DCF Studio

    ZIP.AX · ASX · Financial Services

    Zip Co Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 1.14

    Market price

    AUD 2.18

    Implied upside

    -47.5%

    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.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReported capital expenditure averages 2.65% of revenue against depreciation and amortisation of 6.56%. A business cannot depreciate more than it invests indefinitely. Capex has been set to 6.56% 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.
    AdjustedBeta of 3.245 is not usable in a cost of equity. Clamped to 2.50.

    Value Per Share

    Perpetuity growth
    AUD 1.14-47.5%
    Exit multiple
    AUD 5.02+130.1%
    Market price
    AUD 2.18

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (AUD). Outflows negative.

    0m280m560mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayAUD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueAUD 1.7bnAUD 2.1bnAUD 2.6bnAUD 3.2bnAUD 4.0bn+24.4%
    EBITAUD 326.1mAUD 405.8mAUD 505.0mAUD 628.4mAUD 782.1m+24.4%
    NOPATAUD 228.3mAUD 284.1mAUD 353.5mAUD 439.9mAUD 547.5m+24.4%
    Add depreciation & amortisationAUD 109.1mAUD 135.7mAUD 168.9mAUD 210.2mAUD 261.6m+24.4%
    Less capital expenditureAUD -109.1mAUD -135.7mAUD -168.9mAUD -210.2mAUD -261.6m+24.4%
    Less increase in working capitalAUD 5.2mAUD 6.5mAUD 8.1mAUD 10.0mAUD 12.5m-24.4%
    Free cashflow to firmAUD 233.5mAUD 290.5mAUD 361.5mAUD 449.9mAUD 559.9m+24.4%
    Discount factor0.94020.83110.73460.64940.5740-
    Present valueAUD 219.5mAUD 241.4mAUD 265.6mAUD 292.2mAUD 321.4m+10.0%
    Present Value Of The ForecastAUD 1.3bn

    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
    Beta2.500Clamped from a reported 3.245
    Cost of equity20.35%Risk-free + beta x equity risk premium
    Cost of debt8.59%Interest expense / average total debt
    Market capitalisationAUD 2.7bn49.6% of capital
    Total debtAUD 2.8bn50.4% of capital, book value as a proxy
    Tax rate30.0%Effective, capped at statutory
    WACC13.13%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 1.14

    65% of EV

    Forecast FCFF, final year
    AUD 559.9m
    Capex at depreciation, working capital in reinvestment
    AUD 547.5m
    Less reinvestment at g/ROIC (19.0% of NOPAT)
    AUD -104.2m
    Capitalised
    AUD 443.2m
    ROIC (WACC floor)
    13.1%
    Terminal value, undiscounted
    AUD 4.3bn
    Terminal value, discounted
    AUD 2.5bn
    Enterprise value
    AUD 3.8bn
    Less net debt
    AUD 2.3bn
    Equity value
    AUD 1.5bn

    Exit at 12.4x EBITDA

    Value per shareAUD 5.02

    85% of EV

    Terminal value, undiscounted
    AUD 12.9bn
    Terminal value, discounted
    AUD 7.4bn
    Enterprise value
    AUD 8.8bn
    Less net debt
    AUD 2.3bn
    Equity value
    AUD 6.4bn

    Spread between methods: 126%.

    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%
    11.13%1.701.721.731.741.75
    12.13%1.391.401.411.421.43
    13.13%1.131.141.141.151.16
    14.13%0.900.910.920.920.93
    15.13%0.700.710.720.730.73

    Outlined: this model. Green text: above today's price of 2.18. 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 year24.4%33.2%+8.7pp
    EBIT margin19.6%26.5%+6.9pp
    Discount rate13.1%10.0%-3.2pp
    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.