GlaxoSmithKline plc (GSK)

Discount cash flow analysis

Sell Overvalued by 7.8%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for GlaxoSmithKline plc, based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in £ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1% 		Discount Rate %
0%
1%
  -1% £13.27 £13.11 £12.95
Terminal Growth% 0 £13.29 £13.13 £12.97
  +1% £13.31 £13.15 £12.99

How does a change in discount rate or terminal growth affect valuation?

This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate

Valuations and comments

  • Valuecruncher created a new valuation of £20.17 (undervalued by 41.64%) - 1 day ago
  • hjs created a new valuation of £12.63 (undervalued by 7.03%) - over 2 years ago
  • hjs created a new valuation of £13.80 (undervalued by 16.95%) - over 2 years ago
  • Doogie created a new valuation of £12.96 (undervalued by 20.11%) - over 2 years ago
  • B120WNY created a new valuation of £12.95 (undervalued by 18.05%) - over 2 years ago
  • jaybeaux created a new valuation of £12.94 (undervalued by 26.49%) - over 3 years ago
  • GordonGekko created a new valuation of £13.13 (undervalued by 3.3%) - over 3 years ago

Comments

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The boring details

All amounts in millions Figures
Enterprise Value: 80,189
Net Debt (Long-term borrowings less cash): 5,564
Equity Value: 66,607
Number of Shares Outstanding: 5,240,000,000
Calculated value per share: £13.13

Enterprise Value is the present value of the post-tax cash flows for a business into the future.

Calcuation of EV

Where:

  • C1, C2, C3 - the cash flow in period 1, 2, 3, ...
  • r - the discount rate

To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.

Perpetuity

Where:

  • Cn - the cash flow in the final forecast period.
  • LTG - the long-term growth rate
  • r - the discount rate
  • g - the terminal growth rate

The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.

CAPM model

Where:

  • rt - the risk free rate
  • t - the tax rate
  • B - the beta of the company
  • MRP - the Market Risk Premium

Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.