DCF Studio

    TSCO.L · LSE · Consumer Defensive

    Tesco PLC

    Also onConsensus Drift

    Implied value per share

    GBp 554.26

    Market price

    GBp 476.20

    Implied upside

    +16.4%

    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.

    Value Per Share

    Perpetuity growth
    GBp 554.26+16.4%
    Exit multiple
    GBp 528.08+10.9%
    Market price
    GBp 476.20

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    0bn2bn3bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayGBP
    LineFY27FY28FY29FY30FY31CAGR
    RevenueGBP 76.7bnGBP 79.9bnGBP 83.2bnGBP 86.6bnGBP 90.2bn+4.1%
    EBITGBP 2.8bnGBP 2.9bnGBP 3.0bnGBP 3.2bnGBP 3.3bn+4.1%
    NOPATGBP 2.1bnGBP 2.2bnGBP 2.3bnGBP 2.4bnGBP 2.5bn+4.1%
    Add depreciation & amortisationGBP 2.0bnGBP 2.0bnGBP 2.1bnGBP 2.2bnGBP 2.3bn+4.1%
    Less capital expenditureGBP -1.6bnGBP -1.7bnGBP -1.7bnGBP -1.8bnGBP -1.9bn+4.1%
    Less increase in working capitalGBP 161.2mGBP 167.8mGBP 174.7mGBP 181.9mGBP 189.4m-4.1%
    Free cashflow to firmGBP 2.6bnGBP 2.7bnGBP 2.8bnGBP 3.0bnGBP 3.1bn+4.1%
    Discount factor0.96740.90530.84720.79290.7420-
    Present valueGBP 2.5bnGBP 2.5bnGBP 2.4bnGBP 2.3bnGBP 2.3bn-2.6%
    Present Value Of The ForecastGBP 12.0bn

    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
    Beta0.710Reported 0.567, pulled toward 1.0 (Blume)
    Cost of equity8.40%Risk-free + beta x equity risk premium
    Cost of debt5.08%Interest expense / average total debt
    Market capitalisationGBP 29.7bn66.3% of capital
    Total debtGBP 15.1bn33.7% of capital, book value as a proxy
    Tax rate25.0%Effective, capped at statutory
    WACC6.86%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 5.54

    75% of EV

    Forecast FCFF, final year
    GBP 3.1bn
    Capex at depreciation, working capital in reinvestment
    GBP 2.6bn
    Less reinvestment at g/ROIC (22.2% of NOPAT)
    GBP -580.4m
    Capitalised
    GBP 2.0bn
    ROIC (reported)
    11.3%
    Terminal value, undiscounted
    GBP 47.9bn
    Terminal value, discounted
    GBP 35.5bn
    Enterprise value
    GBP 47.6bn
    Less net debt
    GBP 10.9bn
    Equity value
    GBP 36.6bn

    Exit at 8.1x EBITDA

    Value per shareGBP 5.28

    74% of EV

    Terminal value, undiscounted
    GBP 45.6bn
    Terminal value, discounted
    GBP 33.8bn
    Enterprise value
    GBP 45.8bn
    Less net debt
    GBP 10.9bn
    Equity value
    GBP 34.9bn

    Spread between methods: 5%.

    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%
    4.86%8.649.6411.0813.2717.07
    5.86%6.406.877.498.329.49
    6.86%4.995.245.545.926.41
    7.86%4.024.164.324.514.74
    8.86%3.323.393.483.573.68

    Outlined: this model. Green text: above today's price of 4.76. 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 year4.1%1.7%-2.4pp
    EBIT margin3.7%3.2%-0.4pp
    Discount rate6.9%7.4%+0.6pp
    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.