DCF Studio

    ROL · NYQ · Consumer Cyclical

    Rollins, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 23.50

    Market price

    USD 32.43

    Implied upside

    -27.5%

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

    AdjustedReported capital expenditure averages just 0.94% 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 3.32% 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.

    Value Per Share

    Perpetuity growth
    USD 23.50-27.5%
    Exit multiple
    USD 43.89+35.3%
    Market price
    USD 32.43

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m466m933mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 4.2bnUSD 4.7bnUSD 5.2bnUSD 5.9bnUSD 6.6bn+11.7%
    EBITUSD 800.0mUSD 894.0mUSD 998.9mUSD 1.1bnUSD 1.2bn+11.7%
    NOPATUSD 632.0mUSD 706.2mUSD 789.1mUSD 881.8mUSD 985.3m+11.7%
    Add depreciation & amortisationUSD 139.6mUSD 156.0mUSD 174.4mUSD 194.8mUSD 217.7m+11.7%
    Less capital expenditureUSD -139.6mUSD -156.0mUSD -174.4mUSD -194.8mUSD -217.7m+11.7%
    Less increase in working capitalUSD -33.8mUSD -37.7mUSD -42.2mUSD -47.1mUSD -52.6m+11.7%
    Free cashflow to firmUSD 598.3mUSD 668.5mUSD 747.0mUSD 834.7mUSD 932.6m+11.7%
    Discount factor0.95700.87660.80290.73540.6736-
    Present valueUSD 572.6mUSD 586.0mUSD 599.8mUSD 613.8mUSD 628.2m+2.3%
    Present Value Of The ForecastUSD 3.0bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.823Reported 0.736, pulled toward 1.0 (Blume)
    Cost of equity9.53%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 15.6bn93.8% of capital
    Total debtUSD 1.0bn6.2% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.18%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 23.50

    76% of EV

    Forecast FCFF, final year
    USD 932.6m
    Capex at depreciation, working capital in reinvestment
    USD 985.3m
    Less reinvestment at g/ROIC (8.6% of NOPAT)
    USD -84.4m
    Capitalised
    USD 900.9m
    ROIC (reported)
    29.2%
    Terminal value, undiscounted
    USD 13.8bn
    Terminal value, discounted
    USD 9.3bn
    Enterprise value
    USD 12.3bn
    Less net debt
    USD 938.0m
    Equity value
    USD 11.4bn

    Exit at 19.4x EBITDA

    Value per shareUSD 43.89

    86% of EV

    Terminal value, undiscounted
    USD 28.5bn
    Terminal value, discounted
    USD 19.2bn
    Enterprise value
    USD 22.2bn
    Less net debt
    USD 938.0m
    Equity value
    USD 21.2bn

    Spread between methods: 60%.

    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%
    7.18%29.8331.9034.4137.5241.46
    8.18%25.0126.3827.9929.9132.23
    9.18%21.4522.4123.5024.7726.26
    10.18%18.7219.4120.1821.0622.07
    11.18%16.5517.0617.6318.2618.97

    Outlined: this model. Green text: above today's price of 32.43. 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 year11.7%19.5%+7.8pp
    EBIT margin19.0%25.6%+6.6pp
    Discount rate9.2%7.4%-1.7pp
    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.