Stock Analysis on Net

Linde plc (NASDAQ:LIN)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.


Intrinsic Stock Value (Valuation Summary)

Linde plc, free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 12.03%
01 FCFF0 5,918
1 FCFF1 6,051 = 5,918 × (1 + 2.25%) 5,402
2 FCFF2 6,295 = 6,051 × (1 + 4.03%) 5,016
3 FCFF3 6,661 = 6,295 × (1 + 5.81%) 4,737
4 FCFF4 7,166 = 6,661 × (1 + 7.59%) 4,549
5 FCFF5 7,837 = 7,166 × (1 + 9.36%) 4,441
5 Terminal value (TV5) 321,457 = 7,837 × (1 + 9.36%) ÷ (12.03%9.36%) 182,154
Intrinsic value of Linde plc capital 206,298
Less: Debt and finance lease liabilities (fair value) 18,243
Intrinsic value of Linde plc common stock 188,055
 
Intrinsic value of Linde plc common stock (per share) $390.50
Current share price $466.23

Based on: 10-K (reporting date: 2023-12-31).

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.


Weighted Average Cost of Capital (WACC)

Linde plc, cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 224,525 0.92 12.85%
Debt and finance lease liabilities (fair value) 18,243 0.08 2.00% = 2.67% × (1 – 24.92%)

Based on: 10-K (reporting date: 2023-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 481,576,472 × $466.23
= $224,525,398,540.56

   Debt and finance lease liabilities (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (22.70% + 25.90% + 24.70% + 25.00% + 26.30%) ÷ 5
= 24.92%

WACC = 12.03%


FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Linde plc, PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Interest expense 397 180 117 170 150
Income from discontinued operations, net of tax 5 4 109
Net income, Linde plc 6,199 4,147 3,826 2,501 2,285
 
Effective income tax rate (EITR)1 22.70% 25.90% 24.70% 25.00% 26.30%
 
Interest expense, after tax2 307 133 88 128 111
Add: Dividends 2,482 2,344 2,189 2,028 1,891
Interest expense (after tax) and dividends 2,789 2,477 2,277 2,156 2,002
 
EBIT(1 – EITR)3 6,506 4,280 3,909 2,625 2,287
 
Short-term debt 4,713 4,117 1,163 3,251 1,732
Current portion of long-term debt 1,263 1,599 1,709 751 1,531
Current finance lease liabilities 50 42 47 38
Long-term debt, excluding current portion 13,397 12,198 11,335 12,152 10,693
Long-term finance lease liabilities 143 114 129 125
Total Linde plc shareholders’ equity 39,720 40,028 44,035 47,317 49,074
Total capital 59,286 58,098 58,418 63,634 63,030
Financial Ratios
Retention rate (RR)4 0.57 0.42 0.42 0.18 0.12
Return on invested capital (ROIC)5 10.97% 7.37% 6.69% 4.12% 3.63%
Averages
RR 0.34
ROIC 6.56%
 
FCFF growth rate (g)6 2.25%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

1 See details »

2023 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 397 × (1 – 22.70%)
= 307

3 EBIT(1 – EITR) = Net income, Linde plc – Income from discontinued operations, net of tax + Interest expense, after tax
= 6,1990 + 307
= 6,506

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [6,5062,789] ÷ 6,506
= 0.57

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 6,506 ÷ 59,286
= 10.97%

6 g = RR × ROIC
= 0.34 × 6.56%
= 2.25%


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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (242,768 × 12.03%5,918) ÷ (242,768 + 5,918)
= 9.36%

where:

Total capital, fair value0 = current fair value of Linde plc debt and equity (US$ in millions)
FCFF0 = the last year Linde plc free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Linde plc capital


FCFF growth rate (g) forecast

Linde plc, H-model

Microsoft Excel
Year Value gt
1 g1 2.25%
2 g2 4.03%
3 g3 5.81%
4 g4 7.59%
5 and thereafter g5 9.36%

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)
= 2.25% + (9.36%2.25%) × (2 – 1) ÷ (5 – 1)
= 4.03%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 2.25% + (9.36%2.25%) × (3 – 1) ÷ (5 – 1)
= 5.81%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 2.25% + (9.36%2.25%) × (4 – 1) ÷ (5 – 1)
= 7.59%