DCF Studio

    REA.AX · ASX · Communication Services

    REA Group Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 93.98

    Market price

    AUD 156.30

    Implied upside

    -39.9%

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

    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.

    Value Per Share

    Perpetuity growth
    AUD 93.98-39.9%
    Exit multiple
    AUD 190.54+21.9%
    Market price
    AUD 156.30

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (AUD). Outflows negative.

    0bn1bn1bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayAUD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueAUD 2.3bnAUD 2.6bnAUD 2.9bnAUD 3.3bnAUD 3.7bn+13.0%
    EBITAUD 969.8mAUD 1.1bnAUD 1.2bnAUD 1.4bnAUD 1.6bn+13.0%
    NOPATAUD 678.9mAUD 767.5mAUD 867.6mAUD 980.8mAUD 1.1bn+13.0%
    Add depreciation & amortisationAUD 154.1mAUD 174.2mAUD 197.0mAUD 222.7mAUD 251.7m+13.0%
    Less capital expenditureAUD -170.3mAUD -192.5mAUD -217.6mAUD -246.0mAUD -278.1m+13.0%
    Less increase in working capitalAUD -28.7mAUD -32.4mAUD -36.7mAUD -41.4mAUD -46.9m+13.0%
    Free cashflow to firmAUD 634.0mAUD 716.8mAUD 810.3mAUD 916.0mAUD 1.0bn+13.0%
    Discount factor0.95320.86610.78690.71500.6496-
    Present valueAUD 604.4mAUD 620.8mAUD 637.6mAUD 654.9mAUD 672.7m+2.7%
    Present Value Of The ForecastAUD 3.2bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.35%Australian Government 10-year (RBA F2)
    Equity risk premium6.00%Market assumption
    Beta0.787Reported 0.682, pulled toward 1.0 (Blume)
    Cost of equity10.07%Risk-free + beta x equity risk premium
    Cost of debt10.80%Interest expense / average total debt
    Market capitalisationAUD 20.5bn99.6% of capital
    Total debtAUD 75.6m0.4% of capital, book value as a proxy
    Tax rate30.0%Effective, capped at statutory
    WACC10.06%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 shareAUD 93.98

    74% of EV

    Forecast FCFF, final year
    AUD 1.0bn
    Capex at depreciation, working capital in reinvestment
    AUD 1.1bn
    Less reinvestment at g/ROIC (8.7% of NOPAT)
    AUD -96.0m
    Capitalised
    AUD 1.0bn
    ROIC (reported)
    28.9%
    Terminal value, undiscounted
    AUD 13.7bn
    Terminal value, discounted
    AUD 8.9bn
    Enterprise value
    AUD 12.1bn
    Less net debt
    AUD -290.0m
    Equity value
    AUD 12.4bn

    Exit at 18.2x EBITDA

    Value per shareAUD 190.54

    87% of EV

    Terminal value, undiscounted
    AUD 33.3bn
    Terminal value, discounted
    AUD 21.7bn
    Enterprise value
    AUD 24.8bn
    Less net debt
    AUD -290.0m
    Equity value
    AUD 25.1bn

    Spread between methods: 68%.

    Sensitivity

    Value per share (AUD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.06%114.50120.42127.37135.68145.79
    9.06%99.34103.43108.12113.57119.99
    10.06%87.7490.6793.9897.74102.06
    11.06%78.5880.7583.1585.8488.88
    12.06%71.1772.8074.6076.5878.79

    Outlined: this model. Green text: above today's price of 156.30. 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 year13.0%26.9%+13.9pp
    EBIT margin42.6%71.1%+28.4pp
    Discount rate10.1%7.0%-3.0pp
    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.