DCF Studio

    WES.AX · ASX · Consumer Cyclical

    Wesfarmers Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 25.36

    Market price

    AUD 73.03

    Implied upside

    -65.3%

    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.

    Value Per Share

    Perpetuity growth
    AUD 25.36-65.3%
    Exit multiple
    AUD 64.15-12.2%
    Market price
    AUD 73.03

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (AUD). Outflows negative.

    0bn2bn4bnFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayAUD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueAUD 48.5bnAUD 49.8bnAUD 51.2bnAUD 52.6bnAUD 54.1bn+2.8%
    EBITAUD 4.1bnAUD 4.2bnAUD 4.3bnAUD 4.4bnAUD 4.6bn+2.8%
    NOPATAUD 2.9bnAUD 3.0bnAUD 3.1bnAUD 3.2bnAUD 3.3bn+2.8%
    Add depreciation & amortisationAUD 1.9bnAUD 2.0bnAUD 2.0bnAUD 2.1bnAUD 2.2bn+2.8%
    Less capital expenditureAUD -1.3bnAUD -1.3bnAUD -1.3bnAUD -1.4bnAUD -1.4bn+2.8%
    Less increase in working capitalAUD -243.4mAUD -250.2mAUD -257.1mAUD -264.3mAUD -271.6m+2.8%
    Free cashflow to firmAUD 3.3bnAUD 3.4bnAUD 3.5bnAUD 3.6bnAUD 3.7bn+2.8%
    Discount factor0.95490.87070.79400.72400.6602-
    Present valueAUD 3.2bnAUD 3.0bnAUD 2.8bnAUD 2.6bnAUD 2.5bn-6.3%
    Present Value Of The ForecastAUD 14.1bn

    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
    Beta0.869Reported 0.805, pulled toward 1.0 (Blume)
    Cost of equity10.56%Risk-free + beta x equity risk premium
    Cost of debt5.35%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationAUD 82.9bn86.7% of capital
    Total debtAUD 12.7bn13.3% of capital, book value as a proxy
    Tax rate28.6%Effective, capped at statutory
    WACC9.67%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 25.36

    66% of EV

    Forecast FCFF, final year
    AUD 3.7bn
    Capex at depreciation, working capital in reinvestment
    AUD 3.3bn
    Less reinvestment at g/ROIC (12.5% of NOPAT)
    AUD -408.0m
    Capitalised
    AUD 2.8bn
    ROIC (reported)
    20.0%
    Terminal value, undiscounted
    AUD 40.7bn
    Terminal value, discounted
    AUD 26.9bn
    Enterprise value
    AUD 40.9bn
    Less net debt
    AUD 12.2bn
    Equity value
    AUD 28.8bn

    Exit at 16.0x EBITDA

    Value per shareAUD 64.15

    83% of EV

    Terminal value, undiscounted
    AUD 107.4bn
    Terminal value, discounted
    AUD 70.9bn
    Enterprise value
    AUD 84.9bn
    Less net debt
    AUD 12.2bn
    Equity value
    AUD 72.7bn

    Spread between methods: 87%.

    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%
    7.67%33.5535.5537.9340.8244.38
    8.67%27.7929.1130.6432.4234.55
    9.67%23.4324.3425.3626.5327.88
    10.67%20.0220.6521.3622.1623.05
    11.67%17.2717.7218.2218.7819.39

    Outlined: this model. Green text: above today's price of 73.03. 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 year2.8%28.4%+25.6pp
    EBIT margin8.4%20.1%+11.6pp
    Discount rate9.7%5.4%-4.3pp
    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.