DCF Studio

    PRU.L · LSE · Financial Services

    Prudential plc

    Also onConsensus Drift

    Implied value per share

    GBp 2872.76

    Market price

    GBp 970.00

    Implied upside

    +196.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 0.7466

    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.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedOnly 3 year(s) of history available to anchor assumptions on.
    AdjustedReports in USD, trades in GBp. Modelled in USD, converted at the end.
    AdjustedReported capital expenditure averages just 0.41% 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. 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.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of 0.0%. 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 2872.76+196.2%
    Exit multiple
    GBp 1698.66+75.1%
    Market price
    GBp 970.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn4bn8bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 32.8bnUSD 39.2bnUSD 46.9bnUSD 56.1bnUSD 67.1bn+19.6%
    EBITUSD 5.2bnUSD 6.2bnUSD 7.4bnUSD 8.8bnUSD 10.6bn+19.6%
    NOPATUSD 4.2bnUSD 5.0bnUSD 6.0bnUSD 7.2bnUSD 8.6bn+19.6%
    Add depreciation & amortisationUSD 0.00USD 0.00USD 0.00USD 0.00USD 0.00-
    Less capital expenditureUSD -327.6mUSD -391.9mUSD -468.7mUSD -560.6mUSD -670.5m+19.6%
    Less increase in working capitalUSD 0.00USD 0.00USD 0.00USD 0.00USD 0.00-
    Free cashflow to firmUSD 3.9bnUSD 4.7bnUSD 5.6bnUSD 6.7bnUSD 8.0bn+19.6%
    Discount factor0.95990.88440.81480.75070.6917-
    Present valueUSD 3.7bnUSD 4.1bnUSD 4.5bnUSD 5.0bnUSD 5.5bn+10.2%
    Present Value Of The ForecastUSD 22.9bn

    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
    Beta0.929Reported 0.894, pulled toward 1.0 (Blume)
    Cost of equity9.61%Risk-free + beta x equity risk premium
    Cost of debt4.50%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 24.0bn81.9% of capital
    Total debtUSD 5.3bn18.1% of capital, book value as a proxy
    Tax rate18.2%Effective, capped at statutory
    WACC8.54%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 38.48

    77% of EV

    Forecast FCFF, final year
    USD 8.0bn
    Capex at depreciation, working capital in reinvestment
    USD 8.6bn
    Less reinvestment at g/ROIC (22.7% of NOPAT)
    USD -2.0bn
    Capitalised
    USD 6.7bn
    ROIC (reported)
    11.0%
    Terminal value, undiscounted
    USD 113.2bn
    Terminal value, discounted
    USD 78.3bn
    Enterprise value
    USD 101.2bn
    Less net debt
    USD 1.4bn
    Equity value
    USD 99.7bn

    Exit at 5.1x EBITDA

    Value per shareUSD 22.75

    62% of EV

    Terminal value, undiscounted
    USD 54.3bn
    Terminal value, discounted
    USD 37.5bn
    Enterprise value
    USD 60.4bn
    Less net debt
    USD 1.4bn
    Equity value
    USD 59.0bn

    Spread between methods: 51%.

    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%
    6.54%52.2954.7757.8461.7466.89
    7.54%43.3544.6746.2448.1250.45
    8.54%36.9537.6638.4839.4240.52
    9.54%32.1532.5232.9233.3733.88
    10.54%28.4228.5828.7528.9329.12

    Outlined: this model. Green text: above today's price of 12.99. 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 year19.6%-5.7%-25.3pp
    EBIT margin15.7%5.7%-10.1pp
    Discount rate8.5%21.0%+12.5pp
    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.