DCF Studio

    REH.AX · ASX · Industrials

    Reece Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 0.07

    Market price

    AUD 16.75

    Implied upside

    -99.6%

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

    Wrong toolThis model values the shares at 0.4% of the market price. A gap that size is a modelling failure rather than a view - most often an unusable beta, a currency or units mismatch, or a cashflow base that does not represent the business. Read the figures below as diagnostics, not as a call.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.

    Current EV/EBITDA of 23.2x 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
    AUD 0.07-99.6%
    Exit multiple
    AUD 12.08-27.9%
    Market price
    AUD 16.75

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (AUD). Outflows negative.

    0m74m148mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayAUD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueAUD 9.6bnAUD 9.8bnAUD 10.0bnAUD 10.1bnAUD 10.4bn+2.0%
    EBITAUD 284.2mAUD 289.8mAUD 295.6mAUD 301.5mAUD 307.5m+2.0%
    NOPATAUD 201.0mAUD 205.0mAUD 209.0mAUD 213.2mAUD 217.5m+2.0%
    Add depreciation & amortisationAUD 351.4mAUD 358.4mAUD 365.5mAUD 372.8mAUD 380.2m+2.0%
    Less capital expenditureAUD -229.0mAUD -233.6mAUD -238.3mAUD -243.0mAUD -247.8m+2.0%
    Less increase in working capitalAUD -186.8mAUD -190.5mAUD -194.3mAUD -198.2mAUD -202.2m+2.0%
    Free cashflow to firmAUD 136.5mAUD 139.2mAUD 141.9mAUD 144.8mAUD 147.7m+2.0%
    Discount factor0.95250.86430.78420.71150.6455-
    Present valueAUD 130.0mAUD 120.3mAUD 111.3mAUD 103.0mAUD 95.3m-7.5%
    Present Value Of The ForecastAUD 559.9m

    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
    Beta1.046Reported 1.068, pulled toward 1.0 (Blume)
    Cost of equity11.62%Risk-free + beta x equity risk premium
    Cost of debt5.35%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationAUD 10.3bn82.1% of capital
    Total debtAUD 2.3bn17.9% of capital, book value as a proxy
    Tax rate29.3%Effective, capped at statutory
    WACC10.21%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 0.07

    72% of EV

    Forecast FCFF, final year
    AUD 147.7m
    Capex at depreciation, working capital in reinvestment
    AUD 217.5m
    Less reinvestment at g/ROIC (24.5% of NOPAT)
    AUD -53.2m
    Capitalised
    AUD 164.2m
    ROIC (WACC floor)
    10.2%
    Terminal value, undiscounted
    AUD 2.2bn
    Terminal value, discounted
    AUD 1.4bn
    Enterprise value
    AUD 2.0bn
    Less net debt
    AUD 1.9bn
    Equity value
    AUD 43.0m

    Exit at 20.0x EBITDA

    Value per shareAUD 12.08

    94% of EV

    Terminal value, undiscounted
    AUD 13.8bn
    Terminal value, discounted
    AUD 8.9bn
    Enterprise value
    AUD 9.4bn
    Less net debt
    AUD 1.9bn
    Equity value
    AUD 7.5bn

    Spread between methods: 198%.

    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%
    8.21%0.870.890.900.920.93
    9.21%0.410.430.440.450.46
    10.21%0.050.060.070.080.09
    11.21%-0.25-0.24-0.23-0.22-0.21
    12.21%-0.50-0.49-0.49-0.48-0.47

    Outlined: this model. Green text: above today's price of 16.75. 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 margin3.0%16.8%+13.8pp
    Discount rate10.2%3.1%-7.1pp
    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.