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)
Weighted Average Cost of Capital (WACC)
FCFF Growth Rate (g)

LyondellBasell Industries N.V., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Year	Value	FCFF_t or Terminal value (TV_t)	Calculation	Present value at 12.27%
0¹	FCFF₀	3,700
1	FCFF₁	4,374	= 3,700 × (1 + 18.20%)	3,896
2	FCFF₂	4,987	= 4,374 × (1 + 14.03%)	3,957
3	FCFF₃	5,479	= 4,987 × (1 + 9.85%)	3,872
4	FCFF₄	5,790	= 5,479 × (1 + 5.68%)	3,645
5	FCFF₅	5,877	= 5,790 × (1 + 1.50%)	3,296
5	Terminal value (TV₅)	55,437	= 5,877 × (1 + 1.50%) ÷ (12.27% – 1.50%)	31,085
Intrinsic value of LyondellBasell Industries N.V. capital				49,751
Less: Debt including capital leases (fair value)				9,378
Intrinsic value of LyondellBasell Industries N.V. common stock				40,373

Intrinsic value of LyondellBasell Industries N.V. common stock (per share)				$120.43
Current share price				$76.14

Based on: 10-K (reporting date: 2018-12-31).

¹ 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.

LyondellBasell Industries N.V., cost of capital

	Value¹	Weight	Required rate of return²	Calculation
Equity (fair value)	25,526	0.73	15.45%
Debt including capital leases (fair value)	9,378	0.27	3.61%	= 4.55% × (1 – 20.75%)

Based on: 10-K (reporting date: 2018-12-31).

¹ US$ in millions

Equity (fair value) = No. shares of common stock outstanding × Current share price
= 335,248,065 × $76.14
= $25,525,787,669.10

Debt including capital leases (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
= (11.54% + 10.89% + 26.49% + 27.86% + 26.96%) ÷ 5
= 20.75%

WACC = 12.27%

FCFF growth rate (g) implied by PRAT model

LyondellBasell Industries N.V., PRAT model

	Average	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
Selected Financial Data (US$ in millions)
Interest expense		360)	491)	322)	310)	352)
Net income attributable to the Company shareholders		4,688)	4,879)	3,836)	4,476)	4,174)
Add: Net income attributable to noncontrolling interest		2)	(2)	1)	(2)	(6)
Less: Loss from discontinued operations, net of tax		(8)	(18)	(10)	(5)	(4)
Add: Income tax expense		613)	598)	1,386)	1,730)	1,540)
Earnings before tax (EBT)		5,311)	5,493)	5,233)	6,209)	5,712)

Effective income tax rate (EITR)¹		11.54%	10.89%	26.49%	27.86%	26.96%

Interest expense, after tax²		318)	438)	237)	224)	257)
Add: Dividends, common stock		1,554)	1,415)	1,395)	1,410)	1,403)
Interest expense (after tax) and dividends		1,872)	1,853)	1,632)	1,634)	1,660)

EBIT(1 – EITR)³		5,014)	5,335)	4,083)	4,705)	4,435)

Current maturities of long-term debt		5)	2)	2)	4)	4)
Short-term debt		885)	68)	594)	353)	346)
Long-term debt, excluding current maturities		8,497)	8,549)	8,385)	7,671)	6,757)
Total Company share of stockholders’ equity		10,257)	8,949)	6,048)	6,550)	8,314)
Total capital		19,644)	17,568)	15,029)	14,578)	15,421)
Financial Ratios
Retention rate (RR)⁴		0.63	0.65	0.60	0.65	0.63
Return on invested capital (ROIC)⁵		25.53%	30.37%	27.17%	32.27%	28.76%
Averages
RR	0.63
ROIC	28.82%

FCFF growth rate (g)⁶	18.20%

Based on: 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31).

2018 Calculations

¹ EITR = 100 × Income tax expense ÷ EBT
= 100 × 613 ÷ 5,311
= 11.54%

² Interest expense, after tax = Interest expense × (1 – EITR)
= 360 × (1 – 11.54%)
= 318

³ EBIT(1 – EITR) = Net income attributable to the Company shareholders – Loss from discontinued operations, net of tax + Interest expense, after tax
= 4,688 – -8 + 318
= 5,014

⁴ RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [5,014 – 1,872] ÷ 5,014
= 0.63

⁵ ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 5,014 ÷ 19,644
= 25.53%

⁶ g = RR × ROIC
= 0.63 × 28.82%
= 18.20%

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

g = 100 × (Total capital, fair value₀ × WACC – FCFF₀) ÷ (Total capital, fair value₀ + FCFF₀)
= 100 × (34,904 × 12.27% – 3,700) ÷ (34,904 + 3,700)
= 1.50%

where:

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

FCFF growth rate (g) forecast

LyondellBasell Industries N.V., H-model

Year	Value	g_t
1	g₁	18.20%
2	g₂	14.03%
3	g₃	9.85%
4	g₄	5.68%
5 and thereafter	g₅	1.50%

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 + (g₅ – g₁) × (2 – 1) ÷ (5 – 1)
= 18.20% + (1.50% – 18.20%) × (2 – 1) ÷ (5 – 1)
= 14.03%

g₃ = g₁ + (g₅ – g₁) × (3 – 1) ÷ (5 – 1)
= 18.20% + (1.50% – 18.20%) × (3 – 1) ÷ (5 – 1)
= 9.85%

g₄ = g₁ + (g₅ – g₁) × (4 – 1) ÷ (5 – 1)
= 18.20% + (1.50% – 18.20%) × (4 – 1) ÷ (5 – 1)
= 5.68%

LyondellBasell Industries N.V. (NYSE:LYB)

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

Intrinsic Stock Value (Valuation Summary)

Weighted Average Cost of Capital (WACC)

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

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

FCFF growth rate (g) forecast