DCF Studio

    SN.L · LSE · Healthcare

    Smith & Nephew plc

    Also onConsensus Drift

    Implied value per share

    GBp 1069.81

    Market price

    GBp 1027.50

    Implied upside

    +4.1%

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

    Value Per Share

    Perpetuity growth
    GBp 1069.81+4.1%
    Exit multiple
    GBp 969.69-5.6%
    Market price
    GBp 1027.50

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m478m956mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 6.5bnUSD 6.9bnUSD 7.3bnUSD 7.7bnUSD 8.1bn+5.7%
    EBITUSD 847.8mUSD 896.4mUSD 947.8mUSD 1.0bnUSD 1.1bn+5.7%
    NOPATUSD 735.2mUSD 777.3mUSD 821.8mUSD 868.9mUSD 918.7m+5.7%
    Add depreciation & amortisationUSD 633.3mUSD 669.6mUSD 708.0mUSD 748.6mUSD 791.5m+5.7%
    Less capital expenditureUSD -458.5mUSD -484.8mUSD -512.6mUSD -542.0mUSD -573.0m+5.7%
    Less increase in working capitalUSD -144.8mUSD -153.1mUSD -161.9mUSD -171.2mUSD -181.0m+5.7%
    Free cashflow to firmUSD 765.1mUSD 809.0mUSD 855.3mUSD 904.4mUSD 956.2m+5.7%
    Discount factor0.96380.89520.83140.77230.7173-
    Present valueUSD 737.4mUSD 724.2mUSD 711.2mUSD 698.4mUSD 685.9m-1.8%
    Present Value Of The ForecastUSD 3.6bn

    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
    Beta0.786Reported 0.680, pulled toward 1.0 (Blume)
    Cost of equity8.82%Risk-free + beta x equity risk premium
    Cost of debt5.39%Interest expense / average total debt
    Market capitalisationUSD 8.6bn72.1% of capital
    Total debtUSD 3.3bn27.9% of capital, book value as a proxy
    Tax rate13.3%Effective, capped at statutory
    WACC7.66%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 14.33

    77% of EV

    Forecast FCFF, final year
    USD 956.2m
    Capex at depreciation, working capital in reinvestment
    USD 1.2bn
    Less reinvestment at g/ROIC (31.7% of NOPAT)
    USD -381.9m
    Capitalised
    USD 823.0m
    ROIC (reported)
    7.9%
    Terminal value, undiscounted
    USD 16.3bn
    Terminal value, discounted
    USD 11.7bn
    Enterprise value
    USD 15.3bn
    Less net debt
    USD 2.8bn
    Equity value
    USD 12.5bn

    Exit at 7.9x EBITDA

    Value per shareUSD 12.99

    75% of EV

    Terminal value, undiscounted
    USD 14.7bn
    Terminal value, discounted
    USD 10.5bn
    Enterprise value
    USD 14.1bn
    Less net debt
    USD 2.8bn
    Equity value
    USD 11.3bn

    Spread between methods: 10%.

    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%
    5.66%22.3723.4924.9426.9229.77
    6.66%17.4417.8618.3618.9919.79
    7.66%14.1114.2114.3314.4514.60
    8.66%11.9411.9912.0512.1012.16
    9.66%10.3010.3410.3910.4410.48

    Outlined: this model. Green text: above today's price of 13.76. 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 year5.7%4.8%-0.9pp
    EBIT margin13.0%12.5%-0.5pp
    Discount rate7.7%7.8%+0.2pp
    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.