DCF Studio

    WRB · NYQ · Financial Services

    W. R. Berkley Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 186.40

    Market price

    USD 69.99

    Implied upside

    +166.3%

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

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedReported capital expenditure averages just 0.71% of revenue, which is too low to be the company's real investment - property trusts and similar structures invest through lines that are not reported as capex. Capex has been set to 1.00% of revenue so the forecast is not handed free growth. The accounts do not separate depreciation from amortisation, so the combined charge is used - if a large part of it is amortisation of an acquisition, the reported capex is probably right and this substitution is not. Override it if the reported figure is right.
    AdjustedCapital expenditure runs at 1.0% of revenue against depreciation of -0.3%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Current EV/EBITDA of 0.6x 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
    USD 186.40+166.3%
    Exit multiple
    USD 119.34+70.5%
    Market price
    USD 69.99

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn4bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 16.0bnUSD 17.5bnUSD 19.1bnUSD 20.9bnUSD 22.8bn+9.3%
    EBITUSD 2.5bnUSD 2.7bnUSD 3.0bnUSD 3.2bnUSD 3.5bn+9.3%
    NOPATUSD 2.0bnUSD 2.1bnUSD 2.3bnUSD 2.6bnUSD 2.8bn+9.3%
    Add depreciation & amortisationUSD -50.0mUSD -54.6mUSD -59.7mUSD -65.2mUSD -71.3m-9.3%
    Less capital expenditureUSD -160.0mUSD -174.8mUSD -191.1mUSD -208.8mUSD -228.2m+9.3%
    Less increase in working capitalUSD 1.4bnUSD 1.5bnUSD 1.6bnUSD 1.8bnUSD 1.9bn-9.3%
    Free cashflow to firmUSD 3.1bnUSD 3.4bnUSD 3.7bnUSD 4.1bnUSD 4.4bn+9.3%
    Discount factor0.96460.89760.83520.77710.7231-
    Present valueUSD 3.0bnUSD 3.0bnUSD 3.1bnUSD 3.1bnUSD 3.2bn+1.7%
    Present Value Of The ForecastUSD 15.5bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.520Reported 0.283, pulled toward 1.0 (Blume)
    Cost of equity7.86%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 26.0bn90.1% of capital
    Total debtUSD 2.8bn9.9% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC7.47%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 186.40

    69% of EV

    Forecast FCFF, final year
    USD 4.4bn
    Capex at depreciation, working capital in reinvestment
    USD 2.8bn
    Less reinvestment at g/ROIC (17.5% of NOPAT)
    USD -489.0m
    Capitalised
    USD 2.3bn
    ROIC (reported)
    14.3%
    Terminal value, undiscounted
    USD 47.5bn
    Terminal value, discounted
    USD 34.3bn
    Enterprise value
    USD 49.8bn
    Less net debt
    USD -24.7bn
    Equity value
    USD 74.5bn

    Exit at 3.0x EBITDA

    Value per shareUSD 119.34

    33% of EV

    Terminal value, undiscounted
    USD 10.4bn
    Terminal value, discounted
    USD 7.5bn
    Enterprise value
    USD 23.0bn
    Less net debt
    USD -24.7bn
    Equity value
    USD 47.7bn

    Spread between methods: 44%.

    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%
    5.47%228.10241.25258.76283.28320.15
    6.47%197.68204.76213.57224.86239.90
    7.47%177.34181.47186.40192.39199.85
    8.47%162.75165.28168.21171.65175.74
    9.47%151.74153.34155.14157.20159.58

    Outlined: this model. Green text: above today's price of 69.99. 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 year9.3%-19.0%-28.3pp
    EBIT margin15.5%-3.9%-19.4pp
    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.