DCF Studio

    OMC · NYQ · Communication Services

    Omnicom Group Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 103.03

    Market price

    USD 76.57

    Implied upside

    +34.6%

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

    AdjustedReported capital expenditure averages just 0.71% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. Override it if the reported figure is right.

    Current EV/EBITDA of 34.5x 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 103.03+34.6%
    Exit multiple
    USD 152.90+99.7%
    Market price
    USD 76.57

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 18.4bnUSD 19.6bnUSD 20.9bnUSD 22.2bnUSD 23.7bn+6.5%
    EBITUSD 2.1bnUSD 2.3bnUSD 2.4bnUSD 2.6bnUSD 2.7bn+6.5%
    NOPATUSD 1.7bnUSD 1.8bnUSD 1.9bnUSD 2.0bnUSD 2.2bn+6.5%
    Add depreciation & amortisationUSD 281.3mUSD 299.6mUSD 319.2mUSD 340.0mUSD 362.2m+6.5%
    Less capital expenditureUSD -184.0mUSD -196.0mUSD -208.8mUSD -222.4mUSD -236.9m+6.5%
    Less increase in working capitalUSD -261.3mUSD -278.4mUSD -296.5mUSD -315.9mUSD -336.5m+6.5%
    Free cashflow to firmUSD 1.5bnUSD 1.6bnUSD 1.7bnUSD 1.8bnUSD 1.9bn+6.5%
    Discount factor0.96460.89740.83490.77670.7226-
    Present valueUSD 1.5bnUSD 1.4bnUSD 1.4bnUSD 1.4bnUSD 1.4bn-0.9%
    Present Value Of The ForecastUSD 7.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.781Reported 0.673, pulled toward 1.0 (Blume)
    Cost of equity9.29%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 21.0bn66.2% of capital
    Total debtUSD 10.7bn33.8% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC7.49%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 103.03

    80% of EV

    Forecast FCFF, final year
    USD 1.9bn
    Capex at depreciation, working capital in reinvestment
    USD 2.3bn
    Less reinvestment at g/ROIC (14.1% of NOPAT)
    USD -320.0m
    Capitalised
    USD 2.0bn
    ROIC (reported)
    17.7%
    Terminal value, undiscounted
    USD 40.1bn
    Terminal value, discounted
    USD 29.0bn
    Enterprise value
    USD 36.1bn
    Less net debt
    USD 3.9bn
    Equity value
    USD 32.3bn

    Exit at 20.0x EBITDA

    Value per shareUSD 152.90

    86% of EV

    Terminal value, undiscounted
    USD 61.7bn
    Terminal value, discounted
    USD 44.6bn
    Enterprise value
    USD 51.7bn
    Less net debt
    USD 3.9bn
    Equity value
    USD 47.9bn

    Spread between methods: 39%.

    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%
    5.49%144.51159.63179.75207.90250.15
    6.49%112.88121.28131.76145.20163.09
    7.49%91.8396.93103.03110.46119.71
    8.49%76.8280.1083.9188.3893.72
    9.49%65.5967.7870.2773.1176.41

    Outlined: this model. Green text: above today's price of 76.57. 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 year6.5%-0.2%-6.8pp
    EBIT margin11.5%8.8%-2.7pp
    Discount rate7.5%9.0%+1.5pp
    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.