British Airways plc (BAY)

Discount cash flow analysis

Sell Overvalued by 28.6%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for British Airways 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
2008 2009 2010 2011 2012 2013 2014 2015
 
                 
               
 

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% £2.03 £2.02 £2.01
Terminal Growth% 0 £2.03 £2.02 £2.01
  +1% £2.03 £2.02 £2.01

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 £5.07 (undervalued by 79.15%) - over 5 years ago
  • kissenlall created a new valuation of £0.00 (overvalued by 100.0%) - over 7 years ago
  • kissenlall created a new valuation of £0.00 (overvalued by 100.0%) - over 7 years ago
  • ailsa created a new valuation of £1.46 (undervalued by 6.57%) - 8 years ago
  • ailsa created a new valuation of £1.46 (undervalued by 6.57%) - 8 years ago
  • B120WNY created a new valuation of £1.46 (undervalued by 6.57%) - 8 years ago
  • GordonGekko created a new valuation of £1.46 (undervalued by 0.69%) - 8 years ago
  • SethWellbourne created a new valuation of £0.81 (overvalued by 40.44%) - over 8 years ago
  • GordonGekko created a new valuation of £2.02 (undervalued by 42.25%) - over 8 years ago
  • LordTrask created a new valuation of £1.43 (overvalued by 7.74%) - over 8 years ago
  • GordonGekko created a new valuation of £1.58 (undervalued by 1.94%) - over 8 years ago

Comments

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The boring details

All amounts in millions Figures
Enterprise Value: 4,386
Net Debt (Long-term borrowings less cash): 1,122
Equity Value: 1,634
Number of Shares Outstanding: 1,153,000,000
Calculated value per share: £2.02

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.