DCF Studio

    PG · NYQ · Consumer Defensive

    The Procter & Gamble Company

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 104.95

    Market price

    USD 146.39

    Implied upside

    -28.3%

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

    AdjustedCapital expenditure runs at 4.3% of revenue against depreciation of 3.4%. 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.

    Value Per Share

    Perpetuity growth
    USD 104.95-28.3%
    Exit multiple
    USD 137.64-6.0%
    Market price
    USD 146.39

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn8bn17bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 88.8bnUSD 90.6bnUSD 92.4bnUSD 94.2bnUSD 96.1bn+2.0%
    EBITUSD 20.6bnUSD 21.0bnUSD 21.4bnUSD 21.8bnUSD 22.3bn+2.0%
    NOPATUSD 16.4bnUSD 16.7bnUSD 17.1bnUSD 17.4bnUSD 17.8bn+2.0%
    Add depreciation & amortisationUSD 3.1bnUSD 3.1bnUSD 3.2bnUSD 3.2bnUSD 3.3bn+2.0%
    Less capital expenditureUSD -3.8bnUSD -3.9bnUSD -4.0bnUSD -4.1bnUSD -4.1bn+2.0%
    Less increase in working capitalUSD 36.0mUSD 36.7mUSD 37.5mUSD 38.2mUSD 39.0m-2.0%
    Free cashflow to firmUSD 15.7bnUSD 16.0bnUSD 16.3bnUSD 16.6bnUSD 17.0bn+2.0%
    Discount factor0.96310.89330.82860.76860.7130-
    Present valueUSD 15.1bnUSD 14.3bnUSD 13.5bnUSD 12.8bnUSD 12.1bn-5.4%
    Present Value Of The ForecastUSD 67.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.583Reported 0.377, pulled toward 1.0 (Blume)
    Cost of equity8.20%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 340.0bn90.7% of capital
    Total debtUSD 35.0bn9.3% of capital, book value as a proxy
    Tax rate20.3%Effective, capped at statutory
    WACC7.81%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 104.95

    76% of EV

    Forecast FCFF, final year
    USD 17.0bn
    Capex at depreciation, working capital in reinvestment
    USD 17.8bn
    Less reinvestment at g/ROIC (13.5% of NOPAT)
    USD -2.4bn
    Capitalised
    USD 15.4bn
    ROIC (reported)
    18.5%
    Terminal value, undiscounted
    USD 296.7bn
    Terminal value, discounted
    USD 211.5bn
    Enterprise value
    USD 279.3bn
    Less net debt
    USD 25.1bn
    Equity value
    USD 254.2bn

    Exit at 15.9x EBITDA

    Value per shareUSD 137.64

    81% of EV

    Terminal value, undiscounted
    USD 407.8bn
    Terminal value, discounted
    USD 290.7bn
    Enterprise value
    USD 358.5bn
    Less net debt
    USD 25.1bn
    Equity value
    USD 333.4bn

    Spread between methods: 27%.

    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%
    5.81%142.06154.80171.34193.72225.73
    6.81%114.06121.42130.45141.82156.58
    7.81%94.9399.52104.95111.47119.48
    8.81%81.0384.0487.5191.5596.32
    9.81%70.4772.5274.8277.4580.47

    Outlined: this model. Green text: above today's price of 146.39. 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 year2.0%9.1%+7.1pp
    EBIT margin23.2%31.4%+8.2pp
    Discount rate7.8%6.4%-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.