DCF Studio

    RR.L · LSE · Industrials

    Rolls-Royce Holdings plc

    Also onConsensus Drift

    Implied value per share

    GBp 827.01

    Market price

    GBp 1450.00

    Implied upside

    -43.0%

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

    NoteRisk-free rate is an assumption: GBP assumption - no free live source available for this market.

    Current EV/EBITDA of 22.1x 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
    GBp 827.01-43.0%
    Exit multiple
    GBp 1524.10+5.1%
    Market price
    GBp 1450.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    0bn4bn7bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayGBP
    LineFY26FY27FY28FY29FY30CAGR
    RevenueGBP 24.6bnGBP 28.6bnGBP 33.3bnGBP 38.6bnGBP 44.9bn+16.2%
    EBITGBP 3.2bnGBP 3.7bnGBP 4.3bnGBP 5.0bnGBP 5.8bn+16.2%
    NOPATGBP 2.9bnGBP 3.4bnGBP 3.9bnGBP 4.6bnGBP 5.3bn+16.2%
    Add depreciation & amortisationGBP 1.3bnGBP 1.6bnGBP 1.8bnGBP 2.1bnGBP 2.4bn+16.2%
    Less capital expenditureGBP -1.1bnGBP -1.3bnGBP -1.5bnGBP -1.7bnGBP -2.0bn+16.2%
    Less increase in working capitalGBP 963.1mGBP 1.1bnGBP 1.3bnGBP 1.5bnGBP 1.8bn-16.2%
    Free cashflow to firmGBP 4.1bnGBP 4.8bnGBP 5.6bnGBP 6.5bnGBP 7.5bn+16.2%
    Discount factor0.95120.86060.77860.70450.6374-
    Present valueGBP 3.9bnGBP 4.1bnGBP 4.3bnGBP 4.5bnGBP 4.8bn+5.1%
    Present Value Of The ForecastGBP 21.7bn

    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
    Beta1.126Reported 1.188, pulled toward 1.0 (Blume)
    Cost of equity10.69%Risk-free + beta x equity risk premium
    Cost of debt6.42%Interest expense / average total debt
    Market capitalisationGBP 119.4bn96.5% of capital
    Total debtGBP 4.3bn3.5% of capital, book value as a proxy
    Tax rate8.4%Effective, capped at statutory
    WACC10.53%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 shareGBP 8.27

    68% of EV

    Forecast FCFF, final year
    GBP 7.5bn
    Capex at depreciation, working capital in reinvestment
    GBP 5.9bn
    Less reinvestment at g/ROIC (4.2% of NOPAT)
    GBP -247.9m
    Capitalised
    GBP 5.7bn
    ROIC (reported)
    60.0%
    Terminal value, undiscounted
    GBP 72.8bn
    Terminal value, discounted
    GBP 46.4bn
    Enterprise value
    GBP 68.1bn
    Less net debt
    GBP -1.8bn
    Equity value
    GBP 69.9bn

    Exit at 20.0x EBITDA

    Value per shareGBP 15.24

    83% of EV

    Terminal value, undiscounted
    GBP 165.2bn
    Terminal value, discounted
    GBP 105.3bn
    Enterprise value
    GBP 127.0bn
    Less net debt
    GBP -1.8bn
    Equity value
    GBP 128.8bn

    Spread between methods: 59%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.53%9.7710.2610.8511.5312.35
    9.53%8.608.969.389.8510.40
    10.53%7.707.978.278.619.00
    11.53%6.977.187.417.667.95
    12.53%6.386.546.726.917.13

    Outlined: this model. Green text: above today's price of 14.50. 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 year16.2%30.8%+14.6pp
    EBIT margin13.0%24.9%+12.0pp
    Discount rate10.5%6.9%-3.6pp
    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.