Accenture PLC (NYSE:ACN)

Present Value of Free Cash Flow to Equity (FCFE)

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Accenture PLC, free cash flow to equity (FCFE) forecast

US\$ in thousands, except per share data

Year Value FCFEt or Terminal value (TVt) Calculation Present value at 12.72%
01 FCFE0 8,387,218
1 FCFE1 10,303,843 = 8,387,218 × (1 + 22.85%) 9,141,211
2 FCFE2 12,287,068 = 10,303,843 × (1 + 19.25%) 9,670,686
3 FCFE3 14,209,149 = 12,287,068 × (1 + 15.64%) 9,921,596
4 FCFE4 15,919,761 = 14,209,149 × (1 + 12.04%) 9,861,762
5 FCFE5 17,262,512 = 15,919,761 × (1 + 8.43%) 9,486,947
5 Terminal value (TV5) 436,931,621 = 17,262,512 × (1 + 8.43%) ÷ (12.72%8.43%) 240,124,216
Intrinsic value of Accenture PLC common stock 288,206,419

Intrinsic value of Accenture PLC common stock (per share) \$455.66
Current share price \$335.63

Based on: 10-K (reporting date: 2021-08-31).

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 2.08% Expected rate of return on market portfolio2 E(RM) 11.60% Systematic risk of Accenture PLC common stock βACN 1.12 Required rate of return on Accenture PLC common stock3 rACN 12.72%

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).

3 rACN = RF + βACN [E(RM) – RF]
= 2.08% + 1.12 [11.60%2.08%]
= 12.72%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Accenture PLC, PRAT model

Average Aug 31, 2021 Aug 31, 2020 Aug 31, 2019 Aug 31, 2018 Aug 31, 2017 Aug 31, 2016
Selected Financial Data (US\$ in thousands)
Dividends 2,233,624  2,035,198  1,861,725  1,671,072  1,498,734  1,372,179
Net income attributable to Accenture plc 5,906,809  5,107,839  4,779,112  4,059,907  3,445,149  4,111,892
Revenues 50,533,389  44,327,039  43,215,013  41,603,428  36,765,478  34,797,661
Total assets 43,175,843  37,078,593  29,789,880  24,449,083  22,689,890  20,609,004
Total Accenture plc shareholders’ equity 19,529,454  17,000,536  14,409,008  10,364,753  8,949,477  7,555,262
Financial Ratios
Retention rate1 0.62 0.60 0.61 0.59 0.56 0.67
Profit margin2 11.69% 11.52% 11.06% 9.76% 9.37% 11.82%
Asset turnover3 1.17 1.20 1.45 1.70 1.62 1.69
Financial leverage4 2.21 2.18 2.07 2.36 2.54 2.73
Averages
Retention rate 0.61
Profit margin 10.87%
Asset turnover 1.47
Financial leverage 2.35

FCFE growth rate (g)5 22.85%

Based on: 10-K (reporting date: 2021-08-31), 10-K (reporting date: 2020-08-31), 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-31), 10-K (reporting date: 2017-08-31), 10-K (reporting date: 2016-08-31).

2021 Calculations

1 Retention rate = (Net income attributable to Accenture plc – Dividends) ÷ Net income attributable to Accenture plc
= (5,906,8092,233,624) ÷ 5,906,809
= 0.62

2 Profit margin = 100 × Net income attributable to Accenture plc ÷ Revenues
= 100 × 5,906,809 ÷ 50,533,389
= 11.69%

3 Asset turnover = Revenues ÷ Total assets
= 50,533,389 ÷ 43,175,843
= 1.17

4 Financial leverage = Total assets ÷ Total Accenture plc shareholders’ equity
= 43,175,843 ÷ 19,529,454
= 2.21

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.61 × 10.87% × 1.47 × 2.35
= 22.85%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (212,288,959 × 12.72%8,387,218) ÷ (212,288,959 + 8,387,218)
= 8.43%

where:
Equity market value0 = current market value of Accenture PLC common stock (US\$ in thousands)
FCFE0 = the last year Accenture PLC free cash flow to equity (US\$ in thousands)
r = required rate of return on Accenture PLC common stock

FCFE growth rate (g) forecast

Accenture PLC, H-model

Year Value gt
1 g1 22.85%
2 g2 19.25%
3 g3 15.64%
4 g4 12.04%
5 and thereafter g5 8.43%

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

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 22.85% + (8.43%22.85%) × (2 – 1) ÷ (5 – 1)
= 19.25%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 22.85% + (8.43%22.85%) × (3 – 1) ÷ (5 – 1)
= 15.64%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 22.85% + (8.43%22.85%) × (4 – 1) ÷ (5 – 1)
= 12.04%