DCF Studio

    XRO.AX · ASX · Technology

    Xero Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 9.16

    Market price

    AUD 62.78

    Implied upside

    -85.4%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · NZD model at 0.8033

    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReports in NZD, trades in AUD. Modelled in NZD, converted at the end.

    Current EV/EBITDA of 37.0x 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
    AUD 9.16-85.4%
    Exit multiple
    AUD 77.64+23.7%
    Market price
    AUD 62.78

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (NZD). Outflows negative.

    0m65m130mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayNZD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueNZD 2.8bnNZD 3.3bnNZD 4.0bnNZD 4.8bnNZD 5.8bn+20.6%
    EBITNZD 164.0mNZD 197.8mNZD 238.4mNZD 287.4mNZD 346.5m+20.6%
    NOPATNZD 114.8mNZD 138.4mNZD 166.9mNZD 201.2mNZD 242.5m+20.6%
    Add depreciation & amortisationNZD 401.2mNZD 483.7mNZD 583.1mNZD 702.9mNZD 847.3m+20.6%
    Less capital expenditureNZD -425.8mNZD -513.4mNZD -618.9mNZD -746.1mNZD -899.4m+20.6%
    Less increase in working capitalNZD -28.6mNZD -34.5mNZD -41.6mNZD -50.1mNZD -60.5m+20.6%
    Free cashflow to firmNZD 61.6mNZD 74.2mNZD 89.5mNZD 107.8mNZD 130.0m+20.6%
    Discount factor0.95450.86980.79250.72210.6579-
    Present valueNZD 58.8mNZD 64.5mNZD 70.9mNZD 77.9mNZD 85.5m+9.8%
    Present Value Of The ForecastNZD 357.6m

    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
    Beta0.820Reported 0.732, pulled toward 1.0 (Blume)
    Cost of equity10.27%Risk-free + beta x equity risk premium
    Cost of debt9.27%Interest expense / average total debt
    Market capitalisationNZD 11.1bn86.2% of capital
    Total debtNZD 1.8bn13.8% of capital, book value as a proxy
    Tax rate30.0%Effective, capped at statutory
    WACC9.75%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 shareNZD 11.40

    82% of EV

    Forecast FCFF, final year
    NZD 130.0m
    Capex at depreciation, working capital in reinvestment
    NZD 242.5m
    Less reinvestment at g/ROIC (25.6% of NOPAT)
    NZD -62.2m
    Capitalised
    NZD 180.3m
    ROIC (WACC floor)
    9.7%
    Terminal value, undiscounted
    NZD 2.5bn
    Terminal value, discounted
    NZD 1.7bn
    Enterprise value
    NZD 2.0bn
    Less net debt
    NZD 159.1m
    Equity value
    NZD 1.9bn

    Exit at 20.0x EBITDA

    Value per shareNZD 96.65

    98% of EV

    Terminal value, undiscounted
    NZD 23.9bn
    Terminal value, discounted
    NZD 15.7bn
    Enterprise value
    NZD 16.1bn
    Less net debt
    NZD 159.1m
    Equity value
    NZD 15.9bn

    Spread between methods: 158%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.75%15.1115.1815.2515.3115.38
    8.75%12.9813.0413.1013.1513.21
    9.75%11.3011.3511.4011.4511.50
    10.75%9.949.9810.0310.0710.11
    11.75%8.828.868.908.948.98

    Outlined: this model. Green text: above today's price of 78.15. 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 year20.6%80.6%+60.0pp
    EBIT margin5.9%33.7%+27.8pp
    Discount rate9.7%2.7%-7.1pp
    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.