DCF Studio

    VGN.AX · ASX · Industrials

    Virgin Australia Holdings Limited

    Also onConsensus Drift

    Implied value per share

    AUD 16.42

    Market price

    AUD 2.72

    Implied upside

    +503.6%

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

    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedOnly 3 year(s) of history available to anchor assumptions on.

    Current EV/EBITDA of 2.7x sits outside a defensible 3-20x band, so the exit multiple is capped at 3.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    AUD 16.42+503.6%
    Exit multiple
    AUD 7.41+172.3%
    Market price
    AUD 2.72

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (AUD). Outflows negative.

    0m476m952mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayAUD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueAUD 7.1bnAUD 8.0bnAUD 9.0bnAUD 10.1bnAUD 11.3bn+12.3%
    EBITAUD 664.5mAUD 746.4mAUD 838.6mAUD 942.0mAUD 1.1bn+12.3%
    NOPATAUD 634.9mAUD 713.3mAUD 801.3mAUD 900.2mAUD 1.0bn+12.3%
    Add depreciation & amortisationAUD 473.7mAUD 532.1mAUD 597.8mAUD 671.6mAUD 754.4m+12.3%
    Less capital expenditureAUD -541.0mAUD -607.8mAUD -682.8mAUD -767.1mAUD -861.7m+12.3%
    Less increase in working capitalAUD 30.5mAUD 34.2mAUD 38.5mAUD 43.2mAUD 48.5m-12.3%
    Free cashflow to firmAUD 598.0mAUD 671.8mAUD 754.7mAUD 847.9mAUD 952.5m+12.3%
    Discount factor0.95860.88090.80950.74390.6836-
    Present valueAUD 573.3mAUD 591.8mAUD 611.0mAUD 630.7mAUD 651.1m+3.2%
    Present Value Of The ForecastAUD 3.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.35%Australian Government 10-year (RBA F2)
    Equity risk premium6.00%Market assumption
    Beta1.000As reported
    Cost of equity11.35%Risk-free + beta x equity risk premium
    Cost of debt7.35%Implied cost of debt of 15.6% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationAUD 2.1bn41.6% of capital
    Total debtAUD 3.0bn58.4% of capital, book value as a proxy
    Tax rate4.4%Effective, capped at statutory
    WACC8.82%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 shareAUD 16.42

    78% of EV

    Forecast FCFF, final year
    AUD 952.5m
    Capex at depreciation, working capital in reinvestment
    AUD 1.0bn
    Less reinvestment at g/ROIC (5.0% of NOPAT)
    AUD -51.0m
    Capitalised
    AUD 960.2m
    ROIC (reported)
    49.5%
    Terminal value, undiscounted
    AUD 15.6bn
    Terminal value, discounted
    AUD 10.6bn
    Enterprise value
    AUD 13.7bn
    Less net debt
    AUD 1.1bn
    Equity value
    AUD 12.6bn

    Exit at 3.0x EBITDA

    Value per shareAUD 7.41

    55% of EV

    Terminal value, undiscounted
    AUD 5.4bn
    Terminal value, discounted
    AUD 3.7bn
    Enterprise value
    AUD 6.8bn
    Less net debt
    AUD 1.1bn
    Equity value
    AUD 5.7bn

    Spread between methods: 76%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.82%20.8522.6124.7927.5231.08
    7.82%17.2618.4319.8121.4823.53
    8.82%14.6615.4816.4217.5218.83
    9.82%12.6913.2813.9514.7215.61
    10.82%11.1411.5812.0812.6413.28

    Outlined: this model. Green text: above today's price of 2.72. 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 year12.3%-18.7%-31.1pp
    EBIT margin9.4%2.3%-7.1pp
    Discount rate8.8%29.4%+20.6pp
    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.