# AstraZeneca PLC (AZN) | Dividend Discount Model (DDM)

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.

## Intrinsic Stock Value (Valuation Summery)

AstraZeneca PLC, dividends per share (DPS) forecast

USD \$

Year Value DPSt or Terminal value (TVt) Calculation Present value at 8.91%
0 DPS01 2.85
1 DPS1 3.42 = 2.85 × (1 + 19.88%) 3.14
2 DPS2 3.95 = 3.42 × (1 + 15.71%) 3.33
3 DPS3 4.41 = 3.95 × (1 + 11.55%) 3.41
4 DPS4 4.74 = 4.41 × (1 + 7.38%) 3.37
5 DPS5 4.89 = 4.74 × (1 + 3.22%) 3.19
5 Terminal value (TV5) 88.68 = 4.89 × (1 + 3.22%) ÷ (8.91% – 3.22%) 57.88
Intrinsic value of 's common stock (per share) \$74.32
Current share price \$51.71

1 DPS0 = Sum of last year dividends per share of 's common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

## Required Rate of Return (r)

 Assumptions Rate of return on LT Treasury Composite1 RF 2.75% Expected rate of return on market portfolio2 E(RM) 13.08% Systematic risk (β) of 's common stock βAZN 0.60 Required rate of return on 's common stock3 rAZN 8.91%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

Calculations

3 rAZN = RF + βAZN [E(RM) – RF]
= 2.75% + 0.60 [13.08% – 2.75%]
= 8.91%

## Dividend Growth Rate (g)

### Dividend growth rate (g) implied by PRAT model

AstraZeneca PLC, PRAT model

Average Dec 31, 2012 Dec 31, 2011 Dec 31, 2010 Dec 31, 2009 Dec 31, 2008
Selected Financial Data (USD \$ in millions)
Dividends   3,619  3,752  3,494  3,026  2,767
Profit attributable to owners of the Parent   6,297  9,983  8,053  7,521  6,101
Revenue   27,973  33,591  33,269  32,804  31,601
Total assets   53,534  52,830  56,127  54,920  46,784
Capital and reserves attributable to equity holders of the Company   23,737  23,246  23,213  20,660  15,912
Ratios
Retention rate1   0.43 0.62 0.57 0.60 0.55
Profit margin2   22.51% 29.72% 24.21% 22.93% 19.31%
Asset turnover3   0.52 0.64 0.59 0.60 0.68
Financial leverage4   2.26 2.27 2.42 2.66 2.94
Averages
Retention rate 0.55
Profit margin 23.73%
Asset turnover 0.60
Financial leverage 2.51

Dividend growth rate (g)5 19.88%

2012 Calculations

1 Retention rate = (Profit attributable to owners of the Parent – Dividends) ÷ Profit attributable to owners of the Parent
= (6,297 – 3,619) ÷ 6,297 = 0.43

2 Profit margin = 100 × Profit attributable to owners of the Parent ÷ Revenue
= 100 × 6,297 ÷ 27,973 = 22.51%

3 Asset turnover = Revenue ÷ Total assets
= 27,973 ÷ 53,534 = 0.52

4 Financial leverage = Total assets ÷ Capital and reserves attributable to equity holders of the Company
= 53,534 ÷ 23,737 = 2.26

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.55 × 23.73% × 0.60 × 2.51 = 19.88%

### Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × (\$51.71 × 8.91% – \$2.85) ÷ (\$51.71 + \$2.85) = 3.22%

where:
P0 = current price of share of 's common stock
D0 = last year dividends per share of 's common stock
r = required rate of return on 's common stock

### Dividend growth rate (g) forecast

AstraZeneca PLC, H-model

Year Value gt
1 g1 19.88%
2 g2 15.71%
3 g3 11.55%
4 g4 7.38%
5 and thereafter g5 3.22%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 19.88% + (3.22% – 19.88%) × (2 – 1) ÷ (5 – 1) = 15.71%

g2 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 19.88% + (3.22% – 19.88%) × (3 – 1) ÷ (5 – 1) = 11.55%

g2 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 19.88% + (3.22% – 19.88%) × (4 – 1) ÷ (5 – 1) = 7.38%