rbs maintains buy recommendation, pt $0.44, page-3

Hi foxoff,

Good to see your VBA model is above current mkt!

Perhaps I didn't express it correctly but the DCF valuation I've referred to above was in the RBS research report. They gave a target price based on P/NTA but also gave a DCF valuation as a comparison.

They haven't published the full model, so from the output page they've used:

Rf = 5.25%
Rm = 11.25%
Beta = 1.98

So CAPM (Rf+ Beta(Rm-Rf) = 17.1%

They look like they've assumed 50/50 debt/equity funding with an interest rate of 7.25% (i.e a 2% margin on Rf).

So with a 30% tax rate the WACC comes in at 11.1%.

Unfortunately from the output page it is impossible to see how far out they have gone or many of the other assumptions they have made.

I'm currently building DCF a model for another company I think might be materially undervalued (CIF.asx) but will potentially turn to VBA next. I'm generally fairly comfortable using P/NTA metrics for airlines though as small changes in flight yield assumptions can really move the DCF around substantially.

I personally usually model out about 12 years and then use a Terminal Value based on the prospective EV of the company in year 12 (based on an EV/EBITDA methodology).
That is: (year 12 EBITDA) * (assumed EV/EBITDA ratio) - (year 12 debt) = TV. Then TV/Shares on issue = TV per share which then be discounted to today. There would be plenty of other ways to do it but that works for me!

Best,

Mr RI Esq.