DCF Studio

    WST · NYQ · Healthcare

    West Pharmaceutical Services, Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 86.52

    Market price

    USD 362.31

    Implied upside

    -76.1%

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

    AdjustedCapital expenditure runs at 11.1% of revenue against depreciation of 4.9%. 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 31.0x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 86.52-76.1%
    Exit multiple
    USD 192.18-47.0%
    Market price
    USD 362.31

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m213m426mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 3.1bnUSD 3.2bnUSD 3.3bnUSD 3.3bnUSD 3.4bn+2.1%
    EBITUSD 717.7mUSD 732.9mUSD 748.4mUSD 764.2mUSD 780.4m+2.1%
    NOPATUSD 588.9mUSD 601.4mUSD 614.1mUSD 627.1mUSD 640.4m+2.1%
    Add depreciation & amortisationUSD 155.2mUSD 158.5mUSD 161.9mUSD 165.3mUSD 168.8m+2.1%
    Less capital expenditureUSD -348.9mUSD -356.3mUSD -363.9mUSD -371.6mUSD -379.4m+2.1%
    Less increase in working capitalUSD -3.3mUSD -3.4mUSD -3.5mUSD -3.5mUSD -3.6m+2.1%
    Free cashflow to firmUSD 391.9mUSD 400.2mUSD 408.7mUSD 417.3mUSD 426.1m+2.1%
    Discount factor0.94950.85610.77190.69600.6275-
    Present valueUSD 372.1mUSD 342.6mUSD 315.5mUSD 290.4mUSD 267.4m-7.9%
    Present Value Of The ForecastUSD 1.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.090Reported 1.135, pulled toward 1.0 (Blume)
    Cost of equity11.00%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 25.5bn98.8% of capital
    Total debtUSD 321.1m1.2% of capital, book value as a proxy
    Tax rate17.9%Effective, capped at statutory
    WACC10.91%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 86.52

    73% of EV

    Forecast FCFF, final year
    USD 426.1m
    Capex at depreciation, working capital in reinvestment
    USD 643.7m
    Less reinvestment at g/ROIC (14.0% of NOPAT)
    USD -90.4m
    Capitalised
    USD 553.3m
    ROIC (reported)
    17.8%
    Terminal value, undiscounted
    USD 6.7bn
    Terminal value, discounted
    USD 4.2bn
    Enterprise value
    USD 5.8bn
    Less net debt
    USD -470.2m
    Equity value
    USD 6.3bn

    Exit at 20.0x EBITDA

    Value per shareUSD 192.18

    88% of EV

    Terminal value, undiscounted
    USD 19.0bn
    Terminal value, discounted
    USD 11.9bn
    Enterprise value
    USD 13.5bn
    Less net debt
    USD -470.2m
    Equity value
    USD 14.0bn

    Spread between methods: 76%.

    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%
    8.91%104.91108.28112.16116.66121.96
    9.91%92.7495.0297.59100.51103.86
    10.91%83.1984.7786.5288.4790.66
    11.91%75.5176.6177.8279.1580.62
    12.91%69.1969.9770.8271.7372.73

    Outlined: this model. Green text: above today's price of 362.31. 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 year2.1%41.8%+39.7pp
    EBIT margin22.9%92.4%+69.5pp
    Discount rate10.9%4.4%-6.5pp
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    Yahoo Finance and RBA data. General information, not advice. Methodology.