGBP 5.8bnGBP 5.8bnGBP 5.8bnGBP 5.9bnGBP 5.9bn+0.7%
    Present Value Of The ForecastGBP 29.1bn

    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
    Beta0.872Reported 0.809, pulled toward 1.0 (Blume)
    Cost of equity9.30%Risk-free + beta x equity risk premium
    Cost of debt6.50%Implied cost of debt of 18.7% 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 55.5bn43.6% of capital
    Total debtGBP 71.8bn56.4% of capital, book value as a proxy
    Tax rate24.0%Effective, capped at statutory
    WACC6.84%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 15.75

    75% of EV

    Forecast FCFF, final year
    GBP 8.0bn
    Capex at depreciation, working capital in reinvestment
    GBP 7.7bn
    Less reinvestment at g/ROIC (36.6% of NOPAT)
    GBP -2.8bn
    Capitalised
    GBP 4.9bn
    ROIC (WACC floor)
    6.8%
    Terminal value, undiscounted
    GBP 115.0bn
    Terminal value, discounted
    GBP 85.4bn
    Enterprise value
    GBP 114.5bn
    Less net debt
    GBP -13.5bn
    Equity value
    GBP 128.0bn

    Exit at 4.7x EBITDA

    Value per shareGBP 10.31

    59% of EV

    Terminal value, undiscounted
    GBP 55.4bn
    Terminal value, discounted
    GBP 41.1bn
    Enterprise value
    GBP 70.3bn
    Less net debt
    GBP -13.5bn
    Equity value
    GBP 83.8bn

    Spread between methods: 42%.

    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%
    4.84%21.4221.5021.5821.6621.74
    5.84%18.0418.1018.1718.2318.29
    6.84%15.6515.7015.7515.8015.85
    7.84%13.8713.9113.9513.9914.04
    8.84%12.4912.5212.5612.6012.63

    Outlined: this model. Green text: above today's price of 6.99. 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%-11.8%-19.3pp
    EBIT margin42.2%15.7%-26.5pp
    Discount rate6.8%18.1%+11.3pp
    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.