DCF Studio

    TEL · NYQ · Technology

    TE Connectivity plc

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 93.82

    Market price

    USD 205.42

    Implied upside

    -54.3%

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

    Value Per Share

    Perpetuity growth
    USD 93.82-54.3%
    Exit multiple
    USD 165.88-19.2%
    Market price
    USD 205.42

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn1bn3bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 17.6bnUSD 17.9bnUSD 18.3bnUSD 18.7bnUSD 19.0bn+2.0%
    EBITUSD 3.2bnUSD 3.3bnUSD 3.3bnUSD 3.4bnUSD 3.5bn+2.0%
    NOPATUSD 2.7bnUSD 2.8bnUSD 2.8bnUSD 2.9bnUSD 2.9bn+2.0%
    Add depreciation & amortisationUSD 873.1mUSD 890.3mUSD 907.8mUSD 925.7mUSD 943.9m+2.0%
    Less capital expenditureUSD -835.9mUSD -852.4mUSD -869.2mUSD -886.3mUSD -903.8m+2.0%
    Less increase in working capitalUSD 21.1mUSD 21.5mUSD 22.0mUSD 22.4mUSD 22.8m-2.0%
    Free cashflow to firmUSD 2.8bnUSD 2.8bnUSD 2.9bnUSD 2.9bnUSD 3.0bn+2.0%
    Discount factor0.95140.86130.77970.70580.6389-
    Present valueUSD 2.6bnUSD 2.4bnUSD 2.2bnUSD 2.1bnUSD 1.9bn-7.7%
    Present Value Of The ForecastUSD 11.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.106Reported 1.158, pulled toward 1.0 (Blume)
    Cost of equity11.08%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 59.5bn91.1% of capital
    Total debtUSD 5.8bn8.9% of capital, book value as a proxy
    Tax rate16.0%Effective, capped at statutory
    WACC10.47%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 93.82

    65% of EV

    Forecast FCFF, final year
    USD 3.0bn
    Capex at depreciation, working capital in reinvestment
    USD 3.1bn
    Less reinvestment at g/ROIC (16.3% of NOPAT)
    USD -505.9m
    Capitalised
    USD 2.6bn
    ROIC (reported)
    15.3%
    Terminal value, undiscounted
    USD 33.4bn
    Terminal value, discounted
    USD 21.3bn
    Enterprise value
    USD 32.6bn
    Less net debt
    USD 4.6bn
    Equity value
    USD 28.1bn

    Exit at 15.2x EBITDA

    Value per shareUSD 165.88

    79% of EV

    Terminal value, undiscounted
    USD 67.1bn
    Terminal value, discounted
    USD 42.9bn
    Enterprise value
    USD 54.2bn
    Less net debt
    USD 4.6bn
    Equity value
    USD 49.6bn

    Spread between methods: 55%.

    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%
    8.47%118.70122.82127.59133.18139.86
    9.47%102.63105.29108.30111.73115.71
    10.47%90.1491.8893.8295.9998.44
    11.47%80.1481.2982.5683.9485.48
    12.47%71.9572.7173.5374.4175.37

    Outlined: this model. Green text: above today's price of 205.42. 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 year2.0%19.4%+17.4pp
    EBIT margin18.3%37.9%+19.6pp
    Discount rate10.5%6.3%-4.2pp
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    Yahoo Finance and RBA data. General information, not advice. Methodology.