DCF Studio

    PFG · NMS · Financial Services

    Principal Financial Group, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 216.52

    Market price

    USD 117.67

    Implied upside

    +84.0%

    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.
    AdjustedReported capital expenditure averages just 0.62% 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 1.72% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.

    No usable EV/EBITDA (EBITDA is not positive), so the exit multiple falls back to 8x.

    Value Per Share

    Perpetuity growth
    USD 216.52+84.0%
    Exit multiple
    USD 213.98+81.8%
    Market price
    USD 117.67

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn2bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 15.0bnUSD 14.5bnUSD 13.9bnUSD 13.4bnUSD 12.9bn-3.8%
    EBITUSD 2.3bnUSD 2.2bnUSD 2.1bnUSD 2.0bnUSD 1.9bn-3.8%
    NOPATUSD 2.0bnUSD 1.9bnUSD 1.8bnUSD 1.8bnUSD 1.7bn-3.8%
    Add depreciation & amortisationUSD 258.6mUSD 248.9mUSD 239.5mUSD 230.5mUSD 221.8m-3.8%
    Less capital expenditureUSD -258.6mUSD -248.9mUSD -239.5mUSD -230.5mUSD -221.8m-3.8%
    Less increase in working capitalUSD 294.6mUSD 283.5mUSD 272.8mUSD 262.5mUSD 252.6m+3.8%
    Free cashflow to firmUSD 2.3bnUSD 2.2bnUSD 2.1bnUSD 2.0bnUSD 1.9bn-3.8%
    Discount factor0.95570.87290.79720.72810.6650-
    Present valueUSD 2.2bnUSD 1.9bnUSD 1.7bnUSD 1.5bnUSD 1.3bn-12.1%
    Present Value Of The ForecastUSD 8.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.914Reported 0.872, pulled toward 1.0 (Blume)
    Cost of equity10.03%Risk-free + beta x equity risk premium
    Cost of debt7.00%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationUSD 25.2bn86.4% of capital
    Total debtUSD 4.0bn13.6% of capital, book value as a proxy
    Tax rate13.4%Effective, capped at statutory
    WACC9.49%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 216.52

    59% of EV

    Forecast FCFF, final year
    USD 1.9bn
    Capex at depreciation, working capital in reinvestment
    USD 1.7bn
    Less reinvestment at g/ROIC (26.3% of NOPAT)
    USD -443.7m
    Capitalised
    USD 1.2bn
    ROIC (WACC floor)
    9.5%
    Terminal value, undiscounted
    USD 18.2bn
    Terminal value, discounted
    USD 12.1bn
    Enterprise value
    USD 20.6bn
    Less net debt
    USD -28.3bn
    Equity value
    USD 48.9bn

    Exit at 8.0x EBITDA

    Value per shareUSD 213.98

    58% of EV

    Terminal value, undiscounted
    USD 17.3bn
    Terminal value, discounted
    USD 11.5bn
    Enterprise value
    USD 20.0bn
    Less net debt
    USD -28.3bn
    Equity value
    USD 48.3bn

    Spread between methods: 1%.

    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%
    7.49%241.09243.07245.38248.15251.53
    8.49%226.64227.43228.31229.30230.43
    9.49%216.00216.26216.52216.78217.04
    10.49%208.26208.48208.71208.94209.17
    11.49%201.84202.04202.24202.44202.64

    Outlined: this model. Green text: above today's price of 117.67. 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
    EBIT margin15.1%-5.8%-20.9pp
    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.