DCF Studio

    RIO.L · LSE · Basic Materials

    Rio Tinto Group

    Also onConsensus Drift

    Implied value per share

    GBp 7377.00

    Market price

    GBp 7218.00

    Implied upside

    +2.2%

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

    AdjustedReports in USD, trades in GBp. 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.
    NoteRisk-free rate is an assumption: GBP assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    GBp 7377.00+2.2%
    Exit multiple
    GBp 5764.18-20.1%
    Market price
    GBp 7218.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn5bn10bnFY26FY27FY28FY29FY30
    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 13.0bnUSD 13.1bnUSD 13.3bnUSD 13.4bnUSD 13.6bn+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 9.5bnUSD 9.6bnUSD 9.7bnUSD 9.9bnUSD 10.0bn+1.2%
    Discount factor0.95990.88450.81500.75100.6920-
    Present valueUSD 9.1bnUSD 8.5bnUSD 7.9bnUSD 7.4bnUSD 6.9bn-6.7%
    Present Value Of The ForecastUSD 39.9bn

    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
    Beta0.775Reported 0.664, pulled toward 1.0 (Blume)
    Cost of equity8.76%Risk-free + beta x equity risk premium
    Cost of debt9.79%Interest expense / average total debt
    Market capitalisationUSD 117.4bn83.3% of capital
    Total debtUSD 23.5bn16.7% of capital, book value as a proxy
    Tax rate25.0%Effective, capped at statutory
    WACC8.52%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 98.80

    78% of EV

    Forecast FCFF, final year
    USD 10.0bn
    Capex at depreciation, working capital in reinvestment
    USD 13.8bn
    Less reinvestment at g/ROIC (14.8% of NOPAT)
    USD -2.0bn
    Capitalised
    USD 11.7bn
    ROIC (reported)
    16.9%
    Terminal value, undiscounted
    USD 199.4bn
    Terminal value, discounted
    USD 138.0bn
    Enterprise value
    USD 177.9bn
    Less net debt
    USD 16.1bn
    Equity value
    USD 161.8bn

    Exit at 6.1x EBITDA

    Value per shareUSD 77.20

    72% of EV

    Terminal value, undiscounted
    USD 148.3bn
    Terminal value, discounted
    USD 102.6bn
    Enterprise value
    USD 142.5bn
    Less net debt
    USD 16.1bn
    Equity value
    USD 126.5bn

    Spread between methods: 25%.

    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%
    6.52%131.97141.24152.78167.53187.10
    7.52%108.11113.72120.41128.53138.64
    8.52%91.0794.6698.80103.67109.48
    9.52%78.3180.6883.3786.4490.00
    10.52%68.4070.0171.8073.8176.08

    Outlined: this model. Green text: above today's price of 96.67. 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%0.8%-0.5pp
    EBIT margin29.6%29.1%-0.5pp
    Discount rate8.5%8.6%+0.1pp
    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.