DCF Studio

    RIO.AX · ASX · Basic Materials

    Rio Tinto Group

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 105.21

    Market price

    AUD 167.49

    Implied upside

    -37.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 1.4042

    AdjustedReports in USD, trades in AUD. Modelled in USD, converted at the end.
    AdjustedCapital expenditure runs at 16.1% of revenue against depreciation of 10.3%. 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
    AUD 105.21-37.2%
    Exit multiple
    AUD 197.89+18.1%
    Market price
    AUD 167.49

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn5bn9bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 58.3bnUSD 59.1bnUSD 59.8bnUSD 60.5bnUSD 61.3bn+1.2%
    EBITUSD 17.3bnUSD 17.5bnUSD 17.7bnUSD 17.9bnUSD 18.1bn+1.2%
    NOPATUSD 12.3bnUSD 12.5bnUSD 12.6bnUSD 12.8bnUSD 12.9bn+1.2%
    Add depreciation & amortisationUSD 6.0bnUSD 6.1bnUSD 6.2bnUSD 6.3bnUSD 6.3bn+1.2%
    Less capital expenditureUSD -9.4bnUSD -9.5bnUSD -9.7bnUSD -9.8bnUSD -9.9bn+1.2%
    Less increase in working capitalUSD -43.6mUSD -44.2mUSD -44.7mUSD -45.3mUSD -45.8m+1.2%
    Free cashflow to firmUSD 8.9bnUSD 9.0bnUSD 9.1bnUSD 9.2bnUSD 9.3bn+1.2%
    Discount factor0.95450.86970.79240.72190.6577-
    Present valueUSD 8.5bnUSD 7.8bnUSD 7.2bnUSD 6.6bnUSD 6.1bn-7.8%
    Present Value Of The ForecastUSD 36.3bn

    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
    Beta0.775Reported 0.664, pulled toward 1.0 (Blume)
    Cost of equity10.00%Risk-free + beta x equity risk premium
    Cost of debt9.79%Interest expense / average total debt
    Market capitalisationUSD 272.2bn92.0% of capital
    Total debtUSD 23.5bn8.0% of capital, book value as a proxy
    Tax rate28.7%Effective, capped at statutory
    WACC9.76%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 74.92

    74% of EV

    Forecast FCFF, final year
    USD 9.3bn
    Capex at depreciation, working capital in reinvestment
    USD 13.1bn
    Less reinvestment at g/ROIC (15.6% of NOPAT)
    USD -2.0bn
    Capitalised
    USD 11.0bn
    ROIC (reported)
    16.1%
    Terminal value, undiscounted
    USD 155.9bn
    Terminal value, discounted
    USD 102.5bn
    Enterprise value
    USD 138.8bn
    Less net debt
    USD 16.1bn
    Equity value
    USD 122.7bn

    Exit at 13.1x EBITDA

    Value per shareUSD 140.93

    85% of EV

    Terminal value, undiscounted
    USD 320.3bn
    Terminal value, discounted
    USD 210.6bn
    Enterprise value
    USD 246.9bn
    Less net debt
    USD 16.1bn
    Equity value
    USD 230.8bn

    Spread between methods: 61%.

    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%
    7.76%97.16101.75107.17113.71121.73
    8.76%82.1685.0988.4692.3997.03
    9.76%70.8272.7574.9277.3980.23
    10.76%61.9563.2564.6866.2868.07
    11.76%54.8355.7156.6657.7158.86

    Outlined: this model. Green text: above today's price of 119.28. 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 year1.2%11.4%+10.1pp
    EBIT margin29.6%43.8%+14.2pp
    Discount rate9.8%7.3%-2.5pp
    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.